Bloomberg News

AMR in Bankruptcy to Pare New York Flights in Peak Travel Season

February 24, 2012

Feb. 22 (Bloomberg) -- American Airlines will pare service in New York City, the world’s busiest aviation market, during the peak of the U.S. travel season as parent AMR Corp. reorganizes in bankruptcy and larger rivals expand.

Seating on June flights at the three major airports will fall 4.7 percent from a year earlier based on current schedules, said Jim Faulkner, a spokesman. The drop will be 6.9 percent by July, when nonstop Kennedy airport trips end to venues such as Aruba, based on data compiled for Bloomberg by consultant OAG.

The pullback runs counter to growth by United Continental Holdings Inc. and Delta Air Lines Inc., which are bigger than American in the New York area. AMR hasn’t said how 2012 capacity across its network will change beyond Chief Executive Officer Tom Horton’s Feb. 1 forecast of “relatively modest growth.”

“AMR is wise to put its eggs in the baskets where they are going to get the biggest return,” said George Hamlin, president of Hamlin Transportation Consulting in Fairfax, Virginia. “Apparently that’s no longer New York.”

Tim Smith, an airline spokesman, said the July schedule isn’t set yet and may change as Fort Worth, Texas-based American reshapes its fleet in bankruptcy. Capacity is measured by seats multiplied by miles flown, so carriers make adjustments by dropping or adding cities, changing how often they fly certain routes or varying the sizes of the planes they use.

Annual Losses

Annual losses at AMR exceeded $6 billion in the past four years, a period in which American tumbled from being the world’s largest airline to No. 3 in the U.S. after sitting out mergers that vaulted United Continental and Delta into the top spots.

A pulldown starting in June is a “reasonable strategy,” and much of the drop may come from paring a few international flights in New York, said Hunter Keay, a Wolfe Trahan & Co. analyst based in the city.

“They’re stopping losses by making cuts like these, and American’s near-term charge is to stop the bleeding,” Keay said. “American is losing a lot of money in the first quarter and jet fuel is over $3.20 a gallon and that’s burning more money. Applying the tourniquet is what should be happening.”

New York is among five U.S. cities where American plans to add flights for a collective 20 percent increase in departures by 2017. The airline hasn’t specified when or how much it will expand in New York or the other target markets -- Los Angeles, Chicago, Miami and Dallas-Fort Worth.

Business Destinations

American remains focused on business destinations from New York, said Faulkner, the spokesman. Its busiest routes at John F. Kennedy International Airport, a gateway for overseas flying, include service to London’s Heathrow airport.

“While there is a modest reduction in capacity out of New York, we’re very careful to target reductions so that they do not impact our corporate accounts,” Faulkner said. American is spending $30 million on New York terminal upgrades, mostly at LaGuardia, after paying $1.3 billion for a Kennedy terminal that opened in 2007.

Besides Aruba, American flights being dropped in July from Kennedy airport include those to markets such as Turks & Caicos and Halifax, Nova Scotia, current schedules show. At LaGuardia Airport, service will end to Boston and Traverse City, Michigan, according to OAG, a unit of Luton, England-based UBM Aviation.

A flight from Kennedy to Tokyo’s Narita airport that was operated last summer by American shifts this year to Oneworld alliance partner Japan Airlines Co., American has said. American will continue flying between Kennedy and Tokyo’s Haneda airport.

‘International Opportunities’

“They’ll continue to exploit the international opportunities from JFK as opposed to domestic,” said John Grant, OAG executive vice president. “There’s more revenue to be had and more potential profit than with domestic service.”

Ticket prices show the difference: International flights cost an average of more than twice as much as domestic trips in January, according to data compiled by Bloomberg Industries.

United, the world’s biggest airline, is increasing New York capacity by 1.3 percent for June, July and August combined, said Mike Trevino, a spokesman. The Chicago-based carrier flies chiefly from New Jersey’s Newark airport.

Delta, No. 2 in the world, will add more than 100 flights at LaGuardia by mid-July after gaining takeoff and landing slots there to build a hub for domestic flights. Combined LaGuardia- Kennedy capacity will rise 3 percent in June and 7 percent in July, said the Atlanta-based carrier, which exited bankruptcy in 2007 and bought Northwest Airlines Corp. in 2008.

‘Piece of New York’

“Everybody kind of scrambles to maintain a piece of New York,” said John Walsh, head of San Diego-based Walsh Aviation. “It’s always going to be competitive, but Delta with its merger is a more formidable competitor than AMR has seen before.”

American expects that kind of jockeying, Chief Commercial Officer Virasb Vahidi said yesterday in an interview.

“It is normal that in the largest global travel market in the world, you will have other competitors and everyone gets their own fair share,” he said. “It’s the same for Los Angeles and Chicago. That’s just part of being in a competitive industry.”

Pressure isn’t just coming from bigger rivals. Smaller carriers in New York are growing too, with expansion planned at Southwest Airlines Co. and JetBlue Airways Corp., which has the most domestic departures from Kennedy, according to spokesmen.

American remains in the early stages of restructuring after its Nov. 29 bankruptcy filing. The company told workers Feb. 1 it would eliminate 13,000 jobs or about 18 percent of American’s total, as it seeks to cut costs by about $2 billion and generate $1 billion in new revenue each year. Reductions at regional partner American Eagle haven’t been made public yet.

Horton told employees on Jan. 12 that American will use bankruptcy to ground older, less-efficient aircraft, shrinking a fleet of 608 planes at the end of 2011. Growth will resume once American emerges from bankruptcy, flying more efficient jets ordered in July from Boeing Co. and Airbus SAS, he said.

“It’s not necessarily about being the biggest in any one city,” said Henry Harteveldt, an analyst at Atmosphere Research Group LLC in San Francisco. “It’s about commanding the highest fare and having the best routes and schedule and connections on partners.”

--Editors: Ed Dufner, James Langford

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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