Cirium recently loaded the Department of Transportation’s DB1B data for Q4 2023, and I eagerly dove in to look for trends. What kept standing out everywhere I looked was American’s poor revenue performance in the quarter. My initial thought was that American’s efforts to abandon its sales efforts have left a mark, but the airline tells me otherwise, suggesting there hasn’t been a negative impact at all. I find that hard to believe, especially on a day when Delta announced corporate demand had come roaring back with a 14 percent increase in Q1, but I don’t doubt there are other factors involved.
Normally, I’d start at a high level and drill down, but I’m going to do things differently this time and start small. Let’s start with a single route, one of the most important ones around especially from a corporate perspective.
New York – LA, the Fading Flagship
When it comes to business travel, the New York – LA route is in its own league. For decades, it has been the premier business travel route, connecting the US’s two most important business markets (sorry Chicago, but it’s true). Over time, airlines have tried many strategies to win over these lucrative, high-dollar travelers.
American has long been a leader in the market — having flown it nonstop for over 70 years — but the way the airline has served it has changed over time. American used to fly 767s all day long, filling up airplanes with everything from cheap coach seats to expensive premium cabin options. The product stuck around too long, and other airlines started to make inroads — Delta with widebodies and flat beds plus JetBlue with Mint. This doesn’t even include United’s exclusive p.s. service which debuted earlier.
American’s big move came in 2014 when it introduced the A321T, an airplane that effectively lopped off most of the coach cabin — leaving only 72 seats — and focused on those high-dollar premium travelers with 10 First and 20 Business seats. Because of this, American had a much higher percentage of premium seats — I include premium economy which boosts other airlines only — on its airplanes than any other airline.
NYC-LAX Nonstop Premium Seats as % of Total
Data via Cirium
The A321T will soon be retired and American will introduce a new airplane that can flow more freely through the system, just as United did when it retired p.s. a decade ago., but that’s an issue for future analysis.
I tried to think of the best way to show the trends in this market, and I settled on a percentage of American’s fare. Remember, with such a high percentage of premium seats, American’s fare is going to skew higher than the rest. So the real question is, how much has the fare changed at other airlines in relation to American?
Avg Fare as % of American’s Fare on NYC-LAX Nonstops
Data via Cirium
As you can see, everyone is gaining on American. I find United most interesting since its premium percentage of seats has only gone down since 2021 as it redeploys widebodies to fly internationally post-COVID. Even with that headwind, United has made big gains. Its fare was 55-60 percent of American’s in 2019, but United has since gained about 10 points. In Q4, United hit 69.4 percent of American’s fare. Delta and JetBlue are gaining as well.
So why is it that American is seeing such weakness? American suggested it was but a blip, pointing at Q2 and Q3 as having performed better. Q2 in particular does seem better… but that doesn’t mean Q4 isn’t the beginning of a bad trend. With the airline’s sales strategy to cut corporate deals, reduce agency support, and make life generally more difficult for agencies, you might expect this to show up in the flagship corporate routes like New York – LA. Future quarters will tell the tale.
Broader New York Bucks the Trend, Maybe
This is, of course, just one route, but it’s an important one. Still, I broadended the search to all of New York City, and I stage length-adjusted to 1,000 miles to make sure we’re comparing apples to apples. This market overall shows American doing pretty well. There is a big asterisk here, however.
Data via Cirium
We do have to take NYC with a grain of salt, because there’s a lot of noise here. First, the slot waiver that allowed airlines to temporarily park 10 percent of their slots did not exist in 2022. That’s why everyone has seen gains in unit revenue.
There’s also the mess that is the American/JetBlue Northeast Alliance (NEA). The NEA was in place in Q4 2022, but it was well into being unwound by Q4 2023. It’s a nice performance by American, but it’s too noisy. So I went to the other end of the flagship route.
American is at the Back of the Pack in Los Angeles
LAX has had some construction, but it has been a far more stable market without the turmoil of the Northeast. Here’s how that market looks.
Data via Cirium
*Southwest accuracy is unknown due to the Q4 2022 meltdown
We are again back to American lagging significantly versus its peers. I do think it’s worth taking Southwest’s numbers with a grain of salt since it had its meltdown in Q4 2022. I’m just mentally throwing that quarter out for Southwest for that reason, but if anything, I’d think that the meltdown would have a slight negative impact on the YoY comparison. I just can’t be sure.
That’s also why I’m not looking at Phoenix this quarter. Stage length-adjusted unit revenue dropped the same amount for both airlines, but again, I don’t trust the Southwest numbers. Chances are without the meltdown, Southwest would have had slightly better revenue performance YoY than American, but I just couldn’t trust this data.
What I really needed was a market where I could compare American to either Delta or United. I thought about Washington, DC, but that’s not a good comparison. After all, United is at Dulles and American is at National. These are not apples to apples here, though American did outperform United in this market, if you’re keeping score. So I headed west….
Chicago is Not American’s Kind of Town
And that brought me to Chicago where American’s position has continued to erode for some time. How did the stage length-adjusted unit revenue numbers look? It was a bloodbath for American.
Data via Cirium
Chicago has been a market that American had ceded to United during the pandemic. It has started to grow back there again, but you can see just bad this has hurt American’s performance. This market is increasingly United’s, and though American is adding capacity back, it probably won’t return to the point where it was versus United pre-pandemic.
Let’s Look at the Domestic System
I know, I know. Why are we poking and prodding when we could just look at the entire domestic system? The nuance is important, but the system numbers show the story well.
American’s stage length-adjusted unit revenue performance was far worse than Delta or United.
Data via Cirium
One important factor that I included in this chart and not the others is the change in seats. In Q4, American increased seats less than half as much as Delta or United. With less capacity entering the system, you’d think American would have had better unit revenue performance. It did not.
As I said, I find the most obvious explanation here that American’s “kill sales” strategy is having a real impact. American says that’s not the case at all, so I asked what was. There are a variety of factors, and American admitted to not knowing them all, but one data point I was told to investigate was where American has been adding capacity. American says it had focused on maximizing flying on peak days and times in 2022, and in 2023 much of the growth was during off-peak as it filled the schedule back in. That would have an impact.
I took a week in early November from both 2023 and 2022 to see if this was the case. Let’s start with changes by day-of-week.
Departures by Day-of-Week – Nov 6-12, 2023 vs Nov 7-13, 2022
Data via Cirium
This doesn’t suggest that flights have skewed toward off-peak days. It looks fairly evenly-distributed to me with, if anything, greater growth on peak Monday/Thursday/Friday. So this isn’t it. What about the time of day?
Departures by Time-of-Day – Nov 6-12, 2023 vs Nov 7-13, 2022
Data via Cirium
There is more to see here. You do have a big percentage increase in early morning and late night flights, about 16.5 percent to be accurate. But then again, some of that is offset during the 5pm – 7pm primetime period which grew quite nicely as well. There is no doubt that there is additional flying in the off-peak times, but I don’t see how this could account for the entire drop.
I know American says it hasn’t had a negative impact from its sales/distribution strategy, but I still struggle to understand how that’s possible. Other explanations may contribute, but there doesn’t appear to be enough there to explain everything. And now, comparisons are going to start getting tougher.
We are just entering Q2, and American’s capacity is increasing more than the other two airlines. As of now, American’s regional partner seats alone are up 15.9 percent YoY. That is a lot of seats that American needs to fill, and that makes getting a better fare even tougher.