American Airlines must play catch-up with rival carriers and alliances

American Airlines, the bankrupt unit of AMR Corp., has a problem with its reach — domestically and internationally.

During the past five years, American has slipped from the largest airline in the world to third behind Delta Air Lines and United Airlines.

Just as worrisome, analysts say, is the eclipse of American’s Oneworld global airline alliance by United’s Star Alliance and Delta’s SkyTeam.

Robert Herbst, an airline analyst, former American pilot and founder of AirlineFinancials.com, said American’s lack of domestic passenger feed on the East and West coasts and Oneworld’s scant presence in Asia are eroding its margins and passenger traffic.

In mid-2011, months before AMR Corp. filed for Chapter 11 bankruptcy protection on Nov. 29, Herbst said American needed a merger partner to survive and US Airways was the most logical candidate.

AirlineFinancials.com believes the mergers of Delta/Northwest and United/Continental provide those merged carriers pricing power above what either American or US Airways can achieve,” Herbst wrote in April. “Due to their significant(ly) larger global route networks, Delta and United were able to “poach” more and more of the higher fare premium/business passengers from both American and US Airways.”

A glance at the three global alliances tells the story of Oneworld’s diminishing returns:

• Oneworld is comprised of 13 airlines, 9,300 daily departures and 160 countries served.
• Delta’s SkyTeam has 19 airlines, 15,000 daily departures and serves 187 countries.
• United’s Star Alliance is made up of 27 airlines, 21,900 daily departures and 194 country destinations.

While Oneworld’s strength is in the Atlantic, Europe and Japan, the other two alliances are strongest in the world’s fastest-growing regions: China, South and Central America.

A further problem for American is its image, which is a product of 14 months in bankruptcy and the fact it is flying the industry’s oldest aircraft fleet — average age of 15 years, analysts say.

“Their brand has been tarnished,” said Jake Dollarhide, CEO of Longbow Asset Management in Tulsa. “American has some wonderful international flights. If you add the strong U.S. presence US Airways has, it would create more traffic on international routes. Anytime a global alliance adds a major carrier, it’s going to bolster that alliance.”

Industry officials said US Airways CEO Doug Parker has said the Tempe, Ariz.-based carrier would enthusiastically switch from the Star Alliance to Oneworld if American merges with his airline.

Such a switch would strengthen American’s domestic network and give it more options internationally, said Michael Boyd, chairman of Boyd Group International in Evergreen, Colo.

Boyd questions American’s “cornerstone” strategy of emphasizing operations at its five hub airports of Dallas/Fort Worth, Chicago, New York, Miami and Los Angeles.

“You can’t expand at either (New York’s John F.) Kennedy (International Airport) or Los Angeles,” Boyd said. “LA has no access to China except if you live in southern California. (US Airways’ hub in) Charlotte is dynamite. Charlotte is the second biggest financial center in America. You could bring American’s international flows through Charlotte, like those flights to South America.”

Herbst, the airline financial analyst, said removing US Airways from the Star Alliance and adding its network to the Oneworld alliance would add dozens of new destinations to Oneworld partners while weakening United’s Star Alliance. It also would create new opportunities for US Airways’ hubs in Charlotte, Philadelphia and Phoenix, he said.

“Market/operational studies should be done to see if Phoenix could be used as a profitable connecting gateway to the Pacific, bypassing the often flight-delayed LAX (Los Angeles International) airport and LAX competition,” Herbst said. “Charlotte and Philadelphia are major international gateways for US Airways; it would be logical to expect these two hubs to grow as international traffic bypasses JFK and is connected through these two airports, providing a much better consumer experience than what JFK frequently provides.”

American Airlines’ Oneworld global airline alliance faces off against the Star and SkyTeam alliances

(c)2013 Tulsa World (Tulsa, Okla.). Distributed by MCT Information Services.