Those pesky discount airlines, including Spirit, Southwest, JetBlue, Virgin America and Frontier, adversely impacted American Airlines Group’s performance in the fourth quarter but American and US Airways struck back.
American Airlines Group reported that its passenger unit revenue, or passenger revenue per available seat mile, fell one percent globally to 13.50 cents in the fourth quarter.
Scott Kirby, American Airlines Group president, said during the company’s fourth quarter and full-year 2014 earnings call today that there were “lots of changes” in the fourth quarter, including competitors launching around 50 nonstop routes.
He attributed much of the pressure on passenger unit revenue, which fell below the company’s fourth quarter guidance, to these new routes and increased capacity from low cost carriers in 44 of the aforementioned 50 markets, including Dallas, Philadelphia, Washington, Chicago and south Florida.
“While there are always competitive capacity changes, that’s an unusually high and concentrated number of new starts that in hindsight we didn’t accurately forecast,” Kirby said.
He added: “In the first quarter, we have new competition in five more markets, but we’ll still feel the impact of the 50 new markets that started in the fourth quarter.”
Doing What Big Airlines Do
American responded by doing what big airlines usually do: It matched the fares of these discount airlines, according to Kirby.
With American Airlines Group, United, Delta and Southwest controlling about 87 percent of U.S. domestic capacity, according to Atmosphere Research Group, the legacy carriers and Southwest have lots of power in beating down low cost carrier competitors.
Kirby said American is “competing aggressively” against the low cost carriers, adding that he expects additional competition from low cost carriers in new markets in the first quarter of 2015.
Reservations Switches ‘Can Get Muddled Up’
In other American Airlines Group news, the airline clumsily defended its decision not to reduce airfares despite a windfall in jet fuel savings.
American Airlines Group officials revealed that several big integration milestones will take place in 2015: obtaining a single operating certificate, the migration of the U.S. Airways’ Dividend Miles frequent flyer program into a new AAdvantage, and the migration of the US Airways reservations system into American’s Sabre system.
Beverly Goulet, American’s chief integration officer, said the reservations system migration is on track and would take place in the second half of the year.
Goulet emphasized that employees need to get fully trained on the new system otherwise “things can still get muddled up.”
United managed to muddle things up acutely during its reservations systems’ migration in 2013 and 2014.
It would be a major accomplishment if American Airlines Group can make the reservations switch without major disruptions.