American Airlines needs to shake things up as its performance suffers. Getting rid of routes considered “colossal loss makers” seems like an obvious move.
American Airlines Group Inc. will drop a second major U.S.-China route after the flights proved to be “colossal loss makers,” as the carrier shuffles international routes to cope with higher fuel prices.
Direct service between Chicago and Shanghai will end in October, American said Tuesday in a statement. The company had already planned to halt flights the same month between the U.S. city and Beijing. American will retain routes connecting the Chinese destinations with Dallas and Los Angeles.
The world’s largest airline is rearranging its overseas network as it seeks to reverse a slowdown in revenue for each seat flown a mile, a measure of demand and fares. American has posted the biggest share decline among major U.S. carriers this year as it trails Delta Air Lines Inc. and United Continental Holdings Inc. in key yardsticks such as pretax profit margins and on-time performance.
“The two China routes — and, to a lesser degree, Tokyo — have been colossal loss makers for us,” Vasu Raja, American’s vice president of network and schedule planning, told employees in a recorded interview. The airline “remains committed to Asia in the long run.”
The shares rose less than 1 percent to $40.30 at 12:14 p.m. in New York, after rallying a day earlier. American had dropped 23 percent this year through Monday, the largest decline by far on a Standard & Poor’s index of the five biggest U.S. airlines.
American is canceling 11 total overseas routes while adding nine. The changes include starting new service between Philadelphia and Berlin; Bologna, Italy; and Dubrovnik, Croatia. It’s also opening a flight between Phoenix and London.
Discontinued routes include Philadelphia-Munich, Los Angeles-Toronto and flights connecting New York’s John F. Kennedy International with Dublin and Edinburgh. American is also reducing flights between Chicago and Tokyo’s Narita airport to three days a week from the current daily service.
The price of jet fuel has climbed more than 30 percent in the last year, rendering some flights unprofitable, Raja said. American will move aircraft from cities where service is being reduced primarily to its hubs in Dallas-Fort Worth and Charlotte, North Carolina, where the carrier will add gates next year and the flights will earn better returns, he said.
As with the Beijing flight, American will seek approval from the U.S. Transportation Department to stop flying the Chicago-Shanghai route for now without having to surrender government approval to operate it. Because service between the U.S. and China is limited, carriers must fly routes they are awarded or lose them.
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Photo credit: American Airlines jets are pictured. The airline is dropping a second U.S.-China route. Angus Mordant / Bloomberg