To keep cash coming in, American Airlines needs passengers to buy tickets for late this year and early next. But there's a problem. American doesn't know what flights it will fly that far in advance.
Passengers looking to lock in cheaper airfare late this year or early next on American Airlines — or any U.S. carrier — may want to consider the risks. Amid so much change, carriers are unlikely to fly what they’re selling.
American executives made that clear Thursday on their first-quarter earnings call, telling analysts the carrier will emerge from the Covid-19 as a smaller company. American is retiring its Boeing 757s, Boeing 767s, Airbus A330-300s and Embraer E190s, a net decrease of 80 mainline airplanes, and considering other retirements, mainly of older narrow-body jets. In addition, the airline’s regional arm permanently will park roughly 20 Bombardier CRJ200 jets, an inefficient 50-seat airplane.
American’s executives told analysts they had no choice. Demand is not returning soon, they said, and American has been burning $70 million in cash per day. Executives said they can cut burn to around $50 million by June, but it remains a significant problem, and the airline cutting flights and raising liquidity, including from a government loan.
“I think we all expect that recovery will be slow and demand for air travel will be suppressed for quite some time,” CEO Doug Parker told analysts.
American lost $2.2 billion in the first quarter, attributing about half the loss to special items, including $676 million in write-downs for aircraft and parts and $205 million for early-retirement payouts.
Passengers booking post-summer travel may see robust schedules when they search American’s website, roughly mirroring what they might have seen a year ago.
But that’s a byproduct of how airlines set flights — not an indication American expects demand to return to normal.
Large network airlines typically begin selling tickets about 11 months in advance. But for the first seven or so months, airline schedules are often placeholders, meant as a best-case scenario for what might occur nearly a year later.
As the date gets closer, airlines tweak them, based on demand they expect will materialize. This process works for a couple of reasons — usually, schedules don’t change much, year-to-year, and most travelers book no more than 90 days in advance.
But these are unusual times. American plans to be a smaller airline during the recovery, and many flights listed today will never fly.
“Given what we announced today with the retirement of aircraft, we will emerge from this in the fall with a smaller airline than we had anticipated prior to the virus, and go into 2021 as a smaller airline,” Parker said.
Vasu Raja, senior vice president of network strategy, will decide what American actually flies as it adjusts it schedule.
Raja had grand plans for 2020-21 with American planning to launch some unusual late-economic cycle routes, including Seattle-Bangalore, Chicago-Krakow, and Philadelphia-Casablanca. Now those routes are on hold while Raja and his team revert to basics.
“We are just now starting a clean-sheet exercise for what 2021 might look like,” Raja said.
Most of the late spring and summer is set. After a series of schedule changes, American built the schedule to satisfy CARES Act requirements — Congress required airlines to keep flying to most of the cities they served before the crisis to get government money — in the most efficient manner.
Beyond that, though, Raja doesn’t know what American will fly.
“Everything beyond that remains to be seen,” he said.
What About Hubs?
As they retired airplanes during previous downturns, some U.S. airlines closed hubs. But Raja said American plans to keep all of its hubs, including three weaker ones, in Chicago, New York and Los Angeles, where American has fierce competition.
“The core of our customer proposition is providing connectivity,” he said. “As dark and daunting as this crisis is, this is a moment for real clarity. This is not about dismantling our customer proposition, but sharpening it, and refocusing it.”
Raja argued the hubs will become more efficient as American simplifies its fleet. In recent years, with so many airplane types, American assigned certain jets to each hub, so the airline would not need mechanics and parts for every airplane at every hangar complex. The Boeing 767s, for example, rarely flew to Phoenix or Los Angeles.
But in the new paradigm, Raja suggested, remaining airplanes can flow more easily among hubs. “That makes the airline a lot more lean and a lot more nimble,” he said.
Still, while American is pledging to keep all hubs, some may look different. In Los Angeles, American has tried in the past five years to build a transpacific hub with flights to Asia, New Zealand and Australia. There have been whispers some of the routes have not performed well financially and may never return.
Instead, American is talking up a new West Coast partnership with Alaska Airlines, announced just before the crisis. American has been planning to launch new long-haul flights from Seattle, and while those are on hold, the airline is still bullish on the Alaska tie-up.
Raja said American expects the partnership will produce “higher quality revenues at a lower amount of investment” than typical long-haul flying.
Photo credit: American Airlines on the ground at Dallas/Fort Worth. American is planning to shrink but keep all of its hubs. Patrick T. Fallon / Bloomberg