American Airlines Drops a Second China Route in Overseas Reshuffling
(Bloomberg) -- 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.”
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Intense competition from mainland Chinese carriers, which have expanded capacity and added scores of new destinations around the world to serve local travelers over the years, has also weighed on fares and eroded passenger yields - a key gauge of profitability. Hainan Airlines, for instance, flies Beijing to Chicago, with ticket prices little more than half that offered by American Air.
The pull-back from China also coincides with declining passenger traffic from the Asian country to the U.S. since March, when trade tensions between the world’s two biggest economies heated up. Weekly bookings from China have dropped 8.4 percent from March 23 to August from the same period last year, ForwardKeys, a Spanish company that tracks more than 17 million travel transactions around the world each day, said last week. For the rest of the year, bookings from China are down almost 10 percent, the study showed.
Shares of American Air, which bought a small stake in state-owned China Southern Airlines Co. for $200 million last year, have slid 22 percent this year in New York, the largest decline by far on a Standard & Poor’s index of the five biggest U.S. airlines.
Separately, Hawaiian Airlines said it would halt its thrice-weekly nonstop service to Beijing in October.
“We will re-deploy our aircraft to pursue other opportunities consistent with Hawaiian’s expansion plans,” the Honolulu-based company said in a statement. Hawaiian said it intended to return to China at an unspecified date. It started the Beijing service in 2014.
American is canceling 11 total overseas routes, including those connecting China. Philadelphia-Munich, Los Angeles-Toronto and flights connecting New York’s John F. Kennedy International with Dublin and Edinburgh are among discontinued routes. American is also reducing flights between Chicago and Tokyo’s Narita airport to three days a week from the current daily service.
It is also 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.
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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