American Airlines confirmed (01-Aug-2013) the commencement of 76-seat Embraer E175 operations on 01-Aug-2013. The aircraft will be operated by Republic Airlines under the American Eagle Airlines brand as part of a 12-year capacity purchase agreement, and will initially be based at Chicago O'Hare. The carrier expects two to three E175 aircraft to enter service per month, reaching the maximum of 47 in 1Q2015. The aircraft are configured with 12 first class, 20 'Main Cabin Extra' and 44 economy seats. American Airlines VP network planning Chuck Schubert said: "For the first time in American Airlines history we are offering large regional jet flying as an option. In addition to strengthening our longstanding partnership with Republic Airways, this is a strong step forward in the diversification of our fleet and an important enhancement from one of our key hubs. It’s also great news for our customers, who will now have even more flight choices and opportunities to travel in the first class cabin." [more - original PR American Airlines] [more - original PR New Orleans Airport]
American Airlines confirms launch of E175 oeprations
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Atlanta Hartsfield Jackson international Airport has become a hotbed of ULCC activity in 2015 as both Frontier Airlines and Spirit have made a push from the airport. With their entry, roughly six of Atlanta’s top 10 markets have received an injection of ULCC competition, challenging the airport’s largest airline Delta and second largest Southwest.
Atlanta seems like a reasonable target for ULCCs given its domination by Delta, which controls the vast majority of the airport’s ASMs and seats. It is too early to make any real determination of the ULCC impact in the market, but Atlanta is an interesting testbed given that many routes that the low-cost airlines have entered were previously duopolies controlled by Delta and Southwest.
The ULCC’s competitors in Atlanta have increased seats in many of the markets where the new airlines have launched service, due in part to the summer high season. However, the large network airlines are also poised to compete feverishly, and will not relinquish any of their dominance easily.
American Airlines’ financial performance is clouded by concerns over unit revenue degradation
American Airlines does not foresee a return to unit revenue growth until 2H2016 as industry capacity increases that occurred during 2Q2015 should remain at similar levels until that time. American’s 7% decline in passenger unit revenues during 2Q2015 was the largest among the four major US airlines.
Similar to those other airlines, American posted record top-line financial results in 2Q2015, which for now does not seem to be enough to allay investor concerns about declining unit revenue.
Perhaps the reason investors have lingering concerns over declining unit revenues is that US airlines are still in the midst of proving that their financial performance is moving closer to sustained investment grade. Investors at this point have no frame of reference to feel assured that airlines can successfully weather current revenue dynamics.