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A subsidiary of AMR Corporation, American Airlines (AA) is based at Dallas Fort Worth with hubs in Chicago, Miami and New York. Merging with TWA Airlines in 2001, AA uses an large fleet of Boeing and Airbus aircraft. AA’s extensive network includes domestic and regional services within North America and international services to Europe, Asia, Central America and South America. AA is a founding member of the oneworld alliance. The carrier filed for bankruptcy protection on 29-Nov-2011. As part of its restructuring plan, the carrier unveiled a new livery and branding in Jan-2013.
Location of American Airlines main hub (Dallas/Fort Worth International Airport)
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Weakness in long-haul markets from Brazil continued to pressure LATAM Airlines Group during 1Q2013 as competitive capacity increases triggered depressed loads and unit revenues in its international network. But LATAM’s efforts to restore strength in the Brazilian domestic market and the relative strength in the group’s Spanish speaking companies should help to offset some of the continuing pressure in LATAM’s international network.
The company’s attempts to bolster international service during the last year to offset some of the continuing weakness in the Brazilian domestic market have faltered somewhat due to competitive capacity increases by American and United in the US-Brazil market, and LATAM’s own expansion of supply in the market. The company’s overall capacity increase in its international markets during 1Q2013 was 12.3%.
European airline margins have underperformed other regions for years. There are many reasons for this, but our analysis suggests that Europe’s relative lack of consolidation may be a significant one, since margins appear to be correlated with market concentration. Even after a number of significant deals over the past decade, the European market is less concentrated than North America, where consolidation has gone further, to the benefit of margins. Europe is also less concentrated than Asia-Pacific (analysed as its sub-regions), whose margins have consistently been the highest.
If consolidation brings structural benefits, are there still European deals that can make a difference? Europe has a long tail of small carriers, which are unlikely to have a significant impact, but comparison with North America points to the potential for further combinations among the top five. Nevertheless, there are hurdles to such deals, not least of which are the ongoing restructuring programmes at Europe’s Big Three and the incompatibility of LCC/FSC mergers, but some second tier groups could be targets.
Shortly after Emirates Airline announced its remarkable breakthrough partnership with Qantas in Sep-2012, Emirates CEO Tim Clark said he had also been talking to American Airlines for some time and publicly expressed hopes that the two would also establish a close relationship. This was despite the fact that American already had an extensive codeshare relationship with Etihad; and the third Gulf carrier, Qatar Airways, has since been invited to join the oneworld alliance – which American leads.
The Gulf airlines, and particularly Emirates, have had a devastating impact on European long-haul hub carriers. The impact will be different for US airlines, but despite the different geography, it will be much bigger than most expect. For one thing they will cut across the developed boundaries of the global alliances.
After battling integration challenges that derailed its operations during the northern hemisphere summer of 2012, United Airlines faces the difficult task of attempting to recapture corporate customers lost during that time. Meanwhile the carrier is attempting to control its climbing costs, which increased 11% on a unit basis during 1Q2013.
As its legacy peers Delta and US Airways recorded profits during 1Q2013, United bled USD325 million during the quarter. Factoring in special charges the carriers recorded a USD417 million loss for the first three months of 2013.
Top-line revenues grew just 1.4% to USD9 billion as expenses grew at nearly the same rate, increasing 1.3% to roughly USD9 billion.
Few have single-handedly changed the landscape of global airline alliances the way Willie Walsh has. As the CEO of International Airlines Group, the owner of British Airways and Iberia (and soon Vueling), Mr Walsh had an instrumental role in bringing Qatar Airways into the oneworld alliance.
The ascension of Qatar occurs at a time alliances are undergoing significant change: Qantas in Mar-2013 launched a partnership with Emirates; oneworld's airberlin may partner with Air France-KLM; and Etihad has a staggering number of partners. Mr Walsh is respected amongst fellow executives for his candid and direct views – which peers perhaps wish they felt at the same liberty to say.
During CAPA's recent Airlines in Transition conference in Dublin, Mr Walsh gave a number of his thoughts on global alliances. He supports bilateral relationships and thinks the Qantas-Emirates alliance will be good for both partners. Mr Walsh also noted the limits of alliances: they are mainly to deliver additional revenue, not cost savings, and perhaps exist only because global mergers are not permitted by regulators.
American Airlines is joining its US legacy rival Delta during 2013 in making a push from Los Angeles International Airport, a strategic but highly fragmented market where no one carrier holds a dominant, commanding position. Presently United has a marginal edge over its two rivals in terms of seat share, but it appears that American and Delta are aiming to close that gap by adding new service from Los Angeles throughout the year.
Unlike Delta, which is launching service to some already-crowded markets from Los Angeles, American appears to be undertaking a different strategy, introducing service in markets served by only one other carrier. In some instances the only other competitor is Allegiant Air, which is a low-frequency operator whose business model is not built on competing with other airlines based on schedules. In other markets Delta is American’s lone competitor, introducing an interesting set of competitive dynamics into the Los Angeles market.
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