American Airlines’ “cornerstone” worldview

But moving in the background is the ongoing network restructuring that is profoundly changing the carrier's presence in domestic markets.

A new approach-two years ago

In September 2009, American announced its cornerstone strategy, designed to "reallocate flying within American's domestic network from unprofitable routes to the airline's primary markets in a push to provide more connections to and from the major US business markets and international gateways - New York, Chicago, Los Angeles, Dallas/Fort Worth and Miami. These cities represent five out of 10 of the largest metropolitan areas in the country and form what the company calls the cornerstones of its network. In addition to encompassing some of the largest populations, the cities are key business centers and critical international gateways that allow American to provide better international connections to its oneworld and other partners, further enhancing the airline's global reach."

Not only does the approach solidify American's position in these chosen metropolitan markets, but it also has eliminated American from a great many city pairs that used to be a part of its network. This has cut competition, and even service, in some markets and, given the importance of the five key markets chosen, puts AA in head-to-head competition with its peer rivals as well as some low cost operators.

Cornerstones or corner perches?

Interestingly, the airline lacks hub dominance at three of its chosen airports. With an 87% seat share at DFW and a 70% share at MIA, American can influence the way that traffic at the airport flows. However, at JFK, Delta and JetBlue both have a 24% share compared to American's 17%. At ORD, United dominates with 47% and AA trails at 37%. Finally, at LAX where no one rules the roost, United and American are tied with 17% each and an aggressive Southwest holds a 14% share.

The carrier's strategy statement makes clear note of the fact that at these gateways, there is intersection with oneworld partners, giving AA, through its alliance, a global reach. But at LAX, even with its oneworld partners, the group has only a 22% share; a position that makes use of the word "cornerstone" seem a bit inflated.

Delta, too, wants to be #1 in New York

In New York, clearly the prime US metro area, Delta has made no mystery of its desire to be the New York airline and has strengthened its position by doing things like entering the already-crowded LaGuardia-O'Hare market in order to be a player in all major city pairs.

What about the rest of the nation?

The effect of this policy is especially evident in one of the nation's other larger metro areas, the San Francisco Bay area. American has had a long presence in the region, and early in the 21st century was the only legacy carrier with non-stop service from all three Bay Area airports (SFO, OAK, SJC) to New York and Boston.

Like its peers, the fuel and economic problems of 2007-08 saw AA drawing down its presence at both OAK and SJC and consolidating at SFO. But following the adoption of the cornerstone concept, the pull-down has continued.

The chart compares service in summer 2006 and summer 2011-a five year span-and looks at the ways in which the AA presence in the market has diminished.

American Airlines Non-stop service from the SFO Bay Area

Summer 2006				Summer 2011
	SFO	SJC	OAK	SFO	SJC
AUS		21 X M80
BOS	14 X 757
ORD	49 X M80	14 X M80		35 X 738	14 X 738
				7 X 757
DFW	69 X M80	48 X M80	21 X M80	35 X 738	5 X M80
	14 X 767			7 X 757
	14 X 757
HNL	7 X 767			*
LAX	53 X M80	54 X RJ		42 X 738	28 X RJ
MIA	21 X 757			21 X 757
JFK	35 X 767			35 X 767
SAN		60 X RJ
STL	14 x 757
	7 x m80
SNA		47 X RJ

Source: OAG and website *discontinued in fall 2011

Some sense to the change

Some of the changes are fully understandable. Southwest dominates the lift between northern and southern California and most carriers have drawn down their presence there. As the only nonstop to Miami and very marginally challenged to Dallas, again the airline will probably carry the lion's share.

Others harder to see

But other reductions are more problematic. Service between SJC and Austin was begun some years ago and was dubbed the "nerd bird" as it connected two high tech centers. American dropped the route, which had grown from 7 to 21 weekly flights, and Alaska immediately pounced on the opportunity and replaced AA.

Boston-San Francisco, again linking two high tech communities, was a duopoly with a bit of JetBlue, has now been ceded to United. For decades TWA operated as many as 7 daily flights between St Louis and SFO/SJC. That route came to American when it purchased TWA and it had a nonstop monopoly. Again, United-and to a lesser extent-Southwest get the traffic with a complete AA withdrawal.

Connections from abroad?

At the recent opening of T2 at SFO, where American is one of two tenants, the carrier cited its ability to connect incoming international passengers to US points. But the claim seems a bit hollow. Qantas no longer serves SFO, leaving BA, CX and JL. British flies to all the cities served from SFO so there is no connecting traffic there. Cathay serves Chicago, Los Angeles and New York, limiting connections, and JAL serves the same three US points and American flies to Tokyo from DFW, leaving Miami as the sole possible connection.

A tough sandbox to play in

Finally, to New York, where American has been a strong player, the new United offers 6 daily departures to JFK offering its 3-class Premium Service as well as an additional 9 flights to Newark. Plus you can add service by JetBlue and Virgin America to the mix. According to information previously published, AA loses USD54 million on the route.

One of the lessons that the remaining legacy carriers have learned is that no carrier can be everywhere or serve everyone. All the US carriers have reduced flying and network size in ways that were unthinkable just some years ago. But American's strategy seems especially risky, playing for high stakes in very competitive markets.

Two years on, the financial payoff has not appeared and the time for success is getting shorter. One hopes that this does not become a tombstone strategy instead.

See related reports:

• American announces 'transformational' order but may not end analyst criticism
• At long last, divestiture for American Eagle