Even in bankruptcy protection American Airlines continues to grow important Brazilian market


Although American Airlines is cutting capacity and aircraft as part of its bankruptcy protection proceedings, it is continuing to grow its important presence in Latin America with new routes and capacity upgrades. American is the largest carrier between North America and Latin America, achieving the highest yield in the market compared to any other US carrier. Latin America is also American's highest-yielding market.

American has announced 18 new frequencies to Latin America in its Southern Hemisphere winter schedule, including a new daily route between Miami and Manaus from Jun-2012. It is also plans to begin operating in June on a year-round basis five additional flights per week on Dallas-Sao Paulo, four additional flights on Miami-Belo Horizonte and two additional flights on Miami-Brasila - all of which were previously only operated during the peak Southern Hemisphere summer months.

American initially secured the traffic rights for these additional flights several months prior to its bankruptcy filing but its decision to go head with the routes shows its commitment to continued expansion in Brazil and Latin America overall even as it restructures. American could have elected to drop plans for expanding in Brazil as part of its restructuring, although such a move would have resulted in the traffic rights being returned to the pool, potentially allowing its competitors to swoop in and apply for additional US-Brazil rights.

Sao Paulo as first destination for American's premium-focused 777-300ER

American also has announced Dallas-Sao Paulo will be the first destination for its new Boeing 777-300ER to be delivered by the end of the year, despite initially announcing in Nov-2011 that London Heathrow would be the aircraft's first market. In addition to a higher unspecified seat count, the 777-300ER will feature brand new products in all classes, including a new premium economy cabin.

The premium nature of the aircraft is fitting for the Sao Paulo route, especially since the route will be launched during the Brazilian summer whereas under the previous plan American would have initially deployed the 777-300ER during the low season to London Heathrow. Deploying a larger aircraft on the Sao Paulo route is also strategic because the US-Brazil air services agreement is limited whereas the US and EU have an Open Skies agreement (although London Heathrow is slot restricted).

Brazilian carrier TAM is also planning to begin deploying 777-300ERs on US routes later this year, with Miami-Sao Paulo the most likely candidate. TAM already operates 777-300ERs on some of its European routes.

American's presence in Brazil to be further boosted if TAM leaves Star for oneworld

Although TAM is now a member of Star Alliance, it is expected to leave Star and join oneworld following its merger with LAN. American is also expected to end its existing codeshare partnership with Gol as the Brazilian low-cost carrier pursues deeper ties with SkyTeam member Delta Air Lines following Delta's recent acquisition of a minority stake in Gol.

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An American-TAM partnership would be powerful as the two carriers currently account for about two-thirds of total capacity in the US-Brazil market (American holds 38% and TAM 28%). The duo should see their combined capacity share increase this year given the additional flights American is planning from June and the fact that TAM is planning its own capacity expansion in the US-Brazil market for 2012.

See related article: TAM plans US expansion in 2012 with B777-300ERs while Brazil domestic growth slows

American Airlines Latin America Southern Hemisphere winter 2012 route additions: Jun-2012

Route Additional frequency Total frequency Equipment Effective
Dallas-Sao Paulo 5 12 767-300 14-Jun-2012
Miami-Belo Horizonte-Confins 4 7 767-300 14-Jun-2012
Miami-Brasilia 2 7 757-200 14-Jun-2012
Miami-Manaus 7 7 737-800 14-Jun-2012

US to Brazil capacity by carrier (one-way seats per week): 19-Sep-2011 to 18-Jul-2012

American to become second foreign carrier to serve Manaus

American in Apr-2011 applied for and subsequently received approval from the US Department of Transportation (DoT) to launch Miami-Manaus and upgrade Miami-Brasilia and Miami-Belo Horizonte to daily service. At the time, it planned to launch Miami-Manaus with only four weekly flights but is now planning to launch the route with a daily Boeing 737-800 service.

American will be the first US carrier to serve Manaus, although Brazil's TAM already links Manaus and Miami with a daily 767-300ER service. Manaus-Miami has been a successful route for TAM since it was resumed in 2006, initially with an A320. As a gateway to Brazil's Amazon region, Manaus is a popular tourist destination which before TAM's Miami link was only connected to the US via out-of-the-way hubs much further south in Brazil.

American will add 2240 weekly seats in the Manaus-Miami market to TAM's existing 2870 weekly seats. American's arrival in Manaus will be a big boost for Manaus International Airport and the region's tourism industry as American will be only the second foreign carrier at Manaus after Copa, which currently operates four weekly Boeing 737-700 flights from Panama City. Miami and Panama City are currently the only two international routes from Manaus.

American is largest foreign carrier at Belo Horizonte and second largest at Brasilia

Besides American's existing service between Miami and Belo Horizonte, the only other operator from Belo Horizonte to the US is TAM with a thrice weekly 767-300 service also to Miami. American is now the largest foreign carrier at Belo Horizonte-Confins International Airport, according to capacity data from Innovata. TAP Portugal, Copa and Uruguay's Pluna also now serve Belo Horizonte. TAM only offers 1230 international weekly seats at the airport compared to almost 57,000 domestic seats.

TAM also operates between Brasilia and Miami with a four weekly 767-300 service while Delta operates a daily 757-200 service between Brasilia and Atlanta. American and TAM both launched their Miami-Brasilia routes in 2010. Demand for direct services to the Brazilian capital, particularly for the premium cabin, has been increasing as Brazil continues to record rapid economic growth. American is now the second largest carrier at Brasilia, according to Innovata capacity data, just behind TAP and slightly ahead of Delta.

From Sao Paulo, American in Jun-2012 will operate three daily flights to Miami, one to New York JFK and 12 weekly flights to Dallas. American is the only carrier operating to Dallas while TAM also operates to Miami. At New York American faces competition from Delta, TAM and United (see Background information).

American already operates 12 weekly flights on the Dallas-Sao Paulo route during the Southern Hemisphere summer season but previously cut back capacity on the route during the Southern Hemisphere winter season to seven weekly flights. US carriers are now generally restricted from adding flights at Sao Paulo because the current US-Brazil bilateral only allows additional flights to other Brazilian airports. In this case, American was previously not fully utilising its existing allocation for Sao Paulo during the Southern Hemisphere winter season.

American typically offers significantly more capacity in the Brazilian market during the peak Southern Hemisphere summer months. For example, this week American will offer over 40,000 weekly seats in each direction in the US-Brazil market but this will drop down to just over 30,000 by early April. The recently announced expansion announced will result in a larger operation for the Southern Hemisphere winter but will still fall short of the capacity over peak periods.

Latin America holds as strong market for US carriers

The Latin America market continues to perform well with US carriers. United Airlines reported as part of its 4Q2011 earnings that Latin America revenue was up 14.2% year-on-year despite increasing ASMs only 2.2%. Latin America growth was the highest of any region, with domestic regional traffic growing at 10.2%, mainline at 4.4%, Pacific at 1.7% and Atlantic at 1.6%. The Pacific saw ASM growth of 0.6% while all other regions saw a decrease in ASMs of 1-3%.

In 1Q2012 United expects to grow Latin America capacity (ASMs) by 3.2-4.2%, the highest after Pacific growth of 5.3-6.3%. Atlantic traffic is expected to grow 1.2-2.2%. There are no anomalies relating to the merger with Continental as United has been reporting combined earnings since 2011.

Advance bookings (six weeks through beginning of March compared to the same period in 2011) to Latin America are down only 0.4 ppts. Atlantic bookings are down 2.8 ppts and Pacific down 7.6 ppts.

United's ASM growth of 3.2-4.2% is so far being matched by American, whose capacity changes on the four Brazilian routes increases ASMs by approximately 4%, but only compared to 2010, the latest year data is available for. Over the past decade, American has grown the Latin America market from 15.4% of system-wide ASMs to 19.2%.

American Airlines Latin America ASM and percentage share of system ASMs: 2001 to 2011

Latin America accounts for just over 20% of all revenue and over 50% of all international revenue for American, the highest of the three largest US carriers in the market.

Latin America revenue as percentage of all system revenue for select US carriers: 2001 to 2010

Latin America revenue as percentage of all international revenue for select US carriers: 2001 to 2010

American Airlines earns its highest yield, by far, in Latin America while being the leading US carrier in Latin America based on yield.

American Airlines yield by region: 2001 to 2010

Latin America yield by select US carriers: 2001 to 2010

Background information

Ten largest carriers between the US and Latin America based on seats: 23-Jan-2012 to 29-Jan-2012

Rank Airline Total seats
1 AA American Airlines 920,528
2 UA United Airlines 527,008
3 DL Delta Air Lines 332,336
4 US US Airways 243,716
5 B6 JetBlue Airways 169,400
6 AM Aeromexico 109,655
7 NK Spirit Airlines 78,692
8 AS Alaska Airlines 73,952
9 FL AirTran 72,336
10 TA TACA 65,988

Capacity between Sao Paulo and New York area airports: Sep-2011 to Jul-2012

Capacity between Belo Horizonte and Miami: Sep-2011 to Jul-2012

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