This summer, American Airlines will begin offering 900 daily flights from its DFW hub – an addition of more than 100 flights compared to last year. The time is ripe for the carrier to do so profitably. Here’s how:
When American Airlines told analysts on its Q1 earnings call that it would open 15 new gates in the Terminal E satellite at Dallas Fort Worth International Airport (DFW) for the summer, there wasn’t much surprise expressed.
But there were some questions about the feasibility of this expansion. Others pressed American on whether it can profitably operate 900 daily departures out of DFW at the same time as it increases presence at its other hubs in Philadelphia and Charlotte, North Carolina— and all this following last year’s announcement of additional routes to Berlin, Bologna, Italy; and Dubrovnik, Croatia.
During the earnings call with American executives, Wolfe Research Managing Director Hunter Keay estimated that capacity in the Dallas/Fort Worth area would be up about 50 percent from where it was in 2010 (a figure American execs contended is dubiously high). Either way, despite the area’s economic strength, Keay wondered whether the region could support the additional flights.
“We are leveraging our strengths with high margin growth planned at our Dallas/Fort Worth and Charlotte hubs,” said American’s President Robert Isom during the analyst call. “We've already begun selling tickets to 23 new routes and additional frequencies in over 70 markets. And the early results are encouraging, as both bookings and yields are coming in at rates higher than the system average.”
In American’s view, the expansion marks the first opportunity for significant growth at one of its most profitable hubs. In addition, Isom said American’s similar growth plans at its Charlotte hub for 2020 and at its hub in Washington DC in 2021 “remain on track.”
American has been steadily adding DFW service this summer, and beginning in early June, the airline will operate more than 900 daily flights from the hub. That’s 100 more than last summer, including service to 23 new markets.
They include: Dublin (DUB); Munich (MUC); Kalispell, Montana (FCA); Harlingen, Texas (HRL); Monterey, California (MRY); and Augusta, Georgia (AGS). Eighty-four existing markets will receive additional service from DFW, including Boston (BOS), Los Angeles (LAX) and New York (LGA). In total, customers have access to 234 nonstop destinations from DFW and the resulting American network can enable over 9,000 one-stop connections through DFW — more than any other airline hub in the world.
In large part, the rationale for these expansions has much to do with maintaining American’s dominance at DFW.
“American is… the largest carrier at DFW,” claims Vasu Raja, VP of Network and Schedule Planning for American. “By adding 100 flights to our most profitable hub, we have the opportunity to connect more people to more destinations than ever before. And adding service to new destinations and increasing service to some of our customers’ favorite spots, we’re building a connecting network that can get them anywhere.”
Are passengers willing to pay a premium to fly directly to Dubrovnik as opposed to landing in London first and then continuing? They might, says Judson Rollins, an airline industry consultant. For the most part, it’s travelers in the business cabin that American believes will pay for those added flights and make the option profitable.
“Business travelers are not just looking for more direct access to smaller destinations across the Atlantic, or over the Pacific to Asia,” Rollins tells Kambr Media. “You've got a lot of new routes that are opening up to Tier 2 and Tier 3 destinations in Asia as well as Tier 1 locations. The simple reason, aside from the increased demand, is that now you can fly smaller and more efficient airplanes like the 787-8 or the A350-900 that can profitably open routes with thinner demand.”
Nonstop flights from places such as Dallas, Philadelphia, or Charlotte to destinations such as Ho Chi Minh City and Bangalore might not have made sense five years ago before these new airplanes came along. The roughly 25 percent greater fuel efficiency associated with the Boeing 787-8 or the Airbus A350-900 models means a carrier like American can profitably serve these longer and thinner routes.
That in turn allows these cities to draw more business connections and reinforce the attraction of nonstop flights from a more varied number of locations. As such, American should be well-positioned both as a preferred nonstop option to less well-served destinations to less prominent destinations and a beneficiary of increased business travel over a fairly short period of time.
In his remarks during the earnings call, American Chairman and CEO Doug Parker noted that opening up the 15 new gates at DFW also cost a fraction of the costs associated with building new gates at other American hubs."
"I’ll just add that ... these 15 gates in this satellite-E, that's a fantastic opportunity versus going out and spending tens of millions of dollars for gates anywhere else for growth,” Parker continued. “These are a fraction of a fraction of that kind of cost and we're ready to go.”
“This is a once in a lifetime opportunity that is good for the airline in every way,” American CFO Derek Kerr added. “Frankly, it's not so much about Dallas, as it is about the United States, because we will be connecting most of those people over Dallas much more to markets that we weren't able to sell before, at least not very efficiently.”