Wednesday, January 15, 2020

American's New Boston Service Is A Direct Shot at Delta

If you are a true aviation geek like me, which I assume you are if you enjoy reading a nerdy aviation analytics blog, yesterday was an interesting aviation day. First, Delta announced its impressive $1.4B in fourth-quarter operating profit. This was a 28% increase in profitability year-over-year. The performance was largely driven by a 14% drop in absolute fuel expense (-$315M). If you would have told me when I joined the industry that a legacy carrier would finish the year with a 14% yearly operating margin, I would have fallen out of my chair. Oh, but how times have changed.

However, it was not what Delta earned that really caught my eye. Rather, it was American's quiet new Boston announcement that really caught me by surprise. Around noon, American announced to their employees that American would be operating Boston to twice daily Indianapolis (IND), five times daily Raleigh-Durham (RDU), and Saturday service to Wilmington, NC (ILM). If you listened to Delta’s earnings call, it appears American pitched this announcement to reporters shortly before Delta’s earnings call as well. While we all love Wilmington and its great beaches, this post is going to focus on IND and RDU where we are about to see a massive throw down between American and Delta.

The irony of American's new service announcement on Delta's earning day is not lost on me. If you listened to the call, you might have caught Delta's nonchalant attitude towards American's possible growth in Boston. From the transcript on Seeking Alpha:
Ted Reed (Forbes)Thank you. My question is for Glen. I imagine that the 10% coastal growth in hubs, includes Boston and I'd like to know, if you anticipated that American would start to grow so fast in Boston they're growing very rapidly there and they added three new routes this morning. 
Glen Hauenstein (Delta's President)Yeah. I think we've had an incredible success in Boston and Boston, customers are choosing us at – as a matter of fact the third quarter data from the government just came out and we were in a virtual dead heat with JetBlue as the largest revenue carrier in Boston. So I think we've made great progress and I think customers will stick with us. And so we'll see who ultimately are the winners and losers in Boston. But I know we'll be a winner.
Either Delta considers JetBlue its only Boston competitor or Delta does not care about American in the city. However, these new American routes show Delta should be worried American’s growth and the impact it will have on Delta’s financial performance.

Now, if you are looking for American's new service on, you won't find it. The new service will not be available for purchase until January 20 nor have I seen an official start date for the routes.

This is an abnormal approach to announce new service. Typically, routes and fares are loaded then a national press release hits the news wire late morning to mid-afternoon. If you look in American's press release for their new Austin service, not only was flights for sale that day, American included the flight schedule. You will not find that in their latest Boston announcement. This approach leads me to believe the routes were rushed through to be announced prior to the routes being loaded. Why? I'm not sure, but the timing with Delta's earnings call sure seems convenient.

Before we dig deep into American's new service, I think it is important to take a look back what the American Boston network of years ago and why this latest network build-up is different.

Similar to what we saw in my Austin to San Jose analysis, American had a love-hate relationship with Boston. Starting in the late 1990s, American really invested heavily in the Boston market then during the 2000s, Boston really saw death by a thousand cuts

When American's network peaked in 2001, the carrier had an impressive product offering. American largely served intra-Northeast, near Canadian, long haul West Coast, Florida, the Carribean, and Europe service with roughly 144 daily flights. In 2012, when American finally put the butcher's knife away, only a fragment of the network remained. London service was discontinued in 2013 and Paris, the only non-One World hub that stood in 2012 was sacrificed in 2017. 

Since American’s merger with US Airways the Boston market picked up a few non-hub markets (from US Airways) and in 2020, American has invested its own metal to Austin and London.

Until American's Austin and London service, American had not added a new daily market to Boston since 2006 when American returned Montreal after suspending the route in 2005. The route would be suspended again in the later part of 2006 not to return.

Including the recently announced service, American will operate roughly 106 daily flights to 19 destinations. This compares to Delta at 148 daily flights to 49 destinations and JetBlue at 180 flights to 59 destinations. Clearly, American is a distant third place in service.

So why am I so excited about American's increase? Well, it sure appears that American placing very pinpointed flights to maximize revenue pressure on Delta.

What do I mean? When looking at Delta's RASM curve and overlaying its Boston performance, there is not a whole heck of a lot of markets performing above Delta's system RASM curve. That should not be unexpected since Delta is still investing in the city. However, Delta has found a performance sweet spot in Boston. These are 600-800 mile markets, mostly to the Midwest and the Carolinas. These higher-performing markets are exactly where American is targeting its new service.

For Delta to be successful within the BOS-IND market, Delta depends on generating very high fares. Unlike traditional hub-and-spoke markets that Delta typically operates, BOS-IND is entirely dependent on the local market. Historically, Delta has operated the route with relatively high local fares and a willingness to yield to a lower load factor. Naturally, American's E175 product line and presumed flight schedule would likely competitively match Delta's current offering. This could potentially put pressure on a market dependent upon high fares.

The RDU market, however, has been no stranger to the competition. Currently, both Delta and JetBlue operate the market with roughly five daily flights each. Even with JetBlue’s competitive service, Delta’s flights produced upwards of +20% system RASM gap. This was until both Spirit and Frontier flirted with the market in 2019.

In normal years, both IND and RDU to Boston appear to be higher performing markets for Delta. This new American service, however, will put direct pressure on these financial results.

In both IND and RDU, Delta is highly dependent on the local markets as American will be when they enter. This local market dependence is a high risk for any carrier on any route as competitive pressures naturally will depress fares as carriers attempt to fill their planes. Both IND and RDU will have to see significant stimulation to see either market to carry a reasonable load factor.

In the last 10 years, peak RDU demand saw roughly 900 passengers per day. If the current schedule holds in July 2020, RDU will see roughly 1600 seats per day to Boston. I'll be surprised if we see most carriers operate in the mid-60 to low-70 percent load factors if this schedule.

Turning back to Delta's RASM curve, higher-performing, sub-500 mile markets that Delta and American overlap on currently see potential investments by American's summer schedules. That said if you are a traveler that books six months in advance, you already know these flights counts are subject to change and American could reduce these flights back to flat or even down.

American announcement yesterday, coupled with the Austin announcements could demonstrate American's desire to serve some of their legacy focus cities. A shift away from being strictly hub-and-spoke. However, unless you are in the inner workings of American, it is currently tough to understand the longer-term strategy here.

Based on American's actions yesterday, re: no formal press release, flights were not filled, and the soft announcement was timed immediately after Delta's earning call, this could just be a competitive response. To what, I am not exactly sure. However, American targetting Delta's higher-performing Boston routes will have a significant impact on Delta's Boston P&L. If Delta is willing to continue to operate in subpar routes will have to be seen.

If you want my bet, this is not over.  We will likely start to get a better understanding of American's strategy next week during their earnings call. At this point, it feels like there is a larger battle brewing between Delta and American with Boston caught in the middle. Do not be surprised to see further Boston deployments by either American or Delta as both attempt solidify their service.

The real wildcard here, however, is JetBlue does not take competitive incursions to their cities lightly. Do not be surprised if you see JetBlue announce more Boston service within the next couple of day (or hours).


  1. We have a lot more then beaches here in Wilmington. Hope AA ramps up more service to BOS from ILM.

  2. Well this site is one helluva find. A lot of stuff I'd love to dig into more if I had the time and knowledge of where to find the raw data. Really good stuff.

    You might know that wN flew BOS-IND somewhat aggressively in 2015 and 2016, then backed off and now appears to have quietly dropped the route. That shows up quite abruptly in the RASM data for Delta. If I remember correctly Delta added a marginal amount of ASMs and as you note the average fare and yield drop substantially. Delta has always had a soft spot for IND, and of course RDU too, so the fight will be interesting.

  3. Thanks for swinging by.

    On the WN stuff, please check out my disclosures and prior history. As part of my employment contract with WN, I actually can only reference public, factual information (ie schedules). I worked at Southwest from 2010 - 2018, ending on their capacity planning (networking planning team). The modeled information I currently stay away from for the time being. Ethically, I need to bridge enough time from WN to but them on the same page as every other carrier before I’ll start to analyze their moves.

    On the Delta front, you are absolutely correct. IND goes back to the Northwest days. RDU has been a continuous experiment.

    Feel free to share! I appreciate you stopping by! I’m pretty active on Twitter (@FlyDataGuy) or if you have tips or recommendations, feel free to send me a note