AviationLover: New American Service from AUS to JFK is bound to fail

On September 17,2009 American Airlines(AMR) announced that it was going to begin once-daily nonstop service from New York's John F. Kennedy International Airport to Austin Bergstrom International Airport on a McDonnell Douglas MD-80. New York is the nation's largest business market, and Austin is a tech hub that was recently named the city to best withstand the recession by Yahoo(YHOO). Seems like a smart move right??? Upon further inspection, I don't see how this route will stay afloat short of a subsidy. JetBlue Airways currently offers 3 daily nonstops on their Airbus A320 air

In order to prove my point, I will analyze the route based on 3 different characteristics, Aircraft, Market, and Company/Service.

Aircraft:

In this category, there is no debate, Jetblue's A320 wins with its hands tied behind its back. American's MD-80, or Super 80 as they have dubbed it(S80), is the workhorse of their fleet. The S80 seats 140 passengers, with 16 First Class seats, and 124 Economy Class seats in 3-3 configuration. There is no Inflight Entertainment(IFE), or Wifi either. Jetblue's A320 meanwhile, seats 150 passengers in all economy class. The aircraft are in 3-3 configuration, but generally have one to two inches of pitch. All aircraft come equipped with state of the art DIRECTV(DTV) Inflight entertainment systems.

Being previously based in Austin, and also a former AA frequent flyer, I have flown on the S80s many times. As a whole, the Economy product is unappealing and worn down. The seats are slightly constrained, meaning that anyone with wide shoulders such as myself has a tough time fitting in one seat. The seat pitch is decent, but because of how close together the rows are spaced, even the slightest lean backwards will destroy the foot space of the passenger behind you. The lack of an IFE is particularly acute on long sectors such as JFK-AUS (3:30 min. of flight time), and the lack of WiFi compounds the problem.

I have not personally flown Jetblue's A320 but have heard many great things about it. The seats have on average 1-2 more inches of pitch than AA's and with rows that are spaced properly, one can use it to full benefit. The IFE offers plenty of options ,and is particularly useful for keeping children busy. Electronic Babysitter anyone?? They also have begun to roll out WiFi on some of their A320s. Overall, the A320 is a much fresher and nicer product than AA's S80.

Market:

The market between Austin and JFK is large, almost 750 passengers flew between the two airports every day in the third quarter of 2009, according to the US Department of Transportation, (DOT). And since I consider JFK, EWR, and LGA as one market, (New York), lets take a look at the data presented for all three combined. In Q3 2009, the 3 airports saw approximately 1660 passengers to Austin daily. When we look at traffic, for just one-way, the number is approx. 830 passengers. Now 830 passengers is very large, large enough to be the third largest market out of Austin after Dallas, and the Los Angeles Area. However, the problem is, that there are a bevy of competing services. Jet Blue currently offers 3 daily to JFK on A320s. Which is a total of 450 seats. Then, Continental Airlines(CAL) offers 3 dailies to Newark as well, on 737 aircraft comparable to Jetblue's A320s. Adding 342 more seats to the equation. This means that more than 95%, or 792 seats of 830, can be accounted for with present traffic. If you throw in connecting traffic, one can assume a market of approximately up to 950 seats. Some of this is covered by passengers connecting via other airports such as Atlanta on Delta, or Chicago O'hare on United. Therefore, American could probably fill anywhere from 100-120 seats, for loadfactors of 70-85%, as a best-case scenario. Also, by entering the market, American will be driving down their own yields. The average fare paid one way was $233 according to the DOT, with an average yield of 15 cents per passenger. Throwing new capacity into the market can only serve to dilute the yields further.

The one thing American does have in its favor is the First Class cabin it offers, and its large frequent flyer base in Central Texas. As the only airline offering premium seats between Austin and JFK, American should be able to fill its premium cabin. And a full premium cabin means that they don't need that many more economy passengers to break even, I'd say about 75 if all the premium passengers are paying full fare. The other thing going for AA is the fact that it has a sizable frequent flyer base in Central Texas. American was the second largest carrier by passengers carried, first among full-service airlines, with 21.5% of the overall market, ahead of 11.3% for Continental, and 5.5% for Jetblue. Many passengers in Austin prefer to make easy connections in Dallas-Fort Worth Airport, and use AA's hourly shuttle. At one time AUS was even a mini-focus city for AA, with service to ORD, STL, DFW and DAL, SNA, SJC, SEA, RDU, LGA, and LAX. Today, all that remains is DFW, ORD, and LAX. AA also has a sizable contract with the largest local employer, Dell Computers(DELL). If AA is able to tap into its frequent flyers and stops connecting pax to JFK over ORD, and DFW, they could make the service work.

However, overall, the New York-Austin market, though large, is already suffering from overcapacity. American is in a vulnerable position, and if premium demand tanks, then the route cannot be profitable for AA. Also, as the newest entrant to the market, American has a reduced brand loyalty when compared to its competitiors.

Company/Service:

American is a company that consistently finishes at the bottom of customer satisfaction rankings. From my personal experience, American ground staff is quite genial and professional. However, its flight attendants are notoriously poor, despite being paid higher wages to work fewer hours than their peers, though there are exceptions to this rule. The FA's are usually cranky, unsmiling, and unhappy with their work. They have rarely ever stopped to speak with me, and when I ask them questions about their job, the response is a monosyllabic answer. The on board product is quite cheap, with passengers paying $8 for a blanket, and food costing money money as well. In addition, the baggage fees are high, though in line with those at other legacies. At JFK in general, they operate from the nicest terminal in the airport. Terminal 8's two concourses are bright and airy, though short on eating options. Their operation at JFK as a whole is huge, but with early afternoon arrival at JFK, the flight isn't timed correctly to connect to the major evening bank of flights. In comparison, Continental connects pax far more efficiently through EWR.