American: Protecting its New York Turf



By Ted Reed 08/18/10 - 01:53 PM EDT


DALLAS (TheStreet) -- After 84 years of operating in New York, American Airlines(AMR) is not backing down in the face of dramatic expansion by its competitors.


"It's a major issue for us to protect our turf here," said Art Torno, a 31-year American veteran who took over as vice president for New York in March. A big advantage for American, Torno said, is the $1.3 billion terminal the carrier opened at Kennedy Airport in 2007. "That terminal is the place to be, one of the finest in the country," he said. "It's modern, state of the art and roomy."

Now American is trying to squeeze more synergies out of the terminal. (Kennedy is among the few airports where terminals can be dedicated to a single airline.) For instance, it will move in more alliance partners now that regulators have approved a trans-Atlantic joint venture and may soon approve a trans-Pacific joint venture as well. American also wants to boost its level of cooperation with JetBlue(JBLU), Kennedy's largest domestic carrier, to enhance the feed to its international flights.


One thing American cannot afford to do is stand still, because competitors are ramping up dramatically in New York. Delta(DAL), already growing in New York, said last week it will spend $1.2 billion to upgrade its terminal at Kennedy.


Meanwhile, United(UAUA) awaits regulatory approval for a planned merger with Continental(CAL). Perhaps the biggest single prize in the merger is Continental's Newark hub, which will become the New York gateway for the world's biggest airline.


The Newark hub means that "Continental is in the driver's seat" in New York, said Stifel Nicolaus analyst Hunter Keay.


But the region is too important for any Big Three airline to step back. "No one has retreated," said consultant George Hamlin. At LaGuardia, US Airways(LCC) sought to tactically pull back by trading slots to Delta in exchange for slots at Washington Reagan National, but regulators blocked that deal.


Kennedy is the epicenter because three of New York's four principal airlines operate hubs there. In March, American signed a deal with JetBlue that included an interline agreement and some slot trades. Now efforts are underway to expand on that. For instance, as TheStreet reported previously, American and JetBlue are talking about a code share, an extremely close cooperative agreement in which carriers can write tickets on one another's flights.


Unfortunately, the lack of a shared terminal means 90-minute connect times between flights, when an hour or less is typical for dual-airline connects. At Kennedy, connecting passengers must take a bus between terminals and pass through security a second time. But Torno said American and JetBlue envision a bus that would keep connecting passengers on the sterile side of security, reducing the connect time to 60 minutes. Conceivably, the bus will begin running whenever the code share starts, but the two carriers are not rushing to expand the agreement. "We're taking baby steps to make sure what we are doing makes sense," Torno said.


As far as American's partners in the Oneworld alliance, they too could be housed in American's terminal. Currently, partners including AirBerlin, Finnair and Malev are occupants. "We would like to see a facility that is the Oneworld New York gateway," Torno said. "We're in deep negotiations with British Airways to come in, [although] we're not close to finalizing them." Iberia could also be an occupant, as could Japan Air Lines, assuming an application for trans-Pacific joint immunity is approved.


Similarly, American's joint venture partners are moving to house their sales teams in a single midtown office building. "We will co-locate in one office, with fully-integrated sales forces working side by side." Torno said. "When we go to negotiate a deal, we will go in together."


As for LaGuardia, the close-in New York airport, American ranks second to Delta. In 2009, according to figures compiled for TheStreet by OAG Consulting, the combined passenger total for Delta, Northwest and regional affiliates was about 6 million passengers. American and American Eagle carried 4.7 million passengers. Third-place US Airways and regional affiliates carried 4.2 million passengers.


November schedules show that Delta will provide 33% of LaGuardia capacity, while American will provide 20% and US Airways will provide 19%, said OAG. American has been building its LaGuardia schedule, adding American Eagle flights to Minneapolis, Atlanta, Raleigh-Durham and Charlotte on CRJ-700 regional jets that have first class cabins, as well as increased mainline service to Miami and Chicago.


Despite all the improvements, Avondale Partners analyst Bob McAdoo said he views American as New York's no. 4 carrier. The Kennedy terminal is spacious and imposing, but American doesn't utilize it sufficiently -- which is why alliance partners are being welcomed with open arms.


Additionally, he said, American has not sought to provide the type of classic hub that Delta has. While Delta has 876 weekly departures from Kennedy, not only to major cities but also to Akron, Burlington, Vt., and Indianapolis, American has just 426. "I look at the number of cities one guy brings to town versus another, the number of possible connections," McAdoo said. "It's one thing to say 'New York to London Heathrow is wonderful' and 'I have some good markets.' It's another to say, 'I have a hub.'"


Torno said the American strategy in New York, as elsewhere, is to serve the best, most profitable routes, such as Heathrow and Los Angeles and Chicago, and, in January, Tokyo Haneda as well as Tokyo Narita.


"We may not be the biggest in New York," he said. "But we are big where it counts."


-- Written by Ted Reed in Charlotte, N.C.