What is AA's greatest strategic threat? [Speculation]

 
Old Nov 16, 11, 7:41 am
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What is AA's greatest strategic threat? [Speculation]

In your opinion, what is AA's greatest strategic business threat going forward? I'd be curious to hear views from flyers, as opposed to the company or an analyst.

My view (colored by my own experience) is that its European and Asia service is too heavily dependent on codeshares and connections in London and Hong Kong. Getting to Frankfurt this week entailed a connection thru LHR on a BA codeshare for both legs, and was inconvenient vs. a Lufthansa non-stop. The same is true for most cities I visit, other than Paris and London.

This could cause a loss of high paying business customers (like me) as our travel needs cause us to seek other options (UA-CL, for instance).
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Old Nov 16, 11, 7:48 am
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Inertia.
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Old Nov 16, 11, 7:54 am
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They are in a commoditized business, where most consumers perceive little or no difference between providers, and their costs are higher than all their competitors by a large amount. IMHO everything else pales in comparison to this point -- commoditization drives down margins, so the low cost provider usually wins in the end.
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Old Nov 16, 11, 8:04 am
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Originally Posted by MikeBOS View Post
They are in a commoditized business, where most consumers perceive little or no difference between providers, and their costs are higher than all their competitors by a large amount. IMHO everything else pales in comparison to this point -- commoditization drives down margins, so the low cost provider usually wins in the end.
However, there is a limited segment of flyers that are not flying solely on price and that is what the larger legacy carriers are fighting over. If you fly from New York or even Boise, ID to China twice a month on business then things like the type of seat, meals, lounges, schedule become very important. The issue as I see it there are too many providers in this market niche. The other issue is that legacy carriers probably have relatively few profitable domestic routes so there is even more pressure to get the profits out of International paid premium.

AA's biggest challenge along with its cost structure is its size relative to DL and UA and on the domestic front the encouragement that has resulted from more nimble carriers such as B6, WN, Spirit, or Virgin. Somewhere along the way I think AA needs to merge with somebody of size, which means a foreign carrier (foremost BA) but would need laws changed to accomplish that feat.
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Old Nov 16, 11, 11:07 am
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Originally Posted by phil_flyer View Post
In your opinion, what is AA's greatest strategic business threat going forward? I'd be curious to hear views from flyers, as opposed to the company or an analyst.
I'm a passenger and an armchair analyst. OK if I respond?

Originally Posted by phil_flyer View Post
My view (colored by my own experience) is that its European and Asia service is too heavily dependent on codeshares and connections in London and Hong Kong. Getting to Frankfurt this week entailed a connection thru LHR on a BA codeshare for both legs, and was inconvenient vs. a Lufthansa non-stop. The same is true for most cities I visit, other than Paris and London.
Other than HKG, which cities in Asia are served nonstop by DL or UA that are not served by AA on its own metal? Yes, both UA and DL serve SIN and BKK and TPE on their own metal, but those require connections in Tokyo, just like AA/JAL service. Europe? Sure, DL and UA/CO serve more cities in Europe nonstop than AA. But the primary European business destination is London (far much larger market than any other European city), which the AA/BA joint venture serves with 51 daily departures in peak season from more than a dozen US gateways.

Originally Posted by phil_flyer View Post
This could cause a loss of high paying business customers (like me) as our travel needs cause us to seek other options (UA-CL, for instance).
CX is by far the highest quality airline serving HKG from the USA with more frequencies than DL and UA combined. And if you're a "high-paying business customer," then you earn full AA miles to HKG on CX. Same thing on AA/JAL joint venture to Tokyo. Both feature numerous connections - many more connections than available on DL or UA. The only thing you'd gain from AA metal to HKG are more geriatric FAs across the Pacific and the ability to upgrde low fares with SWUs or miles. And those aren't things generally desired by the "high-paying business customers."

IMO, the largest strategic threat to AA is its high costs which have prevented AA from growing thru consolidation. Because of AA's high costs, it could not combine with UA or CO or NW, all of which would have helped round out AA's network.

IMO, the absence of AA metal to HKG or the need to connect to CX or JAL for many Asian destinations or the lack of nonstops to second-tier European cities as serious threats to AA are overblown. Those who want to upgrade from low fares frequently disagree.
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Old Nov 16, 11, 11:11 am
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I'd agree that the Mentality over at AA is to rely on codeshares for routes and destinations that all other airlines have had no problem operating for years.

This is true domestically as well. Aside from the issues with baggage handling, on-time arrivals-- there's a good chunk of the world that doesn't fly AA simply b/c connecting locations and lack of AA metal to destinations simply makes it way too inconvenient
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Old Nov 16, 11, 11:23 am
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Old Nov 16, 11, 12:10 pm
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Originally Posted by FWAAA View Post
Other than HKG, which cities in Asia are served nonstop by DL or UA that are not served by AA on its own metal? Yes, both UA and DL serve SIN and BKK and TPE on their own metal, but those require connections in Tokyo, just like AA/JAL service.
On DL -- HKG, ICN, KIX, and NGO (and FUK is nonstop from HNL). Also DXB and TLV if one includes the other side of Asia.
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Old Nov 16, 11, 2:44 pm
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Strategic challenges part 1

I had stopped posting here for a while as real world got busier. I do find this thread interesting and drawing me back. I care about AA but after decades may have to slowly move on.

I don't want to purely extrapolate from my experience. I am an EXP (practically since the EXP program was started) and am also a top tier elite on multiple international carriers as I fly a few times a month on business in high rev seats. Personal miles in AA crossed 5M, family miles on AA nearly 9M and over 15M on multiple airlines.

On a broader front, the biggest challenge does seem to be handling the current employee engagement deftly when external environment is getting so choppy again product. That is a big topic in itself and I think best tackled in a separate note.

Right after employee engagement is the challenge of product definition and product positioning. There are US carriers claiming to have:
Best domestic network (WN clear winner but UA, DL claiming to be the same domestic tier while leveraging the global network)
Best overall network (UA, DL with their respective global areas)
Best Latam/Carribean/SouthAm ... Network
Best network for business customers traveling globally (LH probably has one of the best networks with BA, AF not too bad)

All that I see in this area is AA is strong on LHR market, has been competing hard on Americas international market, and addressing Asia primarily thru partners CX, JL but with limited own metal. It's dominance in US markets is lost due to lack of presence in growth regions (for example in tech Facebook, Google, Apple, HP are all SJC/SFO where WN now dominates in SJC, UA in SFO with VX as niche challenger) and a weak network compared to the merged entities or the high growth WN.

On the physical product side, they delayed upgrades for too long barring the 737s but hopefully with the mega order addressed that. They seem to be still licking the wounds from MRTC instead of seeing the brilliant way by which United and now CO and even Delta have improved upon that idea. They may eventually get forced to join the premium economy product option, kicking and screaming.
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Old Nov 16, 11, 2:57 pm
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Originally Posted by enjoystravel View Post
Best Latam/Carribean/SouthAm ... Network
Though you didn't name a carrier here, this is AA by far, isn't it? South America in particular is something of a cash cow for AA. I'd very much like to see them fill the void left by Mexicana as well by expanding aggressively into Mexico.
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Old Nov 16, 11, 3:01 pm
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Originally Posted by phil_flyer View Post
In your opinion, what is AA's greatest strategic business threat going forward? I'd be curious to hear views from flyers, as opposed to the company or an analyst.

My view (colored by my own experience) is that its European and Asia service is too heavily dependent on codeshares and connections in London and Hong Kong.
How many years have I been saying that AA's network is too weak and overly dependent on partners? All the while our forum "experts" have been saying how AA should outsource its network to others simply because of airline X.

Now in the days of super carriers like UA/CO and DL, AA's network looks anemic.

Originally Posted by Science Goy
I'd very much like to see them fill the void left by Mexicana as well by expanding aggressively into Mexico.
I would actually like to see AA establish a subsidiary in Mexico. I know they can only own 25%, but there are other ways of keeping an airline tied to another(Leases, debt, and MX).

Last edited by ByrdluvsAWACO; Nov 16, 11 at 3:07 pm
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Old Nov 16, 11, 3:36 pm
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I don't see how relying on partners to carry over the rest of the trip (ex-NRT or ex-China) is a problem. Perhaps for those of us who use SWUs, this is not as nice as all AA metal because we have to sit in Y for the last leg, but for the PLT or lower, does it really deter them from flying AA? It sure didn't deter me when I was PLT.
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Old Nov 16, 11, 4:06 pm
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Originally Posted by phil_flyer View Post
Iwhat is AA's greatest strategic business threat going forward?
Let's look at competitive differentiators among big competitors:
UA & DL global network with great partners. As Smeisek says: if we or our partners don't go there, "you don't want to go there."

WN most flexible tickets and direct flights almost anywhere to anywhere in the US

B6 & VX best y product

AS Monopoly in Alaska, high value product in/out of SEA/PDX

US low costs and excellent alliance partners

AA? Advantage is marginally better than peer FFPs.
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Old Nov 16, 11, 6:14 pm
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The price of oil.
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Old Nov 16, 11, 6:24 pm
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The existence of other airlines... with a total monopoly AA would do great and possibly even turn a profit.
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