Four new destinations. Six new routes. Additional frequencies to another five airports. American Airlines is making big changes in Mexico, the Caribbean and South America over the coming year. It is also making a few cuts; those are not mentioned in today’s announcement.
A few nice adds
On the growth side the biggest news is adding service between Los Angeles and Buenos Aires. Flights from LA to South America historically struggled to succeed, though many of those were focused on Brazil rather than Argentina. Also, few have attempted to operate with the improved cost economics of a 787 versus prior generation aircraft. That should help American’s chances this time around. The bulk of the new services also launch in December, timed for the peak holiday travel season. That should also give them an early boost for traffic and yield.
Also slightly surprising on the growth side is an increase in frequencies to Caracas, Venezuela. That’s a market that carries all sorts of risk and is pretty terrible for airlines to operate in. Industry trade group IATA estimates nearly $4 billion in airline revenue is trapped in the country. The government will not release it to the carriers unless they accept a massive discount on the currency conversion rate. It is essentially a write-off for those carriers now.
But also the cuts
American’s service to Brazil takes a hit with the new plans. Belo Horizonte is being dropped from the American route network while Rio de Janeiro and Sao Paulo will see frequency reductions or loss of seasonal service. Flights between DFW and Quito are also being dropped. The Brazil cuts are being blamed on “market conditions” in Brazil. That explanation is a tough one considering other carriers signaling growth in the market.
Another possible explanation is the expected imminent implementation of the joint venture agreement with LATAM. The arrangement will cover flights between the USA and Canada at the northern end and Brazil, Chile, Colombia, Paraguay, Peru and Uruguay in South America. Approval for the deal is already in place for Brazil, Colombia and Uruguay; Chile remains pending. Argentina is excluded from the JV so American’s choice to backfill the LA-Buenos Aires route makes some sense.
LATAM can help fill in the reduced AA frequencies to Rio and Sao Paulo. Or the two can agree to keep the combined frequencies slightly lower. That sort of collusion and capacity discipline is key to the success of the joint venture arrangements, helping to push prices on the flights higher.
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