Published in March 2016 issue
By Rohan Anand
In Tokyo, US carriers have been left frustrated by their experiences at Haneda Airport (HND) since 2010. Haneda, publicly owned by the Japanese government, is located more conveniently for central Tokyo than Narita (NRT). That makes it more attractive to premium travelers.
In 2010, Haneda completed the construction of a new runway and international terminal. Global airlines could now bid for limited night time slots. Several US carriers won such rights, only to discover that the mandated late-evening arrival and early-morning departure times are terrible: connections are limited beyond Haneda and flight times sync poorly with public transportation into Tokyo. Passengers have to contend with expensive cab fares at odd hours. And aircraft sit idle overnight, incurring costs from low utilization.
In London, longtime oneworld partners British Airways (BA) and American Airlines (AA) once faced heavy partnership restrictions prior to the 2008 Open Skies agreement. American was forced to fly into the less-desirable London Gatwick airport (LGW) from several US hubs, and briefly operated a flight from New York Kennedy (JFK) to London Stansted Airport (STN), until it flopped. Both BA and AA realize that their premier passengers prefer flights into London Heathrow (LHR), where both carriers operate substantial services with ideal scheduling and connection opportunities.
The formulation of an immunized joint-venture agreement between British Airways, Iberia (IB), Finnair (AY), and American has granted oneworld better connections between the European subcontinent and the Americas. At Heathrow, according to the CAPA Centre for Aviation, oneworld carriers maintain 55.6% of international seat share, versus 19.9% for Star Alliance and 7.1% for Skyteam.
The situation in Brazil is more volatile. Though oneworld accounts for 48.1% of international seats at São Paulo Guarulhos airport (GRU), American quickly entered service to Campinas Viracopos airport (VCP) to compete directly with Azul Airlines (AD) after the latter started long-haul flights to Fort Lauderdale (FLL) and Orlando (MCO). American retaliated with service from its Miami (MIA) and JFK hubs to VCP. But it soon retreated, dropping New York after three months, and converting Miami to seasonal in winter 2016.
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On paper, the fight to build market share in resource-constrained, but historically lucrative and high-growth markets seems pragmatic. But, in practice, the results can resemble round objects placed into square holes. Naturally, American wants to leverage its oneworld partnerships to create ‘shuttle’ services along corridors such as New York/London, Los Angeles/Tokyo, and Miami/São Paulo; using a secondary airport can play a role in that strategy, but unpredictable external and commercial conditions can fairly quickly foil any plan.
For instance, the 2011 Japan earthquake occurred weeks after American had launched its New York-Tokyo Haneda flight. Demand plummeted, and the route never managed to recover. Currency issues in the form of a weak Japanese yen and Brazilian real have plagued American’s performance in Asia and Latin America.
Commercially speaking, high-yielding customers prefer schedule flexibility from familiar airports. Frequent fliers get confused when an airline splits its operations between two airports in a foreign market, and get frustrated when the products misalign; for instance, American sends its top premium aircraft, the 777-300ER, to São Paulo Guarulhos, and its most outdated, the 767, to São Paulo Viracopos from its US hubs. High-yielding customers notice.
But are secondary airports redundant? Not necessarily.
By leveraging oneworld partnerships, American gets an offline presence at a secondary airport without investing its own dedicated resources. JAL operates a handful of long-haul flights from Haneda to provide reliever operations for spill traffic from Narita. The Japanese government has also considered granting US carriers daytime flight options to improve load factors on Haneda flights— but no concrete deadlines have been provided. In London, British will add service between New York and Gatwick to capture London point-of-sale traffic for passengers residing in Southern England.
In short, this strategy minimizes cannibalization and decreases costs while reaping large benefits.
Brazil will require more effort with American’s LATAM Airlines Group partnership as they work towards a joint venture, a step it has already taken with British Airways and Japan Airlines. But the logic remains the same: the process requires a delicate balance between opportunity, risk, and market reality.