How American Airlines Will Respond To Low Cost Carrier Growth In Miami

American Airlines has several options at the moment when it comes to their Miami flight operations, including the addition of several new routes and the closing of others. This post will focus on American Airlines’s response to the growth of low cost carriers in Miami by analyzing the current state of the Miami flight operation and the impact that low cost carriers will have.

If you’ve been following my regular updates on the trade war between the U.S. and China, you know that I’ve been pretty down about the anti-competitive behavior of American Airlines and United Airlines against low-cost carriers in Miami. That’s because they’ve been holding up the growth of one of Miami’s largest and most important economic sectors: the air travel business.

The airline industry is under pressure, as it always is. Competition is heating up, and the carriers are looking for more ways to boost their revenue. American Airlines is doing just that, with some of the most aggressive plans ever for competing with the low-cost carriers in America. What’s more: American is not only competing in the Americas, but in more parts of the world than ever before.

How will American Airlines respond to the growth of low-cost carriers in Miami

Gary Leff 20. June 2024

American Airlines has experience with competition from Spirit Airlines at Dallas-Fort Worth and at its Chicago hub, O’Hare. They now face a sharp increase in Spirit’s activities in Miami. Former Spirit Airlines CEO Ben Baldanza explored game theory in his Airlines Confidential podcast about how American Airlines is likely to respond.

American has benefited from the high cost of the Miami airport by deterring low-cost competitors and allowing American Airlines to maintain high fares. Baldanza said Spirit would have had to increase its fares by $20 per ticket to cover the additional cost of operating out of Miami (compared to the cost in Fort Lauderdale).

Now that Miami has lowered its rates, the Spirit can compete. Most flights are once a day, some less than once a day – only New York’s LaGuardia Airport is served twice a day. These routes will not be discontinued for American Airlines, and American Airlines’ response will be important.

American Airlines may be responding specifically to the Spirit invasion:

1. More economic base rates, similar to Spirit rates. They don’t want to lose the passenger market to Spirit. But they don’t want to make those who would pay more pay less. On the basis of basic economic principles, they can segment the market so that the average fare does not fall as much, even though they are competing for passengers.
2. Guide prices by time of day and day of week. American Airlines only has to lower its fares on flights that coincide with Spirit’s flight times. Passengers who wish to fly at other times will not be able to use Spirit’s service, allowing American Airlines to maintain its current fares.

There is no doubt that Spirit is hurting American Airlines with so many flights to so many markets. American Airlines will lose passengers and receive less revenue from some of the passengers it will retain. But it’s not a blow to Central either. And lower prices are likely to attract more people to the market. Some of these people are going to fly American Airlines, not just Spirit. And these are customers with additional costs, such as. B. for checked baggage and seats, and even potential customers with co-branded credit cards.

Baldanza, who not only led Spirit but also worked for American and US Airways, doesn’t think American will reciprocate by bringing large numbers of passengers to Fort Lauderdale. Their previous actions in Fort Lauderdale have failed (e.g., against JetBlue). And the current economic situation is such that they are less inclined to operate unprofitable flights out of spite (or as a credible threat against further encroachment and to encourage Spirit to leave Miami in the hope that American will lift Fort Lauderdale).

I would add that the increased capacity in South Florida will further weaken their own position in Miami, and they are somewhat limited on short-haul routes as they already have most of their domestic capacity for 2019 in their planned schedules.

In other words: American Airlines will respond surgically rather than nuclearly when the Spirit arrives at its hub in Miami.

Lake View from the Wing

Since joining forces in 2012, American Airlines and Norwegian have established their presence in Miami with a fairly quick buildup. While American hasn’t eliminated the combination’s competition yet, Norwegian has established a very strong presence in the city, due to a new non-stop daily service to Oslo, Norway. Could this be the start of an American-Norwegian alliance in the city?. Read more about airline blogs and let us know what you think.

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