Sep 24, 2020
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Despite Booming Demand American Airlines Can’t Make Money Flying Chicago-Beijing? Will It Ever?

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A group of travellers gather together to gather their airline tickets at Beijing s Capital. [+] The Chicago area has more than 9. 5 million people is one of the world s most dynamic business markets and is home to the sixth-busiest airport in the world by variety of passengers

 

The Beijing China area has nearly 22 million people is the capitol of the area s largest nation in terms of population (and one of the world s fastest growing economies) and is home to the area s second-busiest airport. So you d think that an airline could make money good money flying between those two cities especially if it operated a large hub in one of them

 

But American Airlines apparently couldn’t so it s going to quit trying for now. When Beijing s huge new $12 billion airport opens – scheduled for October 2019 though that date could slip slightly – American plans to relaunch the service using then as yet unnamed Beijing airport rather than over-crowded Beijing Capital Airport

 

But for a year or more American would be out of a market that it fought for more than two decades to serve. American announced earlier this month that it ll discontinue its Chicago-Beijing flying effective Oct. 20. The company admitted that except for 2010 the 1st year that it flew the route it had never made a profit flying Chicago-Beijing

 

In fact it s not clear that American the area s largest airline will have the capacity to turn a profit flying between Beijing and its hub at Chicago s O Hare International Airport once it restarts service using the hot Beijing Airport. Competition for travel between the United States and China has heated up beyond anyone expectations especially with plenty of new service between China s second tier cities (Shanghai with 34 million people Guangzhou with 25 million and Beijing form the 1st tier) and multiple large U

 

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[+] Though American officials didn t say so explicitly the implication is that the Fort Worth-based airline does make money on its Beijing routes to Los Angeles and Dallas/Fort Worth Airport. And during the carrier s hiatus from the Chicago-Beijing route you can bet that it will do its best to re-route as many Beijing-bound and Beijing-originating passengers as possible over DFW and Los Angeles International Airport

 

But a large percentage of American s Chicago-originating passengers – many of them high-fare paying business travelers who prefer traveling with American over flying on hometown carrier United which operates an even larger hub at O Hare – will have to buy tickets to Beijing on United or Hainan Airlines the only two carriers that ll be left actively flying between both cities

 

And that will weaken American s O Hare hub operation which already significantly lags United in sheer size and to a lesser degree in revenue generation ability. It wasn t supposed to be this way. For years – more than two decades really – American officials fought in Washington and Beijing for rights to fly Chicago-Beijing

 

American always were behind the curve in trans-Pacific flying dating back to post-World War II days when the U. S. government gave only two carriers – Pan American and Northwest Orient rights to serve Asia. Both were successful at doing so in the years before deregulation. Pan American however struggled to compete after deregulation in 1978 and sold its Pacific division to United Airlines in the mid-1980s for what in hindsight sounds like pocket change

 

Northwest Orient eventually merged with several smaller U. S. domestic airlines to become Northwest which a decade ago entered bankruptcy and re-emerged as part of Delta. Thus while any other two members of the U. S. big three Delta and United wound up with deeply-rooted and successful trans-Pacific divisions American had to build its own from scratch

 

In 2010 it was allowed to launch Chicago-Beijing service but the Chinese never have allowed American the use of prime time arrival and departure slots which are time-specific rights to take off and land at Beijing Capitol. The slots American currently uses are better than their original Beijing slots but they still have its Chicago flight arriving after 10 p

 

m. local time. That makes it almost impossible for American to sell seats to travelers wishing to visit Chinese cities beyond Beijing. Few flights depart Beijing after 9 p. m. Like most Chinese cities the capitol tends to essentially shut down an hour or two after dark. American tried creating a code-sharing partnership with Hainan China s fourth-largest carrier

 

But it never really worked well. Hainan despite being based at Beijing Capitol is only the fourth-largest carrier there and has access to far fewer gates and slots than its larger rivals. Meaning it truly is compelled to allocate most of its seats to local passengers who pay relatively high fares and not to passengers from arriving American flights and from whom Hainan would receive significantly less on a per mile-flown basis

 

And there s the problem of Hainan s own Chicago-Beijing flights which compete directly against American s. Meaning Hainan had very little incentive to actually help American market its flights by arranging its domestic flights at Beijing to better accommodate passengers arriving on American s flights. So it wasn t surprising when both ended their partnership last year

 

Additionally during the last four years demand for international flights among Chinese citizens has exploded beyond anyone s expectation. That s brought about plenty of new flights from second-tier cities to various U. S. cities. Thus fewer Chinese must fly first to Beijing (or Shanghai or Guangzhou) to connect to a flight to the States

 

American officials are hoping the hole of the hot Beijing Airport about 40 miles south of the city s center (Beijing Capitol is set 30 miles north of downtown) will mean it can get much better-timed operating slots. That could allow it to build an improved partnership there with China Southern

 

American last year invested $200 million in China Southern to forge a strong relationship with the Guangzhou-based carrier that is majority-owned by China s government. Indeed American is seen as likely trying to get China Southern to modify its global alliance affiliation from Skyteam (Delta s alliance) to American s own oneworld alliance

 

A sticking point is the oneworld membership of Hong Kong-based Cathay Pacific one of China Southern s chief rivals. But Cathay always has been one of the least committed members to oneworld so a one-for-one switch in alliance teams doesn’t be altogether surprising. Still the now heavily-served U. S. -China air market is becoming an increasingly difficult one wherein airlines can make profits

 

United officials have complained bitterly in recent years about increasing competition on their China routes undermining their profits on what for decades were hugely profitable routes. Delta too has reported shrinking profits from its flights to Asia particularly in light of Chinese carriers rapid increase in service to the United States and the hole up of more routes to from or even between second-tier cities in both nations

 

Thus it s not a seeing that American will have the capacity to turn profits on Chicago-Beijing flying even after it launches service to the hot Beijing airport. Accordingly it wouldn t be a total shock if come late 2019 or 2020 when that huge new airport opens American decides to remain at the sidelines at least for a while

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