American Airlines has dropped yet another China route. This time it’s the direct flight between Chicago and Shanghai, which will end in October. This follows American Airlines dropping its Beijing-Chicago route in May. An executive from the airline stated that the cut Chinese routes and the company’s Tokyo routes were “colossal loss makers,” but also noted that the company “remains committed to Asia in the long run.”
American Airlines executives have labelled the company’s China routes as “colossal loss makers”
American Airlines has opted to cut these two major Chinese routes due to intense competition with mainland carriers and to falling profitability per seat. Flights on U.S.-China routes via mainland carriers are substantially cheaper than American’s have been.
However, this is not merely a “China affair.” In total, the company is canceling 11 overseas routes. These canceled routes include Philadelphia-Munich, New York (JFK)-Dublin-Edinburgh, and Los Angeles-Toronto. While competition with Chinese airlines no doubt makes flights to and from Asia less profitable, that’s not the case for flights between North American and European destinations.
American has announced the cancellation of 11 international routes, in part due to rising fuel costs
It’s clear that it’s not only problems in the Chinese market that are prompting this decision to cancel key flights to China and elsewhere. The most obvious culprit here is the 30 percent rise in the cost of jet fuel we’ve seen over the last year.
The last few years have been challenging for American in the China market. In early 2017, the company filed a formal complaint with the U.S. Department of Transportation to stop Air China from renewing its permit to fly a route between Beijing and Houston. American argued that Chinese authorities had actively sought to sabotage the company’s ability to compete in China by giving Chinese carriers a virtual monopoly on key routes, particularly between Beijing and Los Angeles.
All the while, major Chinese airlines like China Southern Airlines, Hainan Airlines, China Eastern Airlines, and Air China have only expanded their reach around the world. The blow of more robust competition from Chinese carriers is softened somewhat by American’s investment of $200 million into China Southern last year.
It’s not clear if potential favoritism by Chinese authorities for Chinese airlines contributed to the unprofitably of American’s U.S.-China routes. Given that American is cutting so many routes, it’s unlikely that this is the primary factor in the unprofitable nature of routes to and from China.
The drop in Chinese tourism to United States has forced multiple American carriers reevaluate their current routes to and from China
One development that is almost certainly a relevant factor is the fact that Chinese tourism to the United States has taken a hit this year with rising tensions between Beijing and Washington and the trade war. Lower demand for travel to the United States from China will have only made American’s China routes even less profitable.
American Airlines isn’t the only American airline cutting routes to China. Hawaiian Airlines will be canceling a route between Daniel K. Inouye International Airport in Honolulu and Beijing.
Hawaiian Airlines President and CEO Peter Ingram said, “These decisions are never easy, and this one is especially difficult because we believe in China’s future as a robust market for the Hawaiian vacation experience and we will continue to market one-stop options to Honolulu from cities throughout China on our airline partners.”
Unfortunately for Hawaiian Airlines and the state as a whole, demand for Hawaiian travel experiences wasn’t as high in China as initially expected. Part of this can be chalked up to overall lower numbers of Chinese tourists to the United States.
However, Hawaii is also likely faced with intense competition from destinations that are cheaper and more accessible from China that have similar offerings. Travel from China to tropical destinations like Indonesia, Thailand, and the Philippines is quite cheap and much faster. Moreover, countries like Indonesia, Fiji, the Maldives, Vanuatu, Palau, and Samoa all offer either visa-free access for Chinese tourists or a visa on arrival. Unfortunately, this is one advantage that Hawaii cannot unilaterally obtain.