DALLAS – American Airlines has cut staff, cut flights and even looked to cut in-flight meals as it tries to cut into an avalanche of losses.
Beginning on Tuesday, the world's largest carrier will look to add a new shuttle flight service to the East Coast cities of Boston, New York and Washington as a way of boosting profits. American has lost more than $2 billion in the four quarters since the Sept. 11, 2001 attacks on the United States.
On the surface, the timing looks awful to start the new service with the industry still reeling from the aftereffects of the attacks. The two carriers currently operating shuttle service between the cities -- Delta and US Airways -- have seen about a 20 percent drop off in traffic in the first half of this year.
But American is banking on a strategy of using smaller and cheaper regional jets and tapping into a base of loyal American customers as a way of making the new service work.
"We see this as the right-size aircraft for the right-sized market," said Lisa Bailey, a spokeswoman for regional jet carrier American Eagle, part of American's parent AMR Corp.
American Eagle will start service between Boston's Logan Airport and New York's LaGuardia Airport next Tuesday with 10 daily flights, using Embraer jets that seat either 37 or 44 passengers. The service will add a similar link between LaGuardia and Washington's Reagan National Airport a week later.
"We needed to build American's presence on the East Coast," Bailey said. "We know that there are American passengers and American Advantage frequent flier members who are out there in those markets who are selecting another product."
US Airways Group , which recently filed for federal bankruptcy protection, flies Airbus A320s that seat 150 passengers on its shuttle that runs 16 daily New York-Boston flights, 15 from New York to Washington and 14 between Boston and Washington.
Delta Air Lines uses Boeing 737-800 with a similar seating capacity and currently offers 17 daily flights between New York and Boston and another 15 New York-Washington flights.
Lower Cost Shuttle
Although Bailey would not disclose the cost of operation for a regional jet compared to a larger jet, she said RJs offer lower fuel and crew costs as well as cheaper landing fees because of their lighter weight.
"This is a niche market where American thinks it can make money. In a sense, they are emulating the Southwest Airlines model by providing point to point service with high frequencies and lower operating costs," said Bernard Weinstein, a professor of applied economics at the University of North Texas and an airline analyst.
Weinstein said that American might also be looking to take traffic away from US Airways as it struggles through bankruptcy procedures and capture passengers from Amtrak's high-speed Acela train service, which has been plagued with operating problems.
Increased security at airports after the Sept. 11 attacks has helped Amtrak attract customers on the East Coast with travelers willing to jump on the train than go through the "hassle factor" of passing through the checks at airports, analysts said.
Delta and US Airways have special gates for shuttle passengers as well as offering discounts and frequent flier miles to passengers who spend more than 20 minutes at the gate.
American will be using its regular American Eagle gates for its shuttle passengers, who will find their quarters on the RJs a bit more cramped than the offerings on Delta and US Airways.
American said its prices on the shuttle will be competitive with its rivals. Round-trip tickets on next week's initial flights between Boston and New York - with travel on the same day - were $344 to $453 on American Air's Internet ticket site.
American will try to sweeten the pot by offering triple frequent flier miles through Dec. 31.
David Stempler, president of the Air Travelers Association, said that American has a strong core of customers in its American Advantage frequent flier program, which was one of the first in the business.
"All things being equal in terms of price and schedule, frequent flier programs tend to be the tiebreaker in selecting a carrier," Stempler said.