Why American Airlines Stopped Making Money

American Airlines is one of the world's largest airlines but the weakest financial performer among the three major US carriers. By measures such as scheduled flights and passengers carried, American leads the industry. Yet Delta and United outperform it on key financial measures, including profitability and margins.

American's financial problems reflect a series of strategic decisions made since 2020. The analysis argues that management repeatedly misjudged demand, aircraft requirements, market opportunities, partnerships, and customer relationships, leaving the airline increasingly disadvantaged against Delta and United.

The COVID-19 pandemic forced airlines to predict how quickly different types of travel would recover. Airlines expected domestic and short-haul demand to return before international long-haul travel because of government restrictions and passenger preferences. The immediate challenge was deciding whether to store or permanently retire aircraft that would not be needed for some time.

United Airlines retained its entire long-haul fleet during the pandemic. It placed surplus aircraft into storage rather than permanently removing them from service. Some remained at maintenance hubs, while others went into longer-term storage at desert airports, including Roswell, New Mexico, and Victorville, California.

Delta followed a similar strategy but permanently retired 18 Boeing 777 aircraft. These were older, comparatively inefficient aircraft already approaching the end of their useful commercial lives. Delta retained the rest of its long-haul fleet for the anticipated recovery.

American permanently retired its Airbus A330, Boeing 767, and Boeing 757 fleets. These retirements reduced its long-haul fleet by approximately 30%, reflecting a much more pessimistic outlook for international travel than its competitors had adopted.

International travel recovered much faster than American's fleet strategy anticipated. By summer 2022, transatlantic demand had returned to approximately 90% of normal levels as vaccinated American and European travelers resumed international journeys.

Pent-up demand produced unusually high transatlantic airfares in 2022. After roughly two years of restricted international leisure travel, customers were willing to pay exceptionally high prices. This created an opportunity for airlines with sufficient aircraft to expand service and capture substantial revenue.

American could operate only 80% of its normal summer 2022 schedule despite targeting 89%. Its original capacity target would have closely matched the approximately 90% recovery in transatlantic demand. However, permanent aircraft retirements and delayed replacements prevented it from reaching that target.

Boeing manufacturing problems delayed 13 Boeing 787 deliveries expected by American. Problems with adjustments to the joints between fuselage sections led the Federal Aviation Administration to halt deliveries until Boeing corrected the issue. American consequently entered the high-demand summer 2022 season without aircraft it had expected to receive.

American eliminated historically successful transatlantic routes to Edinburgh and Shannon. Both destinations had previously been served by Boeing 757 aircraft, whose relatively small size made them suitable for thinner transatlantic markets. After retiring the 757s, American prioritized larger destinations that could better support its remaining widebody aircraft.

American also discontinued its struggling Seattle–London route during its 2022 capacity adjustments. The route was among the services sacrificed as the airline concentrated scarce long-haul aircraft on markets with stronger expected returns.

Aircraft shortages forced American to reduce service outside Europe to strengthen its transatlantic network. It eliminated Los Angeles–Sydney and Dallas–Santiago services while reducing frequencies to São Paulo, Beijing, and Shanghai. These changes demonstrated how shortages in one part of its fleet affected its broader international network.

International travel spending continued growing well beyond the initial pandemic recovery. Americans spent approximately 17% more on international travel in 2023 than in 2019, increasing to 27% more in 2024. Strong demand therefore persisted after American's initial opportunity to benefit from the recovery had passed.

American's reduced fleet prevented it from fully benefiting from the international travel boom. Delta and United retained more capacity and were better positioned to accommodate returning customers. The analysis concludes that American surrendered revenue opportunities to both competitors.

American's aircraft retirements also created an unfavorable balance between newer and older aircraft. Newer aircraft generally cost more to lease or finance, although their improved fuel efficiency can offset those expenses. The financial advantage depends on flying them enough hours to justify their higher fixed costs.

Airlines benefit from maintaining a mixture of expensive, fuel-efficient aircraft and cheaper older aircraft. During busy seasons, high aircraft utilization helps newer planes earn back their additional costs through fuel savings. During quieter periods, airlines can reduce flying with older aircraft that carry lower financing or leasing costs.

American's newer aircraft became difficult to utilize profitably throughout the year. Winter travel demand is lower than summer demand, creating fewer profitable opportunities to operate aircraft. With fewer older planes available to reduce seasonal capacity, American faced greater pressure to keep expensive aircraft flying.

New-generation widebody aircraft account for 47% of American's long-haul fleet, compared with 32% at United and 37% at Delta. The figures illustrate how substantially American's fleet composition differs from its major competitors.

Only 27% of American's long-haul fleet consisted of newer-generation widebodies in 2019. Had management retired fewer older aircraft during the pandemic, its present fleet composition could have been much closer to that of United and Delta.

American deferred some future Boeing 787 deliveries despite previously suffering from an aircraft shortage. Management slowed planned fleet growth after recognizing the financial burden associated with having too many expensive new aircraft relative to opportunities to operate them profitably.

American's fleet composition limits its ability to exploit seasonal international markets. Because newer aircraft require consistently high utilization, the airline has an incentive to concentrate them on destinations with substantial year-round demand, including London, Tokyo, and Sydney.

American has historically struggled to compete across the Pacific. Although transpacific demand is smaller than transatlantic demand, it remains commercially significant. United, Delta, and foreign airlines have consistently captured more of this market than American.

Los Angeles is a structurally difficult transpacific hub for American. LAX is the only airport officially designated as a hub by American, Delta, and United. Competition among the three prevents any one of them from developing the same dominant connecting network there that might be possible at another hub.

American's relatively limited domestic network at LAX weakens its international connections. Fewer feeder flights mean fewer passengers can conveniently connect from American's domestic services onto its transpacific departures. This makes competing on total journey time and connection convenience more difficult.

United concentrates its transpacific operation at San Francisco, while Delta emphasizes Seattle. Both airlines have larger domestic connecting networks at their preferred Pacific gateways than American operates at LAX. This helps them offer competitive connections between more combinations of American and Asian destinations.

American reduced its long-haul network from Los Angeles from nine destinations to five following the pandemic. It eliminated Beijing, Shanghai, Hong Kong, São Paulo, and Tokyo Narita while adding Brisbane. Sydney, Auckland, Tokyo Haneda, and London remained.

American attempted to establish Seattle as an alternative international gateway through a partnership with Alaska Airlines. The companies announced the arrangement approximately one month before the pandemic. It would allow customers to combine Alaska-operated domestic flights with American-operated international flights on a single itinerary.

Alaska's domestic network was central to American's Seattle strategy. Alaska already had a strong presence in Seattle but operated primarily short-haul services at the time. American intended to provide the long-haul flights that Alaska lacked, creating a complementary network capable of competing more effectively against Delta.

Seattle–Bangalore was intended to be the partnership's flagship international route. Bangalore's large technology industry and economic connections with the United States created significant potential travel demand. No airline had previously established the proposed nonstop connection.

Seattle's geographical position made a nonstop Bangalore flight more practical than operating it from Los Angeles. American expected the flight to take approximately 15 hours. The route could not comfortably operate year-round from LAX with a full commercial payload, while Seattle offered a more suitable starting point.

American also planned Seattle–London service to connect passengers with British Airways. British Airways was American's principal European partner, and London would provide onward connections through its hub.

Shanghai was announced as a third planned long-haul destination from Seattle. The service was initially scheduled to begin in March 2021, extending the proposed partnership's international reach into China.

Only the Seattle–London route entered service among the three planned international routes. The Bangalore and Shanghai services never materialized as originally proposed, undermining the intended development of Seattle as a significant American international gateway.

The proposed Bangalore service suffered successive setbacks that eventually made it impractical. COVID-19 initially suppressed demand, Boeing 787 delivery delays constrained available aircraft, and American prioritized established routes. Russia's invasion of Ukraine then created another obstacle.

Russian airspace restrictions placed Bangalore beyond the practical range of American's planned Seattle operation. Following Western sanctions, Russia barred airlines from sanctioning countries from its airspace. The resulting detour added approximately two hours to the flight, making the planned nonstop route commercially impractical with the available aircraft.

Seattle–London delivered limited additional value because British Airways already operated multiple flights on the route. British Airways and American already cooperated through their existing partnership, so American's additional service did relatively little to establish a new competitive advantage.

American repeatedly postponed Seattle–Shanghai because of China's prolonged pandemic restrictions. Those restrictions suppressed demand longer than in many other international markets. American eventually chose to operate a few weekly Shanghai flights from Dallas instead.

Alaska Airlines subsequently moved toward becoming a long-haul competitor rather than remaining dependent on American. Alaska announced plans to merge with Hawaiian Airlines, which possessed widebody aircraft capable of operating international routes.

Hawaiian Airlines' financial difficulties created an acquisition opportunity for Alaska. Demand from Japanese vacationers visiting Hawaii had fallen because of unfavorable exchange rates, elevated hotel prices, and prolonged pandemic restrictions. Hawaiian's weakened position allowed Alaska to negotiate what the analysis describes as favorable merger terms.

Alaska intended to redeploy some Hawaiian widebody aircraft to establish its own long-haul network from Seattle. This would give Alaska the ability to operate international routes itself rather than relying on American to provide that part of the partnership.

American and Alaska gradually reduced their cooperation as their strategic interests diverged. American ultimately announced the cancellation of its remaining Seattle long-haul operations, ending its attempt to establish the city as a major international gateway.

American emerged from the Seattle experiment with a weaker transpacific position than before the pandemic. The planned Bangalore and Shanghai routes never launched, London added limited competitive value, and Alaska's expansion threatened to replace American's intended role. The analysis presents the initiative as a costly diversion that failed to solve American's original Pacific network weakness.

Austin, Texas, became another major expansion target for American after the pandemic. The city's growing technology industry, relatively affordable living costs, warm climate, and appeal to remote workers attracted an influx of residents, including higher-income professionals.

Austin's air travel demand recovered approximately one year ahead of the national market. Passenger demand at Austin reached its pre-pandemic level in April 2022, while the United States overall did not achieve the same recovery until April 2023.

American saw an opportunity in Austin because none of the three largest US airlines controlled the airport as a hub. American, Delta, and United served the airport primarily through flights connecting Austin with their established hubs.

American expanded from eight Austin destinations at the beginning of 2021 to nearly 40 by the end of that year. This rapid expansion increased its available seat capacity by almost five times.

American's Austin strategy was partly designed to prevent Delta from establishing dominance. Delta had designated Austin a focus city shortly before the pandemic but had not yet significantly expanded its operations. American attempted to establish a larger presence before Delta could fully execute its plans.

Austin's airport gate allocation rules encouraged aggressive expansion. Airlines generally needed to operate at least seven daily departures from a gate to retain its use. With the airport approaching capacity, expanding flight schedules could also help American secure scarce infrastructure.

American hoped to occupy enough Austin gates to constrain Delta's expansion for years. The airport's major expansion was not expected to finish until the 2030s. By maintaining a dominant presence until then, American hoped to establish long-lasting customer loyalty among Austin's growing population.

Austin lacked sufficient demand to support American's nearly fivefold capacity expansion. Although the local market was growing rapidly, passenger numbers were not large enough to make the greatly expanded schedule commercially sustainable.

American attempted to improve Austin's economics by using smaller regional aircraft. Regional jets could better match capacity to demand on thinner routes, potentially reducing the financial burden of operating an extensive network.

American's pilot labor agreement restricted how many regional flights it could operate from non-hub airports. Regional pilots generally earned less than mainline pilots, and the union agreement limited the use of regional aircraft outside established hubs. American's Austin expansion pushed against those restrictions, undermining its attempt to operate smaller aircraft extensively.

Austin's population boom began losing momentum by 2023. Rising housing prices eroded the city's cost-of-living advantage, while the number of people moving there fell to approximately half the previous year's level.

American substantially reduced its Austin network after the market failed to justify its expansion. Slowing population growth, insufficient passenger demand, and labor restrictions weakened the original business case. The airline abandoned much of the capacity it had introduced.

American also attempted to address its weak position in the New York market through the Northeast Alliance with JetBlue. American had the smallest market share among the major carriers in this valuable region and faced limited opportunities for organic expansion.

Capacity restrictions at JFK, LaGuardia, and Newark made it difficult for American to expand independently. With airport capacity constrained, American sought to improve its competitive position by coordinating operations with an existing airline rather than building an entirely new network.

The Northeast Alliance allowed American and JetBlue to coordinate routes, share revenue, and sell flights together. The arrangement was designed to combine their networks into a more competitive offering against United and Delta.

American and JetBlue redistributed routes to reduce duplication and improve their combined network. American discontinued its Orlando service, allowing JetBlue to expand flights to that destination while American deployed its aircraft elsewhere.

American eliminated 18 destinations as part of the Northeast Alliance's network restructuring. Ten of those destinations were effectively transferred to JetBlue, allowing American to concentrate more resources on other services.

American expanded international service during the Northeast Alliance, adding flights to Santiago, Athens, Tel Aviv, Doha, and New Delhi. These additions were intended to complement JetBlue's expanded domestic presence and create a stronger combined network.

The airlines argued that their partnership would improve competition against United and Delta. Their central defense was that combining two comparatively weak competitors would create a more effective challenger to the stronger airlines serving New York.

The US Department of Justice sued to block the Northeast Alliance on antitrust grounds. Regulators argued that coordinating networks and sharing revenue between American and JetBlue reduced competition between the two airlines.

The court rejected the argument that creating a stronger combined competitor justified the alliance. The judge emphasized that American antitrust law protects competition itself rather than permitting competitors to coordinate merely because doing so might strengthen their position against larger rivals.

American and JetBlue were forced to terminate the Northeast Alliance. Their route networks subsequently returned approximately to their previous arrangements, undoing much of the operational restructuring undertaken to support the partnership.

The Northeast Alliance became another major initiative that failed to deliver lasting benefits. American had invested resources into reorganizing routes and coordinating operations, only to reverse much of that work following the antitrust ruling.

American subsequently targeted corporate travel distribution as a potential source of cost savings and additional revenue. Although leisure travelers increasingly book flights directly, many businesses still rely on travel management agencies to arrange employee travel.

Corporate travel agencies perform functions that extend beyond purchasing airline tickets. They ensure bookings comply with company policies governing ticket prices, cabin classes, refundability, and other travel requirements. These services make agencies important intermediaries between airlines and business customers.

American wanted corporate travel agencies to abandon traditional Global Distribution Systems in favor of New Distribution Capability technology. The older GDS infrastructure had connected airlines and agencies for decades but was expensive to operate and offered fewer capabilities than the newer NDC approach.

American believed NDC would improve its ability to sell additional products and services. The newer distribution system promised lower operating costs and more opportunities for ancillary sales and upselling.

Travel agencies resisted NDC because switching systems required substantial technology investments. Agencies would have needed to redevelop parts of their booking infrastructure, while the commercial benefits primarily favored American rather than the agencies themselves.

American attempted to force adoption by removing its cheapest 40% of fares from the traditional distribution system. These prices remained available through the newer system. Agencies unable to access NDC could therefore offer clients only more expensive American tickets, weakening their competitiveness.

American also removed mileage-earning benefits from bookings made through agencies that failed to meet its new requirements. The measure added pressure on agencies and their customers to adopt American's preferred distribution arrangements.

The broader strategy sought to reduce American's dependence on intermediaries and establish a more profitable relationship with corporate travelers. Management assumed it possessed enough commercial leverage to persuade agencies and customers to change their established booking practices.

Corporate travel agencies largely refused American's demands and shifted bookings toward competing airlines. Rather than invest in new technology on American's terms, agencies avoided selling its flights when possible.

Corporate customers generally remained loyal to their travel agencies rather than switching to direct airline bookings. American had underestimated the importance of established corporate travel arrangements and overestimated its ability to bypass the intermediaries serving those customers.

American reversed its corporate distribution changes by summer 2024. The attempt to force agencies onto its preferred system failed to produce the anticipated commercial benefits.

The corporate sales strategy was estimated to have cost American approximately $1.5 billion in revenue during its first year. The analysis also argues that damaged relationships with travel agencies could continue affecting the airline after the formal policy reversal.

American neglected its established Chicago hub while pursuing expansion projects elsewhere. Management concentrated on initiatives in Seattle, Austin, New York, and corporate distribution as United strengthened its competitive position in Chicago.

American operated 21% fewer seats from Chicago in 2024 than in 2019. United, by comparison, maintained approximately its previous level of capacity, allowing it to strengthen its relative presence.

American's reduction in Chicago service weakened its customer loyalty and competitive position. By offering fewer flights and connections, it created opportunities for United to attract passengers who might previously have chosen American.

Chicago's gate allocation system penalized American for underusing airport facilities. Like Austin, Chicago allocated gates partly according to airline utilization, so reducing flights also threatened American's access to valuable airport infrastructure.

Chicago authorities removed four gates from American as part of an airport-wide reallocation. United gained five gates following a broader reshuffling involving multiple airlines, giving it additional capacity to develop its Chicago hub.

American challenged the Chicago gate reallocation through litigation but ultimately lost. Its legal effort failed to reverse the consequences of reduced utilization, leaving United with a stronger platform for future expansion.

American's financial performance deteriorated substantially relative to Delta and United. The analysis describes its competitive financial position as the weakest in more than a decade, with quarterly earnings billions of dollars below those of its two principal rivals.

American's repeated strategic failures increased pressure on its remaining leadership. The combination of missed international demand, unsuccessful hub initiatives, corporate sales losses, and declining Chicago competitiveness created an urgent need to restore profitability.

Vasu Raja, American's chief commercial officer, departed in June 2024. Raja had overseen the controversial corporate travel distribution strategy that damaged relationships with agencies and contributed to substantial revenue losses.

American began rebuilding its corporate sales organization after abandoning the failed distribution strategy. Restoring relationships with corporate customers and their travel agencies became part of the airline's effort to recover lost business.

Boeing 787 deliveries gradually began increasing American's long-haul capacity. These aircraft provided an opportunity to expand international operations and serve markets that remained commercially attractive after the pandemic.

American's earlier aircraft configurations had too few premium seats to fully exploit strong business-class demand. The analysis identifies business class as the most profitable portion of a long-haul aircraft and notes that demand for premium travel strengthened as consumer travel spending increased.

American's existing Boeing 787-9 configuration offered only 30 business-class seats, compared with 48 on United's comparable aircraft. This difference limited American's ability to generate premium-cabin revenue on routes where customers were willing to pay higher fares.

American introduced a new Boeing 787 configuration featuring 51 lie-flat business-class seats. The additional premium capacity was designed to capture more revenue from high-paying passengers and correct an important weakness in its previous aircraft layouts.

American planned to introduce Airbus A321XLR aircraft to replace some capabilities lost with the retirement of its Boeing 757 fleet. The A321XLR is a long-range narrowbody aircraft equipped with additional fuel capacity and lie-flat business-class seating.

The A321XLR would make smaller transatlantic markets more economically practical for American. Its narrower cabin and long-range capabilities would allow the airline to serve lower-demand European destinations without committing a larger widebody aircraft.

The A321XLR could also improve profitability on routes that do not consistently support widebody aircraft. American would gain greater flexibility to match aircraft capacity with passenger demand, potentially restoring some destinations lost following the 757 retirements.

American's recovery measures primarily address problems created or worsened by its post-2020 decisions. Rebuilding corporate sales, receiving delayed aircraft, introducing more business-class seating, and restoring long-range narrowbody capability largely return the airline toward its pre-pandemic position.

American was already the weakest financial performer among the three major US airlines before COVID-19. Returning to its previous operations would therefore not automatically resolve the structural disadvantages that existed before management's subsequent strategic mistakes.

The analysis identifies a consistent pattern of investing in strategies that were later abandoned or reversed. Seattle's international expansion collapsed, Austin's rapid growth proved unsustainable, the Northeast Alliance was dissolved, and the corporate distribution overhaul was withdrawn. Each initiative consumed resources without establishing the durable competitive improvement management had sought.

American's mistakes also weakened valuable existing operations. Its fleet decisions restricted international growth, while reduced attention to Chicago allowed United to gain customers and airport gates. The consequences therefore extended beyond the direct financial cost of unsuccessful new initiatives.

American faces the challenge of rebuilding its competitive position while Delta and United continue benefiting from stronger networks and financial performance. Restoring previously lost capabilities may help stabilize the airline, but the analysis argues that more substantial strategic improvements are necessary to close the gap.

Continued underperformance could leave the US airline industry increasingly dominated by Delta and United. The episode concludes that unless American finds effective solutions to its underlying problems, the country's three-carrier competitive structure could gradually resemble a duopoly.