The city of Austin is a special case in American’s network. A major destination hub for business, education, and leisure travelers, American has been steadily growing in the city. However, previously, the airline focused on connecting Austin to its hub cities and key spokes. Yet, throughout 2021, American has shown it is willing to go beyond what it used to do, and now, it is developing Austin into a strong spoke city. But, growth in Austin came at a cost to Dallas, as Vasu Raja, Chief Revenue Officer of American Airlines, told Simple Flying in an exclusive webinar. Here’s why American was happy with that.
The Dallas hub
Arguably the most important airport in American’s network is Dallas/Fort Worth International Airport (DFW). Pre-crisis, the airline hit over 900 daily departures from its largest hub. Not far from the airport, the airline has even built up a massive headquarters. American has successfully beat back the competition at its largest hub over the years, running airlines like Delta out of the airport and capitalizing on the hub to add new nonstop flights.
As the hub grew, American Airlines tried out a host of new routes. The airline launched a flight to Hong Kong and Shanghai in 2014. It has expanded with more flights to China and Japan. This was on top of its expansive portfolio south of the border and decent portfolio of transatlantic routes.
There has been a dogmatic view in the airline industry where hubs serve a specific purpose. For example, a hub like Dallas complementing a Phoenix and Chicago hub would primarily serve the middle of America and add some North-South but also East-West traffic flows. However, in recent years, American has moved beyond that view and sought to build up Dallas to its greatest potential, hence the DFW 900 plan.
But, there is a limit to how to make these hubs work, as Mr. Raja explained:
“As much as we love DFW and Charlotte and all of our hubs, it doesn’t take very much for them to get to a level of saturation…it’s really hard for us to go and add another flight into DFW. Primarily how we increasingly grow it is through gauge or by flying more and more bigger airplanes.”
However, one city, in particular, was starting to challenge this mold. That was Austin. A growing business hub, the city was in a prime position for a new airline hub or focus city, given that there was no established, dominant business carrier.
Austin started to cannibalize DFW
American’s growth in Austin-Bergstrom International Airport (AUS) was previously limited out of concerns over what it would do to American’s hub structure. As Mr. Raja explained to Simple Flying in an exclusive webinar:
“What we found is when we were flying Austin to Nashville, first, we were worried that it would cannibalize DFW, but then we came to be very excited because it cannibalized DFW. It absolutely cannibalised DFW. People came off of flying from Austin to DFW and people came off of flying from DFW to Nashville in order to go fly on the nonstop.”
There is not a significant amount of capacity flying between Austin and Nashville. American has, for now, only scheduled two daily Embraer E175s on the route, which seat 76 passengers each. But, those 152 passengers have a larger impact on the Dallas system, as Mr. Raja further explained:
“That was great for us because that enabled us to carry more customers to fly Austin–DFW and then connect on to Stillwater, Oklahoma, or Moline and more people fly from Nashville to DFW to connect on to El Paso or to Lubbock, Texas or things like that. Those may all sound like really, really small cities, but if it weren’t for DFW, those customers wouldn’t be able to, simply, get there.”
The 152 seats that open up on a DFW-AUS and then on DFW-BNA mean opportunities for more customers to fly on different itineraries. This has a knock-on, positive effect in the system, and especially in smaller destinations.
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The benefit for American Airlines
At a hub like Dallas that can get up to over 900 daily departures, filling up those extra 152 seats is not terribly difficult for American Airlines. In fact, it may make it easier for the airline to sell more unique routings and schedules.
In an older, dogmatic view, this would be a negative for the airline, since it would have the impression that Dallas was less important for an airline, or at least less important for customers. Over time, then, this would weaken the hub. However, that view has largely started to face challenges as hubs have grown larger.
American will almost certainly not build up Austin to the size of DFW. In fact, Austin certainly does not have the gate space or infrastructure to get to the size of Dallas. Even then, American has shown no interest in abandoning its DFW hub, given that it has only strengthened the hub in recent years.
Another benefit for American is it can provide a much better argument for an Austin-based traveler to choose them as their preferred airline. The 152 passengers who are not flying to Dallas to connect to Nashville, and are instead flying nonstop, can be multiplied across American’s over 20 routes that do not touch a hub from Austin.
This creates more room for more connections. For example, American then has more seats to sell on a one-stop AUS-DFW-London or an AUS-DFW-Hong Kong itinerary. A similar story plays out on American’s hub routes to Phoenix, Chicago, or Miami, for example, from Austin.
The argument that American’s Austin growth will weaken Dallas is further refuted by American’s expanded service between the two cities, which has come alongside the expansion. In November, American will be flying up to 13 daily nonstop between Austin and Dallas – all enabling more and more unique connections out of Austin, which is exactly what the airline wants to do to grow its customer base in Austin and maximize Dallas.