AA Looks at Plan B to Get Travelers to Beijing

It was a big disappointment for American Airlines Inc. last week when it missed out on a new route to China.

But a top American executive says that the inability to get the Dallas/Fort Worth-to-Beijing route doesn't mean that American is giving up on delivering passengers and cargo to China. It just won't be as convenient as the airline had hoped.

"While the addition of D/FW-Beijing to our network would have been a great positive in 2007, I think our Asian strategy has a lot more breadth than just a single route," said Henry Joyner, American's senior vice president of planning.

Unable to deliver passengers directly to Beijing, American will rely more on its airline partners Japan Airlines, Cathay Pacific Airways and China Eastern Airlines.

It will look to strengthen those relationships, which will help American compete with Northwest Airlines Inc. and United Airlines Inc.

"Asia is more than China," Mr. Joyner said. "That's one thing for all of us to remember, even though China obviously is the fastest-growing piece of that. Japan is still one of the biggest air travel markets in the world for U.S. passengers. A lot of our traffic wants to go not only to Japan and China, but parts of Asia beyond that that are growing pretty fast as well."

Fort Worth-based American had hoped to fly nonstop into Beijing. But the U.S. Department of Transportation picked a rival bid by United, which beginning March 25 will fly between Washington, D.C., and Beijing.

American was unable to reach an agreement with its pilot union to permit the ultra-long flights between D/FW and Beijing. Transportation officials rejected its effort to amend its application to include a stop in Chicago to avoid exceeding duty time limits in the union contract.

Airline consultant Darryl Jenkins, who presented a report supporting American's application, said there is no way to minimize the loss for American and its hopes for its Asia network.

"It was your chance to get a route that would yield you nothing but money, and you lost because of internal strife," Mr. Jenkins said. "Those are the ones that, for a long time, you'll wake up at 3 in the morning and you hurt."

The world's largest carrier now operates a single nonstop into China, a Chicago-to-Shanghai route launched nine months ago.

The air treaty between the United States and China allows the start of another route between the two nations in 2008, and American has indicated it will bid, under the presumption that it will have worked out an agreement with its pilots.

However, Mr. Jenkins said Delta Air Lines Inc. will likely be the frontrunner because it is the largest U.S. carrier with no routes to China.

Delta will "go in with a stacked deck in their favor," he said. "I think it'll be a long time down the road before American gets another shot like this."

Getting there

Until American can win another route, it will have to rely on a three-prong approach to feeding traffic to China and other parts of Asia:

*Through Tokyo and code-sharing partner Japan Airlines, which offers connections to Beijing, Shanghai, Hong Kong, and other large cities in China and throughout Asia.

*Through Hong Kong and code-sharing partner Cathay Pacific Airways Ltd., which flies to Shanghai, Beijing, Xiamen and elsewhere in Asia. Subsidiary Dragonair flies to more than 20 Chinese cities from Hong Kong.

*Through U.S. and Chinese gateways with alliance partner China Eastern Airlines Corp.

Mr. Joyner said a top priority is "cementing our competitive position in Tokyo."

"If you take a long-term perspective, today vs. where we were 10 years ago, we've been able to add new services into Tokyo from key places across our route network in the U.S.," he said.

American now offers two daily nonstop flights from Dallas/Fort Worth International Airport to Tokyo's Narita International Airport, plus single nonstops from Los Angeles, Chicago and New York.

Mr. Joyner said American's competitive position out of Tokyo will improve when it moves this week into the same terminal as the one Japan Airlines uses. In addition, JAL in a month will become a full-fledged member of Oneworld, the global airline alliance headed by American and British Airways PLC.

"Japan Airlines has been working with us as we develop and expand our code-share to go a lot of different places all over Asia, in China and some of the secondary cities and down into Southeast Asia," Mr. Joyner said. "Tokyo is a big piece."

But getting a nonstop into a major city is clearly better than connecting. In its application for the D/FW-Beijing route, American cited markets where the number of travelers had increased greatly after it launched nonstop service, including flights from D/FW Airport to Guatemala City, Guatemala, and Buenos Aires, Argentina.

The number of travelers between Dallas/Fort Worth and Beijing increased from 6,470 in 1999 to 13,390 in 2005. But American estimated that with nonstop service, the number of travelers between the two cities would triple, jumping to nearly 41,000. American expected to hang on to almost 33,000 of them.

Earlier missteps

American can only hope it fares better on winning a D/FW-Beijing route than its experience in getting Transportation Department approval for a route between Chicago and Tokyo.

As in the recent China case, American rallied an impressive group of supporters as it lobbied for that Chicago route, one of the mostly highly prized into the rapidly growing Japan market in 1990. But Transportation officials picked United, and American didn't win its own route between Chicago and Tokyo until 1998.

And getting a route is no guarantee that it will be a moneymaker. In 1990, American bought Continental Airlines Inc.'s route to Tokyo from Seattle for $150 million, and the Transportation Department awarded American a Tokyo route from San Jose, Calif., the same year.

Despite its hopes that both routes would pay off, American abandoned the Seattle route in January 2002 and grounded the San Jose flight last Oct. 28.

Similarly, it fought hard to get a route linking D/FW to Osaka, Japan, finally winning the rights in 1998. But it stopped service in 2001 because of losses, and, after resuming service in 2005, canceled it again in October.

American and other carriers are hoping that new service to China will pay off and that travel between the two countries will continue to increase.

According to the Transportation Department, the number of travelers between China and the United States increased from 547,110 in 1999 to 1,396,780 in 2005.

Most analysts expect that growth to continue - assuming the Chinese economy doesn't cool off.



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