American Airlines will launch its first new flight from Dallas Love Field to St. Louis at 6:30 a.m. today, a trip that will most likely lose money for the struggling airline.
The Love Field expansion comes as most airlines, including American, are cutting flights that perform poorly. American, for example, plans to shrink its domestic capacity by 4 percent this year while boosting its international service, which tends to be more profitable. Yet David Cush, American's general sales manager, said recently that "we will have a difficult time making a profit" with its new service at Love Field.
So why is the airline, which lost $861 million last year, throwing away money? Some analysts say the expansion is foolhardy, given the perilous state of the airline industry.
"It's not a smart move," said Richard Gritta, a University of Portland finance professor who studies airline economics.
Gritta called the growth a display of "machismo" and added that "it strikes me as quite counterproductive."
But American executives argue that the damage would be worse if they ignored new flights by rival Southwest Airlines to St. Louis and Kansas City.
"It's a case of losing less than we would if we didn't have these flights," said spokesman Tim Wagner.
American officials said they plan little fanfare for the first flight today. But the airline did show off its new Love Field gates, in the airport's east concourse, Wednesday evening with a party for frequent fliers and employees.
American's new service from Love includes 16 daily nonstop flights to St. Louis, Kansas City, San Antonio and Austin. The airline is beginning the flights after changes to the Wright Amendment, a federal law that restricts flights from that airport to Texas, bordering states, and Mississippi, Alabama and Kansas.
Last year Congress exempted Missouri from the amendment. In December, Southwest began nonstop flights to St. Louis and Kansas City, and American announced its Love Field service the same day.
Since then, both airlines have been offering steep discounts on fares and frequent-flier bonuses. American, for example, is giving away triple miles to passengers. And on Wednesday, it was still selling round-trip tickets for today's flights as cheap as $92 online.
The new routes have also meant many additional seats between North Texas and Missouri. The two airlines are now operating a total of 16 daily flights from Love to St. Louis and Kansas City, and American is still flying 15 trips from Dallas/Fort Worth Airport, with the same steep discounts as the Love Field flights.
The growth comes despite that fact that demand for air service between North Texas and Missouri lagged last year. On American flights from D/FW to St. Louis, airplanes flew 64 percent full, on average, according to Transportation Department statistics. On flights to Kansas City, average passenger loads were about 70 percent.
That compares to an average passenger load of almost 80 percent on American's entire domestic network.
The low fares, coupled with the new capacity, is a recipe for steep losses, said airline analyst Roger King of the independent research firm CreditSights. He estimates the new routes will cost American about $115 million this year.
"The negatives far outweigh any benefits," he said. "American is losing money there at a time when they say they need to cut more costs and raise revenues."
Just as important, King said, is that by shifting some service from D/FW to Love, American is hurting one of its strongest assets: its D/FW hub.
"They're cannibalizing their D/FW business," he said. "What they really need to be doing is keeping as much volume as possible going through that hub."
But American executives counter that even losing money at Love Field is better than the alternative, which is trying to compete from D/FW. Although American has competed with Southwest from its D/FW hub for years, they say the flights to Missouri are too important to cede.