Observation Deck

Equipment Trends and Right-Sizing

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Equipment in the New York-Los Angeles/San Francisco markets has changed considerably since the advent of the Boeing 747 in 1970

An era will end this Spring when American replaces its remaining Boeing 767-200s on the carrier’s ‘transcon’ routes between New York and both Los Angeles and San Francisco. The aircraft have proved to be useful, long-lived assets in the carrier’s fleet. Those remaining were delivered between 1985 and 1987, and thus, will have served between 27 and 29 years, all with American, and their final service assignment is essentially a continuation of their initial role at the airline.

To put this in perspective, it’s useful to review the 767’s entry into the market. Conceived as a replacement for 707s and DC-8s, particularly the shorter-range 707-100 and DC-8-50 models, the 767-200 was expected to replace these earlier jet types on transcon services in North America. United’s launch order for the type was followed quickly by significant orders from American and Delta; TWA also ordered ten. While the two widebodied tri-jet types, the DC-10 and L-1011, were performing capably on transcon routes, there were smaller markets in this general range category that didn’t require the seat capacity of the McDonnell-Douglas and Lockheed products.

For that matter, at the beginning of the widebody era, the even larger 747 had played a prominent role in the JFK-LAX/SFO markets. Nonstop service was provided by the “Big Three”, and American, TWA and United all received 747s in 1970, the type’s first year of service. While TWA made considerable use of the new behemoth in its transatlantic service, and United was able to utilize the new Boeings in its service to Hawaii, American was essentially a domestic U.S./lower 48 state operator, so that its fleet of 16 747-100s (versus 19 for TWA) soon became prominent features on the prime transcon routes, since there was little applicable demand elsewhere on the carrier’s system.

Initially, there were expectations that booming traffic growth would fill the new capacity quickly. When this did not occur, and was followed by the Oil Crisis in 1973, which had the dual effects of significantly reducing supply and greatly increasing price, attempts were made to reduce frequency in the transcon markets. Due to the severity of the situation, regulatory authority was granted by the U.S. Civil Aeronautics Board (CAB) for the carriers to work together on these reductions, so that this could be done without significant disruption, particularly in some of the smaller markets such as Boston-Los Angeles.

Ultimately, the situation was dealt with by both removal of some of the 747s from the domestic passenger market (TWA sold a number to the Imperial Iranian Air Force; American converted a portion of its fleet to freighters, and sold some other 747s), with the DC-10 and L-1011 assuming a larger role in the primary New York-California markets. American also was able to make use of some of its 747 fleet in the Caribbean market (in particular San Juan) that it obtained when it merged Trans Caribbean into its system in 1971.

Although the terminology would come into more general use later, arguably this was the first instance of significant “right-sizing” of capacity during the widebody era. In economic terms, while larger aircraft may have better unit costs, big is not necessarily better in terms of overall profitability and/or return on invested capital. Part of this, of course, is that flight frequency can be important in business-oriented markets.

By the advent of the 767 in 1982, it had become clear that frequency in the New York transcon markets was preferable to fewer departures using larger aircraft. This set of markets had a significant component of business traffic that proved to be able to support premium fares to a greater degree than in most other U.S. domestic markets.

In more recent times, American and United came to dominate the LA/San Francisco-New York markets, with Continental effectively the third major competitor out of its Newark hub. During the mid-1990s, CO studied the prospect of an hourly shuttle in the EWR-LAX market using single-aisle aircraft, although this was not implemented. And in another example of right-sizing, the remaining DC-10s departed from the JFK market when American standardized on the 767-200, with United using the smaller 757. Furthermore, two “new-entrant” carriers, JetBlue and Virgin America, have entered these markets, both using Airbus A320 family aircraft.

Which brings us to today, and a further right-sizing on the part of American. Replacing the long-serving 767-200 is the somewhat smaller A321. Now, both American and United are utilizing similarly-sized (and single-aisle) aircraft in the JFK-LAX/SFO markets. (The third member of the U.S. “Big Three” today – Delta – uses a mix of 767-300s and 757s to Los Angeles, and predominately 757s to San Francisco.)

Today’s more profitable airlines have embraced right-sizing in these key markets, as is evident by the equipment scheduled and frequencies offered. It’s tempting to say that the 707s and DC-8s which dominated these routes years ago were just about the right size all along; it just took many years (as well as some changes in airlines) to restore this equilibrium...

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