Just over a year after admitting publicly that the routes “often don’t earn enough cash to cover the price of fuel” American Airlines is officially surrendering its route authorities from Chicago-O’Hare to Beijing and Shanghai. As a result, the coveted slots return to the Department of Transportation for reallocation.
The carrier halted operations on the routes in October 2018. At that time it requested and was granted a dormancy waiver, allowing it to hold the slots in hopes that improved market conditions would allow it to resume service. On the deadline of the dormancy waiver the carrier filed a notice that it “is unable to resume its two services in the near future.” This move was expected by most in the industry for a variety of reasons. Among them, American is reallocating its 787 fleet to other markets that have proven more stable. Its international growth at O’Hare now focuses on seasonal services to the Caribbean and Europe.
Service between the US and China’s largest cities (Shanghai, Beijing, Guangzhou) remains restricted based on the bilateral Air Transport Agreement between the two countries. Securing those route authorities is a tricky game based on market demand and airlines’ willingness to invest in growing the markets. United Airlines pushed heavily into tertiary cities where the slots are not restricted and ultimately backed off on some of those routes. Even the primary airports present challenges for airlines today.
A reallocation plan
The decision is good news for United Airlines and Delta Air Lines as both seek to expand their China operations. In October 2018 Delta applied to fly daily between Minneapolis and Shanghai. Shortly thereafter United Airlines applied to fly a second daily flight between its Newark hub and Shanghai. The DoT could not approve both of those applications with the American dormancy waiver in place; there were not enough available slots to serve both. Rather than being forced to choose – and almost certainly incurring significant objections related to the dormant slots – the DoT can now approve both new services and still have slots in reserve for one additional daily route to fly.
Negotiating for landing slots at Shanghai is a separate process and still a significant hurdle the airlines will face. Finding commercially viable flight times has proven difficult in the past. Despite holding the DoT route authority to operate a second daily flight to Shanghai from its San Francisco hub, United struggled to secure commercially viable slots from Chinese authorities. As a result, the carrier operated a 3x weekly flight from San Francisco to Hangzhou, about 100 miles southwest of Shanghai, from Summer 2016 to Summer 2017. Once the carrier secured the necessary slots at Pudong Airport – rendering the Hangzhou service superfluous – for a second daily flight it gave up the Hangzhou service.
Because of the lead time to arrange for those landing slots in Shanghai both Delta and United pressed the DoT to act quickly on their applications. Presumably that move will follow soon now that American stepped out of the way.