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For American Airlines, the Gap in Asia May Be Less Than It Seems

Stocks in this article: AAMRQ.PK ALK DAL HA UAL

American's order for 460 aircraft, with 465 options, will obviously spur the opening of new international routes, as will the merger. "In the American standalone plan, we were planning to add service to Asia," Casey added. "The merger with US Airways will provide additional opportunities to make that (expansion) successful, because it will give us a greater share of the customers in the U.S. market."

Unfortunately, adding airplanes and passengers does not address what may be American's biggest problem in Beijing and Shanghai: a lack of slots, or assigned takeoff and landing times, at the congested airports. But given high demand for air service in China, more slots will likely become available over time because the Chinese government controls most of the air space. Historically, around the world, airlines that need slots find a way to acquire slots.

The lack of Chinese partners is another impediment in serving secondary Chinese cities. Of the big three Chinese carriers, China Eastern and China Southern are both in the Skyteam Alliance while Air China is in Star. But Michael Thomas, American's managing director for network development, said "in China, as in a lot of developing countries, traffic initially is very concentrated in just a few markets, in this case Beijing and Shanghai. You're beginning to get some foreign carrier entry into secondary China markets, but it's very limited. The traffic for those secondary cities from the U.S. is relatively small."

Moreover, in Beijing, American has a code-share agreement with Hainan, the fourth largest Chinese carrier, which operates a small Beijing hub.

As for the U.S. West Coast,, a map published recently in the Dallas Morning News shows that that American's network suffers from a large gap north of Los Angeles and west of Chicago.

Los Angeles "is too far south to be a good connecting gateway between North Asia and most of the U.S.," said aviation consultant Sandy Rederer. "United's Asia network is bolstered by its long-term development of San Francisco as the premier US-Pacific connecting gateway (while) Delta has developed Seattle into a strong gateway, supported by its marketing affiliation with Alaska (ALK), and Air Canada uses Vancouver, but doesn't draw all that much Asia traffic to and from the U.S."

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