A Vision for American in Phoenix: Mountains to the World (The Optimistic View)

I wrote about possible doom and gloom for American’s Phoenix hub last week, but today I’m going to put the rose-colored glasses on and look at this in a different way… the way American itself says it views Phoenix.  I spoke with American’s VP of Planning Vasu Raja, and while he did admit that Phoenix will have a changing role at the airline, it’s still going to be an important hub in the future.  So let’s explore what that could mean.

In our conversation, Vasu was blunt about how Phoenix changes in the American network.

What Phoenix was and what Phoenix will be are absolutely different things.  At US Airways it was the primary east-west hub, but you flip to American, [and] the best east-west hub is DFW.  Phoenix is not an east-west hub anymore; it’s there connecting people from the mountains to the world first and foremost.

“Mountains to the world” is a bold statement, and while I don’t think Vasu was meaning for that to be taken literally, it’s definitely an overreach.  Phoenix isn’t a hub that’s going to get anyone “to the world” but it is one that can play a role of regional importance.  For people traveling within the Mountain West or from those areas to places like Hawai’i or Mexico, Phoenix is the best way American can provide service.  Let’s run with this idea further.

Like Salt Lake City… But Also Not

If you think of Phoenix as a regional hub, then you can get a better sense of how it fits in the whole scheme of things.  The closest analog is probably Salt Lake City for Delta.  While Salt Lake’s geography makes it more attractive for a lot of connecting itineraries, Phoenix has huge local demand which makes it more desirable in that sense.  (Of course, Phoenix also has more competition with a large Southwest operation, so that’s another factor.)    That local traffic requires significantly different traffic flows compared to Salt Lake.  So really, it’s not like Salt Lake.

Most notably, Phoenix has a ton of demand going back to the Midwest.  The upper Midwest in particular is full of snowbirds, people who flee to Arizona to escape the soul-crushing cold of an upper Midwest winter.  That means these markets should do well in the winter, but there’s more than that.  People move from these cities permanently, and there’s a lifeline back to the family up north.  There’s just generally a much greater tie between these cities at all times of the year, and that’s good for air service.

So the local market is good with a pipe to the Midwest, but that’s not enough to run a hub.  In American’s network, you have Los Angeles being mostly for local traffic.  Then you have Chicago and Dallas/Ft Worth handling east-west flying for those in the western US.  The sweet spot for Phoenix is everything in between, broader than the “Mountains to the World” moniker might let on.

Draw a line from Chicago to Dallas (let’s call it the Kirby Line) and maybe have it jog a bit to include all of Texas along with Indiana, Michigan, and half of Ohio since those three behave more like other Midwestern cities.  Then any flying solely to the west of that line can remain within the domain of Phoenix, drawing on both local demand and connections.

This idea prompted me to see exactly what was left from Phoenix that flies east of the Kirby Line domestically.  It’s much less than I thought.  Excluding American’s hubs, which would obviously retain service, there are only 8 cities (Atlanta, Baltimore, Boston, Memphis, Newark, Orlando, Pittsburgh, and Tampa) that have nonstops from Phoenix today.  All but Boston (4 daily) and Newark (3 daily) are only served twice a day.

If Phoenix continues to see its opportunities to the east dwindle, then it needs more traffic to keep the hub going.  There are hints at an opportunity there.

The Growth Opportunity

Phoenix was already downsized when American moved its A321s out and brought 737-800s in, but there has been some growth in destinations as well.  In the West, smaller cities like Santa Rosa and Santa Fe have been added.  But more recently the airline has gone a different direction toward smaller markets in the upper Midwest with flights to Madison and Grand Rapids.  I imagine there’s opportunity in more markets like that, and if more of these markets can be added, then that will help offset the losses to the east.

Think of it this way.  Maybe people in Bakersfield will bypass a Phoenix connection for Dallas when they’re heading to the East, but those going to Madison (or Grand Rapids, Santa Fe, Lubbock, Amarillo, etc) can now fill those planes instead.

Beyond that, American has to be betting that having a better presence in the spokes will bring dividends and grow traffic for the airline.  Back to Bakersfield,  American is competing against United’s flights to both San Francisco and Denver.  By adding the new DFW nonstop, American must assume that it will be able to win some of the traffic that’s flying United today.  It will also hope to pull people back who were going to drive to LAX and fly east otherwise.  If that happens, then Phoenix is a happy camper.  It might lose those eastern connections, but it will be able to serve new demand on other routes.  That being said, we should be cautious.  United is growing these markets at the same time American is doing the same, so capacity is going up a lot. That could be bad news.

There is real potential for this to work out well for Phoenix.  Sure, maybe the city’s place as an east-west hub has been replaced by a more regional one, but that’s still a good position to be in.  Even if this “Mountains to the World” strategy doesn’t work out completely, Phoenix should be an important dot on the map for American in the years to come.

If you missed my pessimistic view of Phoenix’s future last week, have a read and then… which view do you side with?  Is Phoenix going to be a strong regional hub or is the writing on the wall for the hub’s disappearance?

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