The decision to cancel daily service between Philadelphia and Tel Aviv has come as surprise to more than a few industry observers. Let’s take a look at the questions being asked and the airline’s explanation.
First let’s get the grand conspiracy out of the way. American is being influenced by some oneworld alliance partners as has been suggested by Israeli media. The facts are the alliance partners Qatar Airways has a stake in IAG which has both airlines serving Tel Aviv. Delta also has alliance partners that are not favorably disposed to Israel and its service to Tel Aviv is not being challenged. So there is no grand conspiracy.
We then posed some questions to American Airlines to get their side of the story. All italics are from American Airlines.
Is there anything in this decision about the way TWA left the market that puts AA at risk? After all, AA cancelled TWA’s most profitable route from JFK to TLV. I understand AA paid $15.5m to former TWA employees in TLV – is that correct or not? Was that the end of the lawsuit?
American Airlines acquired the assets of TWA on April 10, 2001. This transaction allowed American to choose the assets it wanted across the TWA Company. American chose not to purchase the assets of TWA in Israel which therefore remained the responsibility of TWA, the debtor. American Airlines, and by extension US Airways, has never had any involvement in a legal case in Israel relating to TWA. Any claims by former TWA employees are completely unrelated to us as a company.
There are reports that when the PHL-TLV flight was launched it was “quickly becoming one of the airline’s most popular international routes for both customers and air cargo shippers including the pharmaceutical industry.” (Source) We understand the US-Israel market is only 2,000 people each way per day and PHL offered only 20% O&D. Why would AA not consider starting JFK-TLV? Why after so many years of service is the PHL-TLV route not profitable now? If it wasn’t profitable why it was kept running for so long?
American Airlines canceled this route solely because of poor financial results. Over the last year, the route lost more than $20 million. In fact, the route has not made an annual profit since it was started in 2009. Some international routes require an investment of resources until they stabilize and begin to demonstrate growth, but the revenue demand for our flights to Tel Aviv could never overcome the substantial costs.
There are a lot of different factors that determine the overall success of a route. Load factor is not the only way, nor the best way, to judge a route’s performance. We also look at overall demand and the fares customers are willing to pay on that route. In the case of PHL TLV, a number of factors have resulted in poor financial performance.
We looked at putting new aircraft on the route and moving service to another hub, but even with current fuel prices, the options were not deemed viable. We’ll certainly continue to monitor the viability of reinstating TLV service and will evaluate future opportunities as we bring in new aircraft to the fleet and our network evolves. At this time, we do not anticipate restarting service to Tel Aviv in the near future.
The PHL TLV route has never been profitable for our airline. We want to give every route the chance to succeed, and we gave it a fair shot, but at a certain point, no matter how much we want to serve a particular route; we have to make the right decision for our business.
Therefore it seems the decision is one based on airline economics. Routes come and go. US Airways had route authority for Philadelphia-Shanghai and never used it. Imagine what that route would have cost to operate and what its business case would look like now? As a business focused on making profits and de-risking its operations, airlines actively seek niches they can exploit. American is simply following a well-trodden path.