U.S – India sector…..American to pull out

Neelam Mathews

Jan 12, 2012

American Airlines is dropping its New Delhi – Chicago route. The service to New Delhi will end March1.

American's route was launched in Nov-2005 after the U.S and India signed an Open Skies Agreement.

AA says it's dropping the New Delhi route based on "the historical financial performance of the route and its future outlook given the global economic climate and high oil prices … ..”

Some estimates are claiming that American Airlines is losing close to $40 million on the New Delhi route- numbers that at an initial look, seem to be astronomically high. 

American said the cancellation is not specifically related to its Chapter 11 bankruptcy restructuring but to "normal business changes."

American deployed 1771 weekly one-way seats on Delhi-Chicago O'Hare while Air India, soon to be the sole operator on the route, offers 2394 weekly seats. 

Air India is also reporting considerable losses on the route (although all of its international routes are loss-making), with a loss of INR3.28 billion (USD62.9 million) on India-Chicago operations in 2009/10, according to the Comptroller and Auditor-General's report, which noted that “the India/US route was the single biggest factor adversely affecting Air India’s operations”, accounting for 41% of total losses. This is despite Air India having a lower cost of labor, although productivity and other inefficiencies affect its cost base, says CAPA.

American's withdrawal underscores the considerable yield pressures facing direct US-India operators from carriers with hubs in Europe and the Middle East. Network carriers from the Middle East are growing in the US, but still have a low access penetration rate compared to Europe. Between the US and Middle East hubs, Emirates operates 16,750 weekly one-way seats, with Qatar operating 6503 an Etihad, 4540. 

Transferring through a Middle East hub does add noticeable travel time as Air India's direct Delhi-New York JFK has a flight time of 15 hours 40 minutes whereas flying Emirates through Dubai has cumulative flying time of 17 hours 20 minutes plus transfer time. An advantage, however, is the fact that Emirates serves 10 points in India whereas American only serves one. (American has onward connectivity in India with Jet Airways, but that too adds to travel time.), adds the CAPA report.

Another factor negatively impacting the profitability and viability of the route has been the close to 20% depreciation of the rupee against the US dollar in the last quarter of 2012, resulting in weaker inbound tourism levels from India to the US, adds the report..