American cuts second U.S.-China flight; cites fuel cost, competition

DENVER, CO (Reuters) – American Airlines (AAL.O) is cutting a route from Chicago to Shanghai, cancelling the second direct flight from the U.S. city to China in four months, the carrier said on Tuesday, citing higher fuel costs and a “competitive environment.”

FILE PHOTO: An American Airlines Boeing 737-800 plane takes off from Los Angeles International airport (LAX) in Los Angeles, California, U.S. March 28, 2018. REUTERS/Mike Blake/File Photo

American said in a statement it will seek a U.S. Department of Transportation waiver to allow “a return to the market once conditions improve.”

“Our Chicago–Shanghai service is unprofitable and simply not sustainable in this high fuel cost environment and when we have opportunities to be successful in other markets,” Vasu Raja, American’s vice president of network and schedule planning, said in the statement.

American, the largest U.S. carrier by passengers, cut a flight from Chicago to Beijing in May. Certain routes present the three main U.S. carriers with problems earning a profit as they try to grab a larger share of the growing market of passenger traffic from the world’s fastest-growing aviation market.

American rivals United Airlines (UAL.N) and Delta Air Lines (DAL.N) have both previously dropped routes to China.

Chinese passengers arriving at U.S. airports are expected to nearly triple from 4.3 million in 2018 to an estimated 12.8 million in 2024, and the profile is shifting from groups to independent travelers, according to a Boyd Group market forecast.

But the Chinese market remains a challenge for U.S. carriers with fare yields under pressure, and most China-to-U.S. traffic now carried by Chinese carriers, said Boyd Group president Mike Boyd ahead of a Tuesday presentation at the International Aviation Forecast Summit in Denver.

“U.S. airlines are at a severe disadvantage. The majority of the demand is China-generated, and that gives Chinese carriers the advantage,” he said.

American, which took a stake in China Southern Airlines Co Ltd (600029.SS) in 2017 for $200 million, still operates daily flights to Beijing from Los Angeles and Dallas-Fort Worth, Texas. United offers 12 daily flights between U.S. airports and China and Hong Kong, after ending a route between Hangzhou and San Francisco in 2017.

Delta has seven daily flights to China, supported by its codeshare and equity partnership with China Eastern Airlines (600115.SS). Delta bought 3.55 percent of China Eastern for $450 million in 2015.

This year, China allowed for increased competition between its carriers on long-haul international routes. [nL3N1SL3G6]

Air China has priority on routes out of Beijing, but the eased policy will allow China Eastern and China Southern Airlines to grow market share from their bases at Beijing’s new Daxing Airport, which is set to open in 2019.

Reporting By Allison Lampert in Denver; Editing by David Gregorio

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