American Airlines Is Growing Its Biggest Hub Again

Nov. 13, 2019 11:54 AM ETAmerican Airlines Group Inc. (AAL)30 Comments


  • American Airlines gets a disproportionate amount of profit from its two largest hubs: Dallas-Fort Worth and Charlotte.
  • It gained 15 extra gates in Dallas earlier this year and will soon gain access to 5 additional gates in Charlotte, enabling growth at these high-margin hubs.
  • The airline is now making plans to build two more gates at Dallas-Fort Worth International Airport prior to the 2020 summer peak season.

Entering 2019, American Airlines' (NASDAQ:AAL) top growth initiative was the expansion of its hub at Dallas-Fort Worth International Airport (DFW). The airline already operated 809 peak-day departures in Dallas during the summer of 2018, making it the second-busiest airline hub in the world. The "DFW 900" project aimed to grow the number of peak-day departures to 905 in the summer of 2019 to capitalize on the superior economics of dominant hubs.

American Airlines has longstanding plans to implement a similar strategy in Charlotte in 2020. However, a recent report from The Dallas Morning News revealed that the airline is also seeking approval to add two more gates at DFW in advance of the 2020 summer season. This would enable incremental margin-accretive growth at this key hub next year.

Chasing high-margin business

In a series of presentations last year, American Airlines executives explained the rationale for expanding at the carrier's two biggest hubs. At the time, the airline's overall pre-tax margin was 7.5%, but its Charlotte, DFW, and Washington, D.C. hubs had a combined 13.1% pre-tax margin. In other words, those three hubs were generating the vast majority of American Airlines' profit, while the rest of its operations were collectively barely profitable.

A comparison of the profitability of American Airlines

(Image source: American Airlines October 2018 presentation)

There's a reason why American Airlines' two largest hubs, DFW and Charlotte, are among its most profitable. (The Washington, D.C. hub is an unusual case because it is a slot-controlled airport that is much closer to the city center than either of the alternative D.C.-area airports.) The more daily flights and the more destinations served at a big hub, the greater the number of potential one-stop itineraries. That's good for the bottom line for two main reasons.

First, travelers using hubs to connect between small cities and other destinations tend to pay significantly

This article was written by

Adam Levine-Weinberg is a value investor who has been researching and writing about stocks for Seeking Alpha and The Motley Fool since 2011. He graduated from Swarthmore College in 2007, received an M.A. in Political Science from the University of Chicago in 2009, and received his CFA charter in 2017. He is always on the hunt for irrationally beaten-down stocks, particularly in the aerospace, retail, real estate, and auto sectors.

Disclosure: I am/we are long JAN 2020 $20 CALLS ON AAL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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