Bullish on Latin America: American Airlines begins powrhouse push in the region. (Aviation).

American Airlines is increasing flights, rehiring laid-off workers and blasting ahead on a US$1.3 billion airport terminal in Miami, its gateway to Latin America. The carrier already transports about half the region's roughly 49 million passengers each year, but it wants more.

American late last year slashed its costs--cutting 20% of its flights worldwide and paring 20,000 workers from its payroll--but left the US$2.7 billion Latin American service virtually untouched. At a time when competitors have hunkered down behind diminished passenger traffic, American is taking a new grab at the market.

"They're adding service right, left and center," says Robert Booth, chairman of Aviation Management Services in Miami. "It's American doing what it does best. They go after business travelers and high-yield traffic." Booth says the carrier is playing smart by focusing attention on its international division with the best revenue-making potential.

With its first quarter 2002 projections off 13%, the carrier unexpectedly began to increase service, pumping new money and equipment into the region. The day before the terrorist attacks in the United States, the regional powerhouse had 359 daily flights to Latin America and the Caribbean. In March 2002, it had 365. The numbers may look small but any forward push is remarkable given the tumultuous aviation landscape.

"The places we're flying is where we see opportunities," says Peter Vittori, regional managing director of sales for American. "I don't think our outlook has changed. It's part of our ongoing commitment to Latin America."

Vittori may talk of business as usual, but the new flights and equipment come in the wake of a year that saw the airline post a record $1.6 billion loss and lobby for a U.S. government bailout. Although the U.S. Federal Aviation Administration predicts there will be no airline recovery until at least 2003, the region's largest carrier is playing aggressively.

The strategy could pay off. "American, we believe, will be at the forefront of any industry recovery with a relatively strong balance sheet, good liquidity, experienced management and a powerful route system," according to an ABN Amro report. The global banking group also recommends that its investors consider stock in competitors Continental and Delta.

In February, American became the first carrier to offer Boeing 777 service to Montevideo; competitors use smaller Boeing 767s. It also added B777s on its New York-Sao Paulo and Miami-Santiago flights. A month later, it increased flight frequencies to Cancun, Mexico.

Ramped up service, much of it to begin mid-year, includes daily flights from Miami to Medellin, Colombia; additional service from Dallas-Fort Worth to Guatemala City; and service from Miami and New York to Santiago in the Dominican Republic and from New York to Punta Cana, also in the Dominican Republic, June marks the debut of the carrier's South American service from the Fort Lauderdale-Hollywood International Airport to Caracas.

Flagging local carriers. The new push comes in tandem with an aviation shakedown that has left service voids in the region. In Brazil, for example, bankrupt Transbrasil ceased operations and yang struggles with debt problems. American Airlines already covers Brazil, where fly rights are restricted, as much as permitted. "It looks like the U.S. carriers now have about 70% of the Brazilian market," notes Booth at Aviation Management.

But to bolster revenues from the coveted region, American must identify countries where it sees room to grow. "Colombia offers opportunity. We've added service to Medellin, its second largest city:' says Vittori.

That new service brought protests from Juan Emilio Posada, CEO of Colombian carrier Aces, which is in the process of a merger with competitor Avianca. Latin American routes, earning an average $12 to $14 per mile for their carriers, are among the globe's most lucrative; routes in Europe and Asia, by comparison, average $9 to $10 per mile. U.S. Department of Transportation figures for fourth quarter 2001 show that U.S. carriers held more than 60% of the total passenger market in the region. American led with 48% of the U.S. carriers' capacity and 52% of its passengers.

"Consumers in Lati America, while they may be attracted ed by the familiarity of a domestic airline, are probably broadly attracted to all airlines and take the one that has the best time of departure and bes cost," says Richard Bitt nbender, aviation expert at Moody's Investor Service. "There is potential, if a particular [Latin] airline is having difficulties, for other airlines to benefit."

U.S. carriers are in the best position to cash in. After the terrorist attacks in the United States, they negotiated a government bailout package. Their counterparts in the southern hemisphere also faced increased security costs, skyrocketing insurance, hiked airport fees and boosted fuel costs, But their governments provided little relief.

If savvy American Airlines has spotted a new window of opportunity in the region, so have other layers. After aggressive expansion in recent ears, Delta Air Lines and Continental Airlines are anxious to protect their pieces of the region's aviation pie. Delta's muscle-flexing has already been felt. At the end of 2000, the Atlanta-based carrier launched operations in Chile, carving out a 13% market share in a country where LanChile and partner American Airlines have long dominated. Although United Airlines has limited service in Latin America, Chile was also one of its countries--meaning Delta's inroads came in the face of multiple competitors.

Delta saw its passenger levels for the region drop off slightly late last year but Jorge Fernandez, the carrier's director for Latin America and Caribbean, has said passengers are returning. In February, Delta's Latin American traffic rose more than 8%, even though the Atlanta-based carrier has cut its seats to the region by 2%.

Continental Airlines now has the same number of flights to Latin America as it did before Sept. 11, with greater frequencies between Newark and San Salvador. "Because of the current financial situation of the airline industry, we are not in an expansion mode at present," says Continent spokeswoman Macky Osorio. "But we are paying very close attention to market reaction and to supply and demand. We can respond very quickly to meet market needs, if necessary."

Osorio says Continental wants to give the industry "a chance to stabilize before making further decisions about growth and strategic relationships." American is taking the opposite approach, zooming forward.

Encore performance. The region's powerhouse is relying on lessons it learned from its initial foray into the region more than a decade ago. At that time it introduced flight schedules and frequencies geared to business travelers who, unlike vacationers, care less about ticket price and more about convenience. It also dolled itself up, flying spanking-new jets into the region and putting to shame home-country carriers that were hauling passengers around on old planes.

"Frequency of service was key to its success. Where Eastern Airlines historically had an overnight flight that stayed on the ground in Buenos Aires, American came in and did a double daily," says Booth. "The business traveler looks at frequency of service."

The airline behemoth also teamed up with Latin partners. While its alliance with beleaguered Aerolineas Argentinas flopped, marketing partnerships wit LanChile, Brazil's TAM and Central America's Grupo TACA have been effective.

American's latest push takes advantage of its Miami gateway, which now ranks as the busiest international air facility in the United States. American is already the airport's dominant carrier, with more than half its passenger traffic. A $1.3 billion expansion into a new North Terminal will accommodate growth by giving the carrier 47 new gates.

Still, American faces challenges. In mid-March, it put off plans to divest the poorly performing Caribbean operations of commuter affiliate American Eagle. The delay followed a labor dispute with pilots. Meanwhile, air traffic in and out of Argentina has fallen so much that American's Buenos Aires flights are less than half full.

The carrier has also struggled with Airbus 300 problems. It is the only U.S. passenger airline flying the A300, which it uses on Latin routes. In January, more than 60 Airbus pilots signed a letter calling for the fleet to be grounded because of safety concerns. An American Airlines 300 crashed in New York in November en route to the Dominican Republic. That same month, an A300 returned to Lima after takeoff because the plane was fishtailing. The carrier has stopped using Airbuses on its European routes.

Meantime, the carrier's so-far-failed bid to form a joint venture with British Airways has its Oneworld alliance partners worried; there are even rumors that member Iberia has been thinking about jumping to another alliance. Oneworld had hoped the American-British Airways partnership would boost its standing in the face of rivals like Star Alliance, led in the region by United, Varig and Mexicana de Aviacion. American and British Airways are now looking into a more limited linkup.

American has traditionally been slow to join the global airline alliance trend, preferring to expand its own business first. In Latin America, in particular, the airline has driven competitors to agree to alliances after pummeling them. In many cases, the alliances have resulted in dominant market share for American and its partners and deregulated international air travel for Latin American consumers.

The region's powerhouse airline is now using that liberalized environment to

seek increased market share and, ultimately, increased profits. "We're always looking for opportunities," says Vittori. For American to reach its much-touted goal of profitability, a bigger share of Latin America could be imperative.

Top U.S. Airports for International Flight Service

                          Total seat count

Miami                            1,871,793
New York John F. Kennedy         1,536,070
Los Angeles                      1,413,544
Chicago O'Hare                     899,342
Newark                             758,659
Atlanta Hartsfield                 704,440
San Francisco                      666,306
Houston George Bush                590,077
Dallas/Fort Worth                  418,029
Washington Dulles                  381,462

Source: OAG

Note: Table made from bar graph

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Miami, long the leading airport for Latin America travelers, has become the No. 1 U.S. gateway for international travelers.

After the Sept. 11 terrorist attacks, passenger traffic plummeted at the biggest U.S. airports for global travel: New York John F. Kennedy Airport and Los Angeles International Airport. OAG Worldwide, a travel data company, says the shift was nough to push Miami into the top spot.

"We're basically a Latin hub, if you want to put it in those terms," says Miami airport spokesman Marc Henderson. "Other airports suffered a downturn, [but] it was less for our particular market. And that is interesting for an industry that's still struggling to get back on its feet."

A lot of that performance has to do with a resilient Latin American travel market. But Miami has not emerged unscathed. The travel downturn in the first two weeks following the terrorist attacks cost the airport US$400,000 a day in lost revenues. At the close of 2001, revenue was still off $182,000 a day.

The tough times come as Miami International Airport moves ahead on a new $780 million south terminal with 15 international gates for United Airlines, Mexicana de Aviacron, yang and other carriers in the Star Alliance, as well as a $1.3 billion north terminal with 47 new American Airlines gates slated to open in stages through 2006.