American Airlines offsets higher regional costs with more connections, higher fares

American Airlines Chief Commercial Officer Vasu Raja made clear Tuesday how the carrier plans to make its new industry-leading regional pilot pay rates work: higher passenger yields or, in other words, fares. “The value we’re able to go and create, especially [with] the regional network, has less to do with the expense profile of a regional jet and really everything to do with the yield profile of being able to go and serve a ton of these really unique markets,” Raja said at a Raymond James investor conference. By American’s own count, it offers travelers roughly 30% more unique connection pairs — for example, Charlottesville, Va., to Tucson — across its US network than its main competitors, Delta Air Lines and United Airlines. And, in any market where one company has limited competition, the airline is able to generate higher passenger yields, particularly in smaller destinations, than its competitors. That is certainly what investors want to hear from American. In June, the airline agreed to historic pay increases for pilots at its three wholly-owned regional affiliates — Envoy, Piedmont Airlines, and PSA Airlines — that brought rates, at least for the next two years, in line with entry-level rates for pilots flying at American mainline. The move, according to American executives, was needed to address the pilot shortage faced by many US regional airlines. But higher cockpit crew member pay also means higher expenses. Compared to 2019, American forecasts a 12-14% jump in unit costs excluding fuel and special items, which includes pilot pay, in the third quarter. However, to Raja’s comments about higher yields, the airline anticipates a 20-24% increase in total unit revenues during the same period — an increase that would more than offset the higher costs.<br/>