American Out West: AirCal and the San Jose Hub

Given the 1980s merger frenzy and increasing power of the richer trunk airlines it is questionable whether AirCal could have survived on its own, but was American Airlines a good fit? History would show that it clearly was not and AA's plans for California would not succeed. Nonetheless the owners of AirCal exited the scene with a decent pay off and American's plans certainly made more sense than USAir's contemparaneous plans for PSA. Here's the story of American's Californian punt.

For the first part of this story see:

American Airlines Boeing 737-293 N461GB Black Box 1:400 Scale Model Airliner

American's takeover of AirCal was symptomatic of the 1980s. Airline mergers were rife - some of which should never have been allowed (I'm thinking Northwest and Republic for example). Although there were few competition worries surrounding this merger (AirCal was only the 17th largest airline in the US at the time and there was no route overlap) the wisdom of a large conservative corporate taking over a small agile personality rich company is still highly suspect.

American inherited a fleet with which it had no commonality. It had never operated Boeing 737s in its entire history but now found itself with 737-100/200 and 300s plus a small number of British Aerospace 146s, which again were not operated by AA or its Eagle commuters. In essence what American was really buying was AirCal's existing route network and frequent flyer base, with the aircraft just an addon.

American Airlines 737-293 N462AC in 1989

American were at the time busy building a series of smaller hubs at strategic high value locations like Raleigh Durham and Nashville. San Jose was another of these centres, on the doorstep of Silicon Valley, and AirCal's hub their was just the sort of operation that fitted with American's thoughts. It would become another strategic hub in an area that American believed would be a driver of the economy and thus flight demand. Accordingly Aircal's network was realigned to focus on San Jose and the airport began building a new terminal for them.

This decision was made in October 1988 more than a year after the AirCal purchase. With an investment of $50 million the hub opened on December 2 and would operate 86 daily flights to 20 cities. The plans called for 175 daily flights to 52 cities by American and American Eagle employing 2,300 people by the end of 1991. This was an increase from the pre-hub position of 59 daily flights and 250 employees. You can easily see how the purchase of Aircal enabled this strategy of creating a West Coast network to feed and link to from its primarily East-West existing system. American even began operating international servies from San Jose to Tokyo.

Unfortunately American's dream of making San Jose a viable hub would falter (just as the plans did at Raleigh and Nashville). In California the issue was competition, particularly from Southwest Airlines. It is hard to imagine, given their years of brand recognition, flexibility and vitality, that Southwest would have been able to penetrate California so easily if PSA and AirCal had of survived as independent airlines. Against American and a collection of the US majors Southwest must have seen a huge opportunity.

American Airlines 737-3A4 N677AA in 1989

In 1988 Southwest only served 4 Californian airports (San Francisco, San Diego, Los Angeles and Ontario). In the next five years it expanded to 5 extra cities (including San Jose). By mid-1992 it was operating 156 daily flights in the California Corridor and had grown to be the 2nd largest airline in the market (after United). Southwest had a low cost structure and a winning attitude that the majors just couldn't match. On top of this it had years of profitability that meant it could weather fare wars, which had previously enabled the majors to kill competition with predatory pricing. Southwest could charge only $64 as a top fare where as previously the price had been up to $164.

American Airlines BAE 146-200 N695AA in 1990

American was feeling the heat of competition by 1990. In October for example it dropped all 5 of its daily routes between Orange County and San Francisco. This was in the face of competition from United and United Express which had started 8 daily flights in March using a mix of 737s and BAE 146s. American at the same time had decided to retire its fleet of 6 BAE 146s saying they cost nearly twice as much per hour as newer larger aircraft.

It is probable that American had also been suffering from the 146's reliability issues and it had received a couple of extra aircraft on lease from BAE, as PSA had done, as substitutes. Though the issues of the 146 were no doubt real cutting the sub-fleet, which was uniquely suited to operations at Orange County, appears to signal a lack of interest in truly competing for the market, which had been so important to AirCal. The BAE 146s all shuffled off to the desert in November 1990. Most eventually joined Malmo Aviation after several years of storage.

American Airlines 737-3A4 N676AA in 1992

By this point the majority of the orphan fleet AirCal had provided was gone. The pair of elderly 737-159s were returned to their lessor in mid-1988 with the 737-200s gradually returning to lessors over the next few years. Most would end up at the 2nd Braniff with a few leased to a shortlived charter airline named Airmark. The 737s had a brighter future and it does appear American genuinely thought about keeping them since they were reregistered with N6**AA regos in 1988.

By early 1991 however the writing was on the wall for these last members of the AirCal fleet. In a telltale sign of American's position in the California market 4 of the 8 were leased to arch-competitor Southwest Airlines. They were sold on to leasing companies a few years later (but stayed with Southwest) and never saw any further American service. A fifth aircraft also ended up at Southwest whilst the other three joined startup Morris Air (eventually itself merged into Southwest).

Above: American's competition out West - United and Southwest both also used 737-300s
Below: American's preferred short-medium haul jet the McDonnell Douglas MD-80

By 1993 American's San Jose hub was still losing money and they finally pulled the plug. The deal to buy AirCal had proved a dud except for the acquisition of customers who had joined American's AAdvantage frequent flyer programme. American exited the market gracefully by agreeing a deal with the new startup Reno Air to takeover its gates and services from San Jose. Reno Air joined the AAdvantage programme and stood a better chance with a lower cost base. However just to prove that history repeats itself American failed to learn from its mistakes and repeated the experience by acquiring Reno Air in 1999.

References

1988, October. American Airlines Selects San Jose Airport for Hub. Los Angeles Times
1990, October. American Airlines to Halt O.C. Flights to San Francisco : Air service: The airline plans to drop its five daily round trips Nov. 1 because they have not been profitable. Los Angeles Times
1992, May. Southwest Airlines Expands California Service. UPI.com
American Airlines Battles A History of Unsuccessful Mergers. Dallas News
American Airlines. Aeromoes Fleet Pages