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US Airways and American ever-pending merger


Whatever will become of Charlotte?

Feb 07, 2013

Whatever will become of Charlotte?
Image via dallasnews.com

The ever-pending merger between US Airways and American may have some significant ramifications with regards to the hub airports involved. American has firmly dedicated itself to a cornerstone strategy that focuses its resources almost entirely on its hub airport cities: New York, Miami, Chicago, Dallas/Ft. Worth and Los Angeles. The airline continues to shed operations at other airports; the latest being Boston, where it will end its LHR flight, reducing to 6 the number of points served from BOS. Not so long ago that used to be 33.

US Airways rightly claims Philadelphia and Charlotte, though a “hub” status in Phoenix is somewhat less credible. Whether or not that might be bolstered in a merger is yet to be seen, but the strong presence of Southwest at PHX might indicate that such a build-up is unlikely.

Philadelphia and US Airways, in its many mutations, have been partners for a very long time and that relationship is unlikely to be undone. However, Charlotte is a different story. US accounts for about 90% of the seats available at CLT and, like Pittsburgh, is a creation of the airline. According to the latest Airports Council International rankings, CLT is the world’s 25th biggest airport in terms of passengers processed, with the majority of those passengers in transit.

Sandwiched out of relevance?

However, with the inclusion of New York and Miami in the newly merged entity, the need for Charlotte becomes far less evident. US has begun service to Brazil from Charlotte, its only long-haul destination in the region. But given the massive seat offer available at both New York and Miami, the rationale for a nonstop from CLT becomes hard to see.

Likewise, it is almost impossible to imagine that the London flight, which operates from Gatwick, would be maintained, as all of the AA/BA strength is concentrated at LHR. While it might conceivably be moved to Heathrow, the cessation of service to Boston, a much larger metro area, indicates that such an outcome is very unlikely.

One of the clear messages of the hub consolidation that has occurred in the past 5-6 years is that airlines want hubs that also support strong O & D traffic - alongside transit passengers. American’s choice of its 5 cornerstone cities is deeply rooted in the ability of each of those points to generate substantial local traffic numbers, but given the size of the Charlotte metro area, that may be virtually impossible.

Way too big for its needs

If we look at US metro area sizes, Charlotte is ranked 33rd. This is well below the ranking of other metro areas where hubs have been decimated in the past decade: St. Louis ranks 19th, Pittsburgh 22nd and Cincinnati 27th. Only the steadily-shrinking Memphis is smaller, at position 41. Salt Lake City is the only ongoing, successful hub with a smaller population than CLT due to clear geographic advantages.

Still dominant with a much-reduced footprint

Admittedly there are many unknowns involved in the final resolution of a merger, some of which may take as long as a decade to be fully realized. Especially if Doug Parker becomes the CEO, one might question the longevity of the cornerstone strategy, especially given the fact that AA is currently outgunned in New York, Chicago and Los Angeles by competitors. Yet it is equally difficult to imagine that the new company would significantly reduce its presence in the top three US markets. Plus, the new company could easily maintain its dominant role at CLT while still cutting service radically as O & D frequency requirements are very different from the bank coordination required for a transit hub.

If one of the goals of merger is to create a more streamlined and viable competitor in the US market, changes will have to occur. As a part of a competitive network, Charlotte makes good sense. However, as part of a much larger and focused grouping, its continued status in the world’s top 25 looks a bit shaky.

Source: Ron Kuhlmann, Aviation Journalist



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