The Department of Justice and various states’ suit to block the merger of US Airways and American Airlines (AA) has been settled. While there are still some steps to go through, it’s highly unlikely the merger will be derailed. Therefore, this seems like a good time to examine what the long term effects of the merger will likely be for the hub cities served by the two airlines and their passengers.
In past mergers, despite promises to the contrary, not all hubs of merged airlines remained hubs or even focus cities. A case in point is Pittsburgh, once an important hub city for US Airways. Starting in 2004, Pittsburgh was “dehubbed.” Within a few years it wasn’t even a focus city for the airline.
If you live in or nearby a US Airways or American hub city or are a passenger who regularly flies these airlines, where the new American keeps or discards its hubs can be extremely meaningful to you.
Those who live in a hub city, like me, have access to a large number of non-stop, direct flights to many cities, nationally and internationally. When an airport loses its hub status, the results are far fewer direct non-stop flights for the local population and for visitors, along with unwanted additional travel time for those traveling to and from that city by air.
Currently, American has hubs at Dallas/Fort Worth International (DWF), JFK International in New York (JFK), Los Angles International (LAX), Miami International (MIA) and O’Hare International (ORD) in Chicago. LaGuardia Airport (LGA) in New York is a focus airport. US Airways has hubs at Charlotte/Douglas International (CLT), Philadelphia International (PHL), Phoenix Sky Harbor (PHX) and Reagan National (DCA).
A hub’s success depends on a variety of factors. Among the most important are: geographical location, population of the area, the number of passengers using the airport as an origin or destination, airport expansion potential and the cost of airport operations.
It seems highly likely that despite some negative factors, the hubs at DFW, LAX, ORD, LGA and DCA will remain so.
JFK is primarily a point-to-point, slot controlled airport. American flies non-stop JFK flights to and from the west coast, Europe, the Caribbean and South America. It’s not a true hub airport, but it is a sure bet to remain a “hub” due to the importance of New York City as an international/national destination and its use by the local population.
Philadelphia International at first glance might seem to be in real trouble as a hub in the new American’s future, due to its location — less than 100 miles from New York City — but I think any talk of its death as an important American hub is highly premature.
Philadelphia is the fifth largest city in the US with a metropolitan area population of more than six million people. PHL generates 55 percent of its air traffic from its local population and visitors to the city. Unlike JFK, PHL can expand to handle significantly more future air traffic with its already FAA approved expansion plan. Most important, perhaps, as Doug Parker, soon to be president of the new AA pointed out in a speech in March, PHL’s operating costs are 60 percent less than JFK’s.
It wouldn’t surprise me at all to see PHL growing within the new AA system with increased international flights. Adding PHL-Asia flights seems like a natural for the new American.
The factors upon which the continued importance of the hubs in Charlotte and Miami depend have an intriguing mix of pluses and minuses for the new merged airline. The Miami metropolitan area is the country’s eighth largest, with Charlotte 23rd, yet neither Miami nor Charlotte rank high in origin/destination air traffic, though MIA’s is higher than CLT’s. The one factor that the new AA will not be able to dismiss is that CLT has the lowest operating cost of all their hubs, about 15 percent of MIA’s, according to Fitch Ratings.
Even with all of MIA’s advantages, as long as CLT can keep its costs that low it would seem hard to drop it as a hub.
The one hub which will likely have the most difficulty surviving the merger is Phoenix. Although PHX is centrally located in the Southwest, it’s only about 360 miles from Los Angeles. While PHX has a higher origin/destination concentration than another of its competitors, DFW, its total of origin/destination passengers is almost 65 percent less than LAX, in large part due to the sheer magnitude of the Los Angeles metropolitan area population. Competition with Southwest Airlines at PHX will be very heavy. While competition at LAX is also heavy, there are many more passengers for which the airlines are competing.
Once the merger is complete, US Airways will shutter its Tempe headquarters as the new AA will be headquartered in Texas. I suspect that will also factor into the viability of PHX as a hub for the new AA in the long run.
In time, each of these cities will know if they will survive as a new American Airlines’ hub.