What is the future of the new American Airline’s hubs?

Photo by Simon Clancy, http://www.flickr.com/photos/39551170@N02/

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.

  • sirwired

    I’ve never understood the speculation about CLT vs. MIA. I don’t remember anybody even questioning the viability of either hub until the DoJ brought it up as a talking point.

    MIA makes a horrible domestic hub, having to fly out of the way for literally every single domestic flight, unless you are connecting to Key West. And the VERY high costs don’t help either.

    However, MIA makes a very good hub for Central/South American traffic, with a large local population and tons of very lucrative cargo business; this makes the high costs worth it.

    CLT makes a much better domestic hub, being able to service the Southeast pretty well with the only “legacy” competition being Delta, and I think USAir also serves a decent amount of leisure traffic to the Caribbean out of CLT; it makes a convenient place to consolidate the travelers from a pretty large swath of the country. And Charlotte, while not a huge metro area, has a substantial presence in the banking industry, which leads to quite a bit of lucrative business traffic out of proportion to population.

    If they shut CLT, they’d pretty much have to write off the entire Southeast, as MIA would be a poor substitute when flyers could just go through ATL instead.

  • NedLevi

    The question about CLT/MIA isn’t one that centers on viability as much as it centers on, would the new AA be better off financially consolidating to one southeastern US hub instead of two. I’m sure Parker and company have been looking at all the numbers at each of their hubs for a long time, and are leaving nothing off the table.

    The problem with CLT vs. MIA is that not only is CLT in the 23rd largest metro area in the US, compared to MIA being in the 8th largest metro area, but CLT also has an origin/destination percentage of passengers at less than 21% while MIA’s at 46%. Charlotte may have a substantial presence in the banking industry, but that clearly hasn’t translated to a lot of business for CLT based airlines.

    Compared to the origin/destination numbers at the new AA’s other hubs; DWF 35%, JFK 44%, LAX 54%, MIA 46%, ORD 40%, PHL 55%, PHX 51%, DCA 48%, CLT at 21% is by far, dead last.

    Is MIA a great hub? We’re in agreement that it’s not, though I can’t say its physical location actually would disqualify it from being a centralized Southeastern US hub from a passenger standpoint. If the new AA would reduce CLT’s importance as a hub, I don’t think that writes off the entire Southeast.

    CLT’s claim to retain hub status is clearly its cost of operations for the airlines using it, primarily US Airways and US Airways Express (62% between them) at this time. As I stated, it will be hard to drop CLT with a cost differential between it and MIA as high as it is. At the same time, due to other considerations, it would seem that MIA will retain its hub status too.

  • Mary

    I think Philly and Phoenix are in trouble.

  • Cactus732

    I have 2 issues with the opinions of this article:
    The first is the circumstances surrounding the de-hubbing of Pittsburgh. Pittsburgh didn’t lose out because of the merger with America West, it was de-hubbed as a result of the Allegheny County government getting greedy and forcing up US Airways’ operating costs in PIT.
    The second is the fascination with origin/destination percentage. We are not talking about CLT’s position as a focus city or a point-point destination, we are talking about it as a hub. The sole purpose of the hub is transfer passengers. If, for example, you live in Myrtle Beach, SC and are flying to Kansas City, MO you basically have 2 choices. Delta through Atlanta or US Airways through Charlotte. JFK, PHL, ORD are too far north, MIA is too far south, DCA does not have the capacity, and DFW, PHX, and LAX are too far west. There are 100s more city pairs available for American to market effectively through CLT, than there are through any of their other hubs east of DFW.