ConsumerWatch: US Air, American Merger Likely Means Changes For Consumers
CHICAGO (CBS/AP) – A merged American Airlines and US Airways will carry more passengers around the world than any other, but even the biggest airline flying doesn’t need eight hub airports on the ground.
That means amid the hoopla of Thursday’s merger announcement, there are a few mayors, a handful of chambers of commerce leaders and lots of frequent flyers worried about what’s to come. Expect their sales pitches to start soon about why their city should remain a hub.
“Nobody has that many hubs,” said Robert Poole, an aviation expert and director of transportation policy at the Reason Foundation. “Eight hubs for the merged American would just not be sustainable — too complex and not really meeting enough of the travel needs.”
Hubs aren’t just civic icons — think Chicago’s O’Hare or New York’s John F. Kennedy Airport — they are also major economic engines. The frequent flights to hundreds of destinations are an attractive enticement for executives deciding where to locate a business.
But while local governments can build airports to support hubs — helping airlines come up with the billions of dollars needed for new terminals, parking garages and runways — it’s up to the airlines to set up homes inside. When an airline decides to leave town, the loss of hub status can erase the value of that investment, leaving behind empty terminals.
US Airways CEO Doug Parker says the combined airline will keep all eight hubs, but the results of past mergers suggest that’s unlikely in the long run.
Whole terminals at Pittsburgh International Airport have been abandoned since US Airways began winding down its hub there in 2001. Thousands of jobs have vanished, and an airport that once served more than 20 million passengers a year had just 8 million last year.
Also in 2001, American Airlines parent AMR Corp. bought Trans World Airlines out of bankruptcy. It didn’t take long for American to shut down TWA’s hub in St. Louis, where officials had moved major roads and bulldozed hundreds of homes to build a $1.1 billion runway that’s no longer needed.
“These are risks for cities, particularly when they do airport expansions based on having a large transfer hub,” Poole said. “You get an airport configured for something that’s way more than the size of your community justifies in terms of origin and destination traffic, and then if the hub goes away — Whoops! You are really stuck.”
In the shakeout of American’s merger with US Airways, experts believe American’s hubs in Chicago, Dallas-Fort Worth, New York, Los Angeles and Miami are likely to emerge as winners, if only because those markets can support a large amount of traffic on their own. That leaves US Airways’ facilities in Philadelphia, Phoenix and, most especially, Charlotte, N.C., most at risk.
Roughly 60 percent of the 40 million travelers who pass through Charlotte-Douglas International Airport transfer to another flight, including direct flights to more than 30 destinations in Europe, Latin America and the Caribbean.
Airport officials said the city has prospered from hub status, with 8,000 new companies investing more than $5 billion in the area to create more than 78,000 jobs since the current terminal opened in 1982. Among them is Chiquita Brands International, which announced in 2011 it was abandoning Cincinnati in large part because of greater access to foreign flights from Charlotte. Cincinnati’s airport had been hit hard by Delta’s decision to shift flights to other hubs after merging with Northwest Airlines in 2007.
Charlotte-Douglass also benefits from its location outside of the Northeast Corridor, where congestion in New York and Philadelphia’s overlapping airspace is a frequent problem.
But all of that may not be enough to ensure Charlotte’s future, said Adie Tomer, an associate fellow at the Brookings Institution. With 1.8 million people, the city just isn’t big enough.
“There’s a lot of advantages to Charlotte, but they don’t have the local base to fall back on, so they have to constantly incentivize the airline itself to keep flying through there,” he said. “They just really have a connectivity that vastly outranks their metropolitan, economic standing.”
The merger comes at a critical time for Philadelphia International Airport, which is about to begin a $6.5 billion expansion that includes a runway extension that will allow it to serve the biggest jets currently flying. Officials in Philadelphia have been preparing for the merger for months, getting ready to make a case for the combined airline to move some international air traffic from the American hub at New York’s JFK.
“If the new airline would place some of those long-haul aircraft into Philadelphia, we might be able to gain access to those markets,” airport CEO Mark Gale said.
The new airline will be based in Texas, near American’s hub at Dallas-Fort Worth International Airport. That’s already a loss for Phoenix, as US Airways was headquartered in suburban Tempe, Ariz.
While Arizona Gov. Jan Brewer says she has assurances from Parker, the US Airways CEO, that the company will keep most of its local jobs, some believe its airport would be downsized if the new airline decided to base its West Coast hub at the nearby and much larger Los Angeles International Airport.
Deborah Ostreicher, the deputy aviation director at Sky Harbor International Airport, said she’s confident it can entice the airline to stay with low per passenger fees, more space and a willingness to expand facilities, as well as great weather, which means far fewer delays.
“And if they do cut service in some areas, again we have such a strong market here we’re confident that another airline either existing or a new one that maybe hasn’t come into the market … would say, `That looks like a good profit for us, let’s come into Phoenix,”‘ she said.
(Copyright 2013 by CBS San Francisco. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)