My Best Guess On What Will Happen to American’s Hubs Post-Merger

It is a lot of fun to speculate on a variety of things when it comes to mergers, but the favorite pastime seems to be figuring out what will happen to the route network. Will every hub keep service? Will some go away? Everyone has a different opinion on this, and the reality is that none of us have any idea what will happen because we can’t see inside. But I decided to put out my vision for how things might shake out anyway. Take it for what it’s worth, but it’ll be fun to look back in five years to see how much I messed up.

American US Airways Route Map

Above you can see the combined domestic route map and it really says a lot about what a great combination this can be. In the East and in the West, US Airways brings a lot of new destinations to American. In the Midwest, it’s American that brings the new cities. When you bring all these cities together into the same network, you create more opportunity. My overarching view is that the hubs all remain important but in very different ways. The futures that seem the least clear to me are those of New York and LA. But let’s go through them all.

Miami is the best hub in the entire system as of this moment. How can I say that considering how absurdly expensive it’s become to serve the airport? Well that expense has actually made it an even better hub for American, somewhat to the detriment of people in South Florida. There are two things going on here.

First of all, Miami is the single best point to access Latin America because of the massive population going between the two regions. (Miami is better classified as Latin America itself.) And Latin America has been an absolute boom town for several years. These markets are simply awesome and there is a ton of money to be made. American’s position in Miami is an easy number one. You combine that with its partner LAN (soon to include TAM since I can’t imagine it going any other way) and you have an incredible operation.

But wait, there’s more. Yes, Miami has thrown away money over the years and is now absurdly expensive. But all that does is keep American’s competition out. If Miami were inexpensive, you would have more airlines trying to serve the place with lower fares, and consumers would be happy. Instead, many are up the road in Ft Lauderdale. Eventually, Latin will fall into recession and demand will sink. Capacity will have to be cut and the hub won’t look as great as it does today, but then it will recover again eventually. Miami will always be important.

I’ve heard many say that Miami’s presence along with higher costs at the combined airline mean Charlotte is sunk. No way. Miami is great for Latin but it is terrible for domestic. Charlotte is the only true competitor to Atlanta in the Southeast US, and that means it is going to remain. It’s true that Charlotte’s local traffic is not as large as in most hubs today, but there are a lot of nearby cities that act like local traffic (higher fares) that help make Charlotte work. And in these small cities, it’s either Delta or US Airways. American would be silly to not keep a strong presence here.

Might some flights become unprofitable with higher costs? Sure, and we will likely see some capacity changes. I’d think we’d see a lot of cuts to the Caribbean and Latin since more of that will flow over Miami, for example.

This is an easy one. It’s a big money-maker for US Airways and the airline dominates. Though it can’t grow and may even have to divest a few slots in this merger, it will still be the biggest airline at the airport and will continue to operate as many flights as it can.

Philly is another one that people wrongly think will disappear simply because New York is up the road. In Philly, US Airways has built a great operation. There is a large and rich local population and US Airways provides great options to those people and the businesses they work for. I would think that Philly has the ability to grow when this is all said and done. It can remain a very strong jumping-off point for Europe with great access throughout the northeast.

New York
This is a tough one. I have little doubt that American will continue to serve the top business destinations. We’ll see London, Tokyo, Sao Paulo, LA, San Francisco…. You get it. And of course, the US Airways Shuttle will remain to DC and Boston. But beyond those and the hubs, is it worth serving much else?

In New York, American is a distant number three behind United and Delta. (And depending upon how you look at JetBlue, it could go even lower in some ways.) But do you need all these piddly RJs from JFK to places like Baltimore, Cincinnati, Cleveland, Columbus, Indianapolis…? All those are solely there to feed the meager international network. Those should flow through Philly anyway. JFK should really just be there to serve the big long haul business destinations.

LaGuardia might be a bit different in that depending upon the needs of corporate partners, there could be some mid-tier destinations that make sense to continue serving, but it should only be considered if it’s actually profitable. But then again, American won’t shrink unless it could find someone interested in those valuable slots. Maybe JetBlue or Southwest would like some. They could put them to better use anyway.

Chicago could be interesting. American is a solid number two in Chicago despite several missteps by United that could have shifted the balance of power. It’s just not going to be number one, and that normally is something that the US Airways guys walk away from. This is different.

American does have a strong presence in Chicago but it needs to make some changes. On short flights, American has built up a nice network of smaller cities in the upper Midwest, many of which aren’t served by United. Think about La Crosse (WI), Waterloo (IA), Champaign/Urbana (IL), and more. There are a lot of these cities around, but they’re served by more expensive regional jets. Just imagine bringing over some US Airways Express Dash-8s from the East Coast and putting them in Chicago. That could make those markets work a lot better.

Then you build on that with decent service to bigger destinations, though potentially less than what we see today. At the same time, medium-sized cities might see more service. Several cities between Chicago and the East Coast can take American today to go West but they can’t do much going East. Now with US Airways filling that hole, American becomes more relevant to people in those cities. And that could mean higher demand for Chicago and Eastern hubs at the expense of Delta and United. Make some changes putting more 70 to 76 seaters in the markets, and you might find yourself a profitable niche in Chicago as the number two airline.

Dallas/Ft Worth
This is another easy one. The DFW hub stays, but it could use a haircut. Cut out a little bit of capacity around the edges and you’ve got it where you want it. At least, that’s the case for now.

Yes, the Wright Amendment goes away next year allowing Southwest to fly all over the US from Love Field, but Southwest can’t add any gates. So it’s not going to be huge. And Love, while most convenient for people in Dallas, is much less convenient for the rest of the Metroplex. American will remain king of this town. It just might want a slightly smaller crown.

The last of the original America West hubs has also been rumored to be on the chopping block, but I don’t see that. Sure, higher costs will make some flights unprofitable, so capacity should shrink. But there is real opportunity in Phoenix as well.

Look at all the cities in the West that can be served by US Airways but not American. You have Long Beach, Burbank, Bakersfield, Oakland, etc. You also have some cities that are better served from Phoenix than LA. I think of places like Reno. With even more feed coming from the power of the combined airline, you have the chance to beef up service in these smaller cities and possibly add more. Places like Carlsbad may come back on the radar. And that can help with the rest of the operation. Sure, Southwest is good-sized, but its costs keep rising and this team knows how to compete with that airline. And Phoenix is the best option American will have to reach the smaller cities in the West.

I imagine Phoenix will initially contract, especially with frequencies in bigger markets, but I still see a good future.

Los Angeles
The last one on the list is also the toughest (well, it’s in a tie with New York) to predict. LA is a mess with a lot of different airlines trying to battle it out for supremacy. That kind of thing is generally not what the current US Airways management team wants to play with. But it knows that it needs a big presence especially since there is a supposedly-profitable relationship today with the high-paying entertainment and financial industries. But to how many places does American really need to fly?

Yes, you need New York and most likely Boston. Of course you go to all your hubs and San Francisco while you’re at it. And I’m sure Vegas is important to feed your international partners to Asia. Hawai’i probably keeps some flights. But how much else do you really need? You have joint venture partners to serve London and Tokyo (BA and JAL respectively). You may keep Shanghai. But look at all those regional jets going to Albuquerque, Tucson, Reno, and more. That may be there to feed international flights but is it really worth the expense? I’d be surprised. And all those intra-California cities? As mentioned, those are better off with service through Phoenix.

In the end, I think LA and New York shrink to the point where you can adequately serve your best customers but you don’t bother with much else. Of course, this again brings up the question of Asia, and what exactly to do about serving that area.

I’ll talk about that tomorrow, because it’s not nearly as bad as you might think.

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