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.
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
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.
Charlotte
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.
Washington/National
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.
Philadelphia
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
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.
Phoenix
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.
82 comments on “My Best Guess On What Will Happen to American’s Hubs Post-Merger”
Do you think they’ll add a destination from LGB, or remain PHX only?
Tim – I don’t expect to see any destinations added from Long Beach. I suppose it’s possible down the line that they could try DFW, but I think that’s a long shot.
Probably the best analysis on the AA/US hub futures I’ve read so far. I’ve seen some far-fetched hypothesis especially regarding PHX (obliterated) and PHL cut down to focus city with JFK absorbing the loss (yeah, right). One “analyst” even had CLT on the chopping block due to it’s proximity to MIA which goes to show their total lack of geographical knowledge, but doom-and-gloom gets the readers, right?
Its not a matter of geographical knowledge. Its a matter of with the inevitable cuts to Latin American flights and other transcons in CLT, will there be the demand domestically to buoy CLT in the SE region? CLT is not comparable to ATL in scope and size, and its not hard to imagine many flights from smaller airports re-routed to other hubs for other connecting flights.
Even if you cut the transcons and LA flights out of CLT, what are you going to do with the other 600 flights per day? There’s still plenty of feed besides transcon/caribbean. And that’s assuming transcons get cut, but is that even a valid assumption? You’d have to start flights from DFW or ORD to every market in the SE that is served from CLT right now, and I just don’t see that happening.
Totally agree with dash 8 and E175 making Chicago work. i’m less sure about phx, but it will remain in smaller form, and NRT PHX will be added.
Cranky – would like to pick your brain a little deeper on DFW. When you say “cut around the edges”, what are you thinking there, at least in your ideal scenario? And where would that traffic be serviced from instead? I guess what immediately pops to mind is moving some RJ flights around that are in better proximity to PHX or CLT, but curious what you had in mind.
Some very early scare tactics predicted the apocalypse and had the new USAA de-hubbing DFW, which I think is silly, but I just hope this doesn’t mean downgrades to connecting service to large but less than major markets. Places like RSW and TPA come to mind. If you have to connect to a lot of these places, then that’s one less incentive to stay with AA over WN.
United trimmed IAH a bit after the merger, given that they now had Denver, LAX, and SFO (went from as high as ~750 flights/day towards 600, but high fuel costs and RJs played a part in that too). I would expect AA to do the same thing with DFW given PHX and CLT. ~800 flights/day seems high given all the other hubs. Maybe closer to 700? Especially with SWA opening up at Love?
I’d be curious to hear some thoughts on how they will split the Latin America feeds (including Mexico) among PHX, DFW, and MIA. United puts it all through IAH, which has certainly been good for Houston. AA has always had MIA to dilute DFW, but I would think PHX might dilute it even more.
The big thing at DFW in relation to Latin American traffic is that there is a ton of O/D traffic between DFW and Mexico (trade between Texas and Mexico alone dwarfs the GDP of many third world countries), whereas not so much to South America. So, I’m not sure how much dilution you could realistically do there, except maybe kill off the few nonstops remaining to places like GIG, SCL, EZE, etc. and route all that traffic through MIA, or maybe PHX or LAX for those living out west.
Also, IMHO, the effect of WN opening up at DAL is a bit exaggerated. WN’s gates are capped at 20, limiting expansion opportunities, and as Cranky rightly notes, DAL is actually far less convenient to get to than DFW if you live in the northern suburbs or in Ft. Worth/the Mid-Cities area. So while it will have some effect around the edges, I doubt this will be a life changer for either airport.
MeanMeosh – I’m thinking more along the lines of frequency cuts and smaller airplanes in some cases. But I wouldn’t expect to see a lot of destinations cut. If any, I would think smaller cities in the West might go. Like maybe a Fresno or something like that. But I do think it’s way too early to get in speculating about specific routes.
Tory – I think the division between the cities for Latin traffic is fairly straightforward. Miami is king of the Caribbean and South America. Sure, DFW will get service to the big important cities like Sao Paulo, but it won’t ever compete with Miami for supremacy. When it comes to Mexico, however, Miami is far less important. DFW is very important. Phoenix, meanwhile, has closer ties to some of the western Mexican cities, but it won’t push much deeper than that.
Its a rosy picture, Cranky! But your logic makes sense.
Chicago is a winnable market if capacity/frequency can be right sized with larger RJs and smaller mainline (70-110 seat aircraft). May not be #1, but a profitable duopoly could exist
Charlotte/Miami are golden eggs, and while capacity may shift around and destinations may shuffle, the carrier is big enough to sustain both for awhile (if DL can keep MSP/DTW or the somewhat anemic ATL/MEM, there is no reason for MIA/CLT to be massively up or down gauged)
Agree on PHX, DFW
Curious about LAX. This will be the point where we find out if Parker wants a larger US Air (profitable, but not prestigious), or a larger AA (prestige over profit). I think we will see a hybrid of some kind where LAX isn’t number 1, but beefed up service to the entire LA-area. While it would not get the benefits of a hub, PHX can handle the connecting pax and make a lot of 1-stop, easy options. Perhaps service from each LA airport to the hubs, as well as limited intra-California or west coast routes to look more like Southwest. This would help AA “win” California without having to compete as hard at crowded, competitive LAX
Re: LAX I think Parker is very much on being profitable, but not prestigious instead of being prestigious and unprofitable.
That being said, I’m sure they’ll put effort into understanding how prestige feeds into profit in a unique market like LAX
I’m with Nick. Doug Parker has no interest in prestige at all. He does, however, have an interest in serving profitable markets. If the two overlap, that’s great. And there may be some concessions to running an unprofitable route to keep other routes in the black. The big picture matters. But I wouldn’t look for a lot of those as we’ve seen in many airlines in the past.
Concerning Asia, I think PHX has the ability to do that. It would be a great connecting point for a lot of the us to Asia. I think they have the population to make it work.
Population isn’t the issue, the issue is that Phoenix just doesn’t have the Asian population to make Asia work, if they did, airlines like US Airways would have considered it a long time ago
CLT won’t blow up, but it will become quite redundant. Yes, there is quite a bit of Southeast regional traffic to be fed through CLT, but it’s limited to the Carolinas and Georgia (which is only really Atlanta anyway).
A lot of CLTs movements now go Northeast into Latin America, which is now entirely redundant. Europe feed is not only redundant, it’s detrimental to filling the PHL and JFK hubs. I’d guess you’d keep an LHR and that’s it.
You’ll start to see CLT slowly shrink as American’s network planning department naturally sees the light. I think airport to look at in comparison is STL. Hear me out, though. It’s not as bad as it sounds.
STL has a significantly larger O&D base than CLT with a superior geographic position. Zero international feed to speak of, but a strong hub. It’s just that it’s a strong hub for Southwest now, rather than American.
I think CLT turns into STL, except American still runs the hub instead of giving it to Southwest. No international traffic, but a decent domestic hub. Still smaller than it was, but by no means blown up.
It’s not a issue of CLT losing service, it’s an issue of CLT returning to it’s natural economic size. That size may still be larger than the sum of it’s regional parts, but not as unnaturally large as it is today. Once you start unraveling Europe and Latin America connections, airplane sizes start to shrink on the rest of the routes and the effect starts compounding.
But it won’t blow up. Let’s just put it this way. We all agree that CLT won’t grow. We also all agree that the hub is redundant to Latin America and probably Europe. That in itself is a decrease large enough to be noticed.
In addition to some geographic redundancy, would it be fair to say that US used its lower cost advantage to drive connecting traffic through the CLT hub, and that that cost advantage will erode and possibly even disappear in the merger?
Very good point. US has been able to leverage it’s cost advantage to pull more passengers out of their way from a circuity standpoint. I was looking for a way to describe that, but you were much better at it than I.
I just don’t see CLT’s geographic redundancy, as you state. It’s geography is one of its strongest assets. The main redundancy is for Caribbean flying, but that’s a small part of the traffic that goes through CLT.
There’s a reason AA tried for years for a SE hub, at both BNA and RDU. Those failed because of the combination of ATL and CLT, but there’s definitely room for two hubs in the SE.
I don’t ultimately disagree that CLT could end up as a domestic hub, a bit smaller than it’s current form. Something like MSP for DL, perhaps.
I agree, USAA will have a LOT of cities that will have flights to CLT that will not have access to PHL, JFK or MIA. That feed should keep most of the x-atlantic and even carribbean connections alive. Of course there will be (and should be) some paring down due to schedules redundancy but not nearly as much as those who think the world revolves around the northeast and west coast are otherwise inclined to think. Fortunately for CLT, Parker is not one of those people.
I am not sure how much effect US’ cost advantage had in saturating this market or stimulating service from spokes, as most spokes in this region also have DL as an alternative. My admittedly anecdotal evidence flying from DCA to many places in the SE where DL and US compete is such that the flights are priced similarly, if not identically, 95% of the time (or more).
Two thoughts on this discussion.
Courtney – you say that St Louis has a superior geographic position but that’s only true in a vacuum. With Chicago and Dallas nearby along with Minneapolis too, you can effectively serve all the cities that St Louis was serving. It’s different in Charlotte where there really isn’t a lot of competition for those passengers.
Tory/Courtney – yes, US will have to deal with a higher cost base, but remember that the higher cost base doesn’t touch Express flying. And a lot of Charlotte is Express.
CF — spot-on analysis and prognostication. Can’t wait to see what Parker & team do. As I was reading it, I kept thinking of the thankfully discarded “Cornerstone” strategy. What a disaster that would’ve been.
I see redundancies at CLT, and some shrinkage there. PHX will also depend on the economy, PHX is a bellweather city and has been doing well, economy wise and it can maintain it’s present level (with some more service to JFK and MIA). LAX is a mess, keep the big cities, keep asia, dump the rest. PHL vs JFK? That is tough, cost vs power I guess. DFW and ORD I can see some domestic cuts in DFW and smaller planes in ORD. But, Southwest is no longer the giant beater,now is the time to leverage some pressure against Southwest and hurt them while you can.
Too much of AA hype in your analysis. Look for some ORD slippage. 3 carriers are too many for one connecting point
Great analysis, Brett.
For me, the big question is how fast Doug will dismantle AA’s “Cornerstone” approach. All you say above makes sense — except for 1 problem: NYC and LAX have been a big part of the investor story in AA. They’ve reiterated their plan ad nauseum for the last 2-years in bankruptcy, which summarizes to: We have big presences in the largest US cities. Period. Opposite of US, which has dominant presences in 2nd rate US cities.
So how do you reconcile the two? Your description above reeks of Doug Parker, rightly so given he’s the new CEO.
But I would be less quick to de-hub JFK or LAX. Not to mention PHL is an operational cluster, even more so than JFK (especially given AA’s nice terminal there).
Time will tell which way they go. I don’t think they can shore up the corporate contracts against UA and DL without strong, durable presences in JFK and LAX. So even if it’s against Parker’s instincts and successful philosophy at US, figuring out how to sustainably make money in the two largest markets in the US has got to be a priority.
I completely agree! Its possible that Parker is that good of an airline manager that he can adapt to the airline he runs. AA is not US and the combined carrier has to decide how to position itself. There is no shame in big fish in smaller ponds (PHX, PHL, etc.) but it is not what people think of as American Airlines. The investor call seemed to suggest that DP wants to be the pre-eminent, US Airline and match the best of American with the discipline of US. Time will tell!
US Airways had a “cornerstone” approach, just as AMR did. The big difference is that US is strong in all of its cornerstones (even if they’re in “2nd rate” cities like my hometown, Phoenix, which isn’t second rate at all, but my bias is showing). American was weak in 60% of its cornerstones. Maybe it’s better to be strong in second rate cities than to be uncompetitive in large ones? The merger changes that a bit. The strong “2nd rate” markets can add enough heft (both traffic wise and financially) to improve the airline’s competitive position in the “1st rate” cities.
One word why JFK won’t grow: slots. Where slot restrictions are an advantage at DCA an LGA, American does not have enough slots to grow connecting international traffic without cutting the RJ feeds. Brett has the right solution: focus on frequency to the important domestic business centers and intl traffic to OneWorld cities, business centers and mid-size cities with stron o&d. Many of the current RJ cities are better served from LGA.
Evan – I would argue that if you can’t profitably serve the people in those cities, then you shouldn’t be serving them. Of course, some of these routes make great money while others don’t. But it’s sort of like Jenga. You have to pull out the blocks that don’t make the whole thing crumble. So the planning team will be very busy figuring out which blocks they can remove and which ones they can’t.
Going off other recent mergers we saw Memphis, Cincy and Cleveland get “de-hubbed” so based on that I’d expect Charlotte to get axed just due to it being the smallest market and relatively close to other hubs in DC/Philly and Miami.
Dehubbing CLT? Absolutely not! Charlotte not only feeds the southeast, but as a business hub is the second largest finantial center in the US & is the home of Bank of America. So constant feeds from other corporate cities will be nessessary. That’s not to say that there won’t be some shrinkage, but not as much as some might think. Some compared this to MEM, but Memphis is not the corporate town that Charlotte is. CVG is also a corporate town being home to Macy’s Inc & a few others, but doesn’t have the location or population that can support a large hub.
PHX is a hybrid of sorts being both a leasure & corporate center with a growing population. MIA has already been discussed to death.
LAX & JFK are wild cards as there importance remains for several reasons. But with PHL & PHX being nearby, some short hall flights may need to be rerouted to other hubs for other long hall flights.
DFW & ORD can shrink justt a little to releave congestion & move those flights to CLT or PHX for example.
On the international front, PHL could be used as a relief valve for some connections that would otherwise go through ORD & JFK. You need to keep some intl flights in CLT that travel to finantial centers in europ like FRA & LHR & add service to asia for the same reason.
SEAN – We need to end this myth that Charlotte is the 2nd largest financial center in the US. It’s not even close.
Chicago, Boston, San Francisco, Miami – in that order follow after NYC. Charlotte is not even 20% of Chicago in terms of financial industry volume/activity.
Regardless if what you say is true, Charlotte is still a sizeable corporate town with BOA & Wells Fargo all be it smaller than what it was a few years ago. There’s still a need for flights for business travelers & connecting through Clt is far better than say going through ATL & the horror show that is MIA.
One thing on MIA… that hub was developed for Eastern & American moved in when they baught there assetsout of liquidation in 1991 after the first gulf war. Also United had a small hub there as well, but dismantled it giving AA the dominance that it has today.
CLT isn’t at all “relatively close to other hubs in DC/Philly and Miami.” There would be a giant hole in the AA map without a SE hub (just like there currently is, which is why AA is so weak on the East Coast).
Seriously. Much of the value US brings to this table is strength in the SE part of the country with CLT at the heart of all of that.
Exactly. Clt was US’s largest hub & now AA can move flights into a more favorable southeast location as MIA’s strength is really long hall international vs CLT’s domestic service.
Honestly, I doubt that have any idea what the combined network will look like….but I think Brett is on the right path. One of the key variables will be how they rationalize the patchwork mess known as Express. This PSA,PI,Mesa, Republic (2 certs), AirWis,TSA menagerie is unsustainable as is….throw Eagle into the bowl (with some Skywest contract flying) and it gets mind boggling.
Sure…moving prop lift to help ORD makes allot of sense…but what happens to the small mid Atlantic markets that feed PHL? The CLT & PHL elephant in the living room is that over 50% of the lift is regional. Once realignment begins, where does that lift go and who flies it? As Cranky has correctly pointed out with the MEW experience…once tweeks are made and feed it lost a hub starts starving itself into oblivion.
I personally think that one of the biggest challenges to making this marriage work will be integrating a network that is totally dependent on contract flying (US) with one that has a more balanced mix (AA). Once they figure that out, we will have a clear idea of who stays, who goes, who is status quo and who grows.
I doubt they would agree to complete a merger without having any idea what the combined network would look like. Also, US has over a 3rd of its regional aircraft operated by wholly owned carriers, while AA was moving more towards contract flying in bankruptcy (including wanting to spin off Eagle). I think the network makes sense with largely connecting traffic through CLT and PHX, a mix through DFW, ORD, MIA and PHL, and largely O&D through JFK and LAX
Why would the small mid-Atlantic markets that feed PHL change at all? There is zero room for growth at LGA or JFK, so that capacity isn’t going to shift there…so if it’s not going through PHL, where exactly is it going to shift? Are you suddenly going to start feeding traffic from New England, upstate NY, small markets in PA, etc through ORD? Doesn’t make any sense. I don’t see how PHL is hurt by this in any way.
Andrew they wouldn’t. Infact you could see AA routing some if not most regional flights through PHL as there’s a new terminal F designed for US’s smaller jets. As a result, those JFK or LGA slots could be upgaged for more profitable flights for business travelers. Also flights from say PVD to JFK just seme to be a waist of slots as there are better ways to travel throughout the northeast.
Eric – What is unsustainable about the express model? If the contracts are all good, then there’s no reason that it has to change. Really, the regionals will work that out naturally through consolidation. Eventually, each of these will be owned by a large regional grouping (SkyWest/ExpressJet, Republic, Trans States) or they will be wholly-owned, I’d guess.
I spoke with Andrew Nocell, head of marketing at planning at US Airways last week, and he told me that he’s a fan of having some contract and some wholly-owned because it makes it better for them to have the balance. That’s not to say there isn’t change ahead, but I wouldn’t call it unsustainable.
I see the lack of sustainability under the current Express order in its number and varying degrees of financial health within the ranks. Lets say, ZW throws in the towel and decides to focus on ground handling. Yes, its only 50 frames but the scope of their network will be hard to backfill, in short order, given that PI and PSA have nothing on order. They can turn to one of the holding companies who may…or may not…have capacity due to their commitments to UA & DL. Not to mention DL and UA may have something to say about adjusting capacity to compete against them.
They have additional 260 planes at their disposal with MQ but for how long? And given the discussion of MQ’s cost structure…can the do current USEx flying profitably? I can see where Nocell says they want to balance owned vs contract flying. I am just saying that the number of subs and contractors needs to come down now that Eagle is part of the family.
Theres lots of scenarios. ZW just decides to not bid again and become a ground handler, then AA can look at buying ZW’s planes and placing them elsewhere.
If ZW hits bankruptcy we can see AA move in as a DIP financier to keep them running for long enough. DIP financing is first to be repaid so its a pretty safe investment to keep the airline running.
Eric – I’m with Nick on this. If Air Wisconsin walks away, that’s 50 airplanes sitting around with nothing to do. Those could easily be picked up by another airline. And in some of these cases, the mainline carrier actually owns the airplanes and just subs them out to a contractor. I don’t think that’s a huge threat.
I agree with your overall analysis, Brett. One important point to remember is that the combined carrier will have a sizeable presence in 5 of the six largest cities in the U.S. (in order, New York, Los Angeles, Chicago, Houston, Philadelphia and Phoenix; Dallas is 9th, Fort Worth is 16th, combined, they?re fourth). The new carrier will have a fortress hub or enjoy the largest market share at four more airports (i.e., 6 out of nine airports – 66.7% – instead of two out of five – 40%), so it can leverage its strength in those areas to support its less-than-dominant presence in the most important business and travel markets in the country, New York, Chicago and Los Angeles. In any event, profitability will be more important than market share in making decisions regarding hubs.
I look at the hub situation a bit differently than most observers I?ve read on airline blogs (maybe I?m missing something). I see JFK, Miami and Los Angeles primarily as being international gateways, not domestic hubs. So that colors my view a bit, as does living in Phoenix and observing America West from its beginnings with three aircraft.
Digressing for a second, America West is quite a story. It?s one of the only airlines formed right after deregulation to survive and prosper long term. Now it has, in a sense, grown into the world?s largest airline. Someone should write a book about America West. Many forget that Southwest entered Phoenix before America west began flying, and the two have gone head to head in Phoenix all of these years. To read some pundits, you get the impression that Southwest is invincible. America West has shown that?s not always the case.
Back to the point: I see Chicago O?Hare, Charlotte, Dallas-Fort Worth, and Phoenix as primarily domestic hubs, with JFK, Miami and Los Angeles primarily as being international gateways. Philadelphia is both a hub and international gateway. It and Newark are the only airports in the greater new York / Philadelphia metropolitan area that can function as complete hubs. That gives the new American an advantage over Delta which has to use two airports. Reagan Washington National will remain a key focus city. La Guardia and Boston Logan may become interesting.
Here?s a quick breakdown by airport. I?ll try to be brief. I have to say that the airlines? managements have a real advantage over me as an observer. They have real data to work with.
JFK ? Service will be concentrated on international and domestic long haul O&D. New York is a big market that can be served profitably if right sized. I would beef up (upguage) the connecting flights from the other hubs to support the international service. Profitability is more important than market share here.
PHL ? I think Philadelphia will the new American?s main omni -directional northeast hub and international gateway. You simply can?t duplicate that at LGA and JFK. And why mess with success?
DCA ? Next to the mint, this is a place to make money. I see some divestitures, but not many (maybe 20 to 24 slot pairs). The new airline will likely argue that there?s a lot of service to smaller cities that could be compromised with too big a divestiture.
CLT ? I see a slight reduction in capacity, primarily to the Caribbean. Flights that now operate daily may shift to Miami with less-than-daily service remaining at Charlotte. Miami is not in the right location to be a domestic hub. Charlotte is.
MIA ? I think Miami may get a few more connecting flights to feed its international service, but capacity increases will be disciplined. That?s Parker?s way (and the way most airline managements are going now).
ORD ? I think Chicago will grow some (both domestically and internationally) with the reintroduction of aircraft like E-175s and A319s (maybe E-190s or CS300s?). The Dash-8s are very old. I have to wonder if there?s not going to be an order for turboprops in the new airline?s future. ATRs may make more sense for the new airline as the Q-400s speed isn?t an advantage on the short hauls prevalent in the northeast and Midwest. This may be the most interesting hub to watch.
DFW ? I agree with your analysis. Dallas may be rationalized to maximize profits over market share. American?s market share is pretty secure.
PHX ? Many pundits see Phoenix as being de-hubbed. I don?t (living here may color my view a bit). I think you?ve quite eloquently made the case for Phoenix remaining a hub. If you look at a route map, you?ll see that most service out of PHX is to places west of Chicago and Dallas. I don?t see that going anywhere (not to mention the north-south service to and from Canada and Mexico). Boise, ID and Spokane, WA are served out of PHX, but not DFW. Maybe there?s a reason for that. In see a slight reduction in capacity in Phoenix, but not too much. Non-stop service may be cut back on routes like PHX ? BOS where 4 daily flights could become 2 or 3 with the additional connecting opportunities available at ORD and DFW. But you may also see added service to places like Vail, Colorado Springs, Wichita, Albuquerque or Santa Fe. Labor costs are going to rise, but higher wages don?t always translate to higher costs dollar-for-dollar. And Southwest?s costs are going up, too. The folks at the two airlines have far more data than I do to make these determinations.
LAX ? Ditto the comments re: Miami. There are few flights between Los Angeles and Asia on U.S. based carriers. There might be some opportunity there (then again, there might not because of costs). Los Angeles isn?t in the best geographical location to be an Asian gateway, but LAs large population can offset that to some extent.
A couple more observations: LaGuardia may be back in play. The combined carrier will be a strong #2 there. It will service 8 of the top ten destinations out of LaGuardia (profitability, not market share). Another place to follow is Boston where the merger will put the new American on par with jetBlue. That could get interesting.
Nice post, really good observations
A few thoughts/questions:
1. Why is it necessary to have a southeast hub at CLT when there are 6 other hubs surrounding it?
2. Both JFK and LAX have a lot of service from oneworld and other partner airlines. I assume at least some of that traffic is passengers connecting onwards with AA. Doesn’t that imply a need to keep a substantial domestic schedule from both airports? I doubt QF would want to shift service to PHX or BA to PHL.
3. Slightly OT, why don’t any of the big carriers have a northwest hub? Surely SEA or PDX would a better Asian gateway than SFO or LAX.
In concerns to number 2, BA already serves PHL. In this respect, BA is going to get a big boost in that market with all the potential feeder.
One of the issues you get into with a Northwest hub is the same problem that Miami has – its in a bad location to be a hub. Your two options are SEA and PDX, both of which are currently dominated by AS. AS had a good regional feed with QX and large metro areas to support the hubs, however they suck to connect unless you’re going intra-regionally.
The PNW can be served from SLC, DEN, and even PDX reliably.
1) Which other hubs can adequately serve the cities in that region other than Atlanta?
2) Yeah, but the question is – how much feed are they generating into LA from an RJ going to El Paso or Albuquerque. Some of these don’t even really feed the international flight banks anyway. So I think there’s a lot of junk that can be killed off. That’s why I assume Vegas stays – that’s one of the bigger connecting markets where the passenger traffic flow is important.
3) Delta has been pushing for that mightily. PDX was Delta’s first attempt and it failed years ago. Just not enough local traffic. So now it’s building in Seattle but it’s doing it in a much smarter way. It is leveraging Alaska’s network to feed the domestic travelers into Seattle. With Alaska working with Delta closely on this, there isn’t much room for American to try the same.
I’m unclear on the concept of a double transatlantic gateway in Philadelphia and New York. The model of O&D from New York and O&D plus connections from Philly can work to the major European cities and OneWorld hubs. But what about smaller destinations? Take my favorite, Tel Aviv: There’s definitely some demand from Philly, but the current nonstop flight depends heavily on connections. New York would get more top dollar traffic, but wouldn’t survive on O&D alone (even El Al relies on domestic code sharing, presently with American and Jet Blue). Developing a major international gateway in New York would require substantial domestic feed, and this could hurt some of the smaller transatlantic destinations from Philly.
As I said above, you can reroute some connecting flights through PHL & avoid the congestion that is NYC airspace.
There are as many as a half dozen flights to TLV from JFK & EWR depending on the day of the week, so moving the flight out of PHL to JFK isn’t nessessary. plus the US flight goes to a different airport TEL instead of TLV.
Interestingly several flights to TLV originate out of LAX with only one El Al nonstop, the rest connect through PHL, EWR or JFK.
One minor point–There’s only one major international airport in Israel, and that’s TLV. TEL does not exist.
Actually, a TEL exists but it is in Malaysia!
Tel Aviv has two airports: Ben Gurion (TLV) and Sde Dov (SDV). TLV is the main international airport; SDV is technically also international in the sense that it has immigration and customs facilities, but those only serve private and government aircraft and perhaps an occasional charter. The only commercial service at SDV is domestic; all commercial international traffic goes to TLV.
Presently, US Airways flights 796/797 are the only ones marketed as a through service between Los Angeles and Tel Aviv (with a change of aircraft in Philadelphia). Delta used to market such a flight with a change of aircraft in Atlanta, but after canceling the nonstop service from Atlanta they started marketing flights 268/269 as through service between Atlanta and Tel Aviv, with a change of aircraft in New York. Continental also used to market a through service from Los Angeles (with a change of aircraft in Newark), but presently United flights 84/85 and 90/91 are marketed as Newark–Tel Aviv without any additional destination (interestingly, these flights have kept the same numbers since close to Continental’s inception of service in 1999).
The importance of the Los Angeles–Tel Aviv market is one more reason for the new American to shift its Tel Aviv flight to JFK — this will allow it to offer a better premium product from L.A., surpassing United which does not have a premium service to Newark.
Thanks Ron, I stand corrected. When I flew Contenental to Los Angeles in 2005, my return flight was 90. Found it interesting that this flight continued to tel Aviv.
I’m just wondering how do you know so much regarding Tel Aviv flights?
Thanks.
Ron – There is already a lot of service from three airlines in the NYC – Tel Aviv market, so I don’t imagine that’s where American would want to be, personally. There is a good market in Philly that the airline would have all to itself. But regarding feed, airlines get into this spiral of doom when it comes to feed. They set up flights that can’t exist without a lot of feed, so they create a bunch of flights to feed the big international destinations. That makes the international flight look good, but then the domestic flights suck wind. Then they justify it saying that it supports the international operation. It all goes around in circles.
I think NYC needs to have flights to those cities the big business community needs most. Some of those (Sao Paulo, London) can survive off local traffic and feed at the other end. Others may require a more innovative approach. Maybe get JetBlue to provide your feed to those flights.
I think there is enough NYC-TLV traffic, largely local but with some connecting, to support several daily flights. Of course, they’ll have to run the numbers to see if it’s worthwhile, but my guess is that it could be.
What’s the status of the TWA judgment in Israel? If that’s been resolved (or gets resolved), I see the possibility of a Miami – Tel Aviv flight.
Cranky — I’m wondering exactly how much of a good market there is in Philly. Delta had found a good market in Atlanta, but then they tried JFK and within 2–3 years Atlanta was gone. Philly looks similar to Atlanta, relying very heavily on connections. The new American may find a better way to flow the Tel Aviv–bound traffic. Heck, they may even send it through London.
At any rate, American has a terminal and slots in New York. They need to do something with it…
As for Miami–Tel Aviv, El Al pulled out of that in 2007 or 2008, suggesting that the local market is not great. It’s definitely not good for domestic connections. Latin America? Maybe, but El Al recently pulled out of Tel Aviv–São Paulo, so maybe that’s not great either.
A lot of thoughts here, and I always wonder when that happens if the AA/US people who are reading this and reporting back to higher up are laughing at some of the ideas or thing ‘wow that person nailed what we are going to do’.
Need to remember at JFK and LAX AA is not just feeding their flights, but their international partners who must count on that feed a great deal. So unless all their international partners want to move operations to PHL and PHX, JFK and LAX are still going to play a big role for the combined airline. You just don’t walk away from the two largest cities in American since there is a need for service.
Good points but that assumes THEY know what they are going to do!
ditch philly and rebuild PIT!!!
no, really, do that!
sigh…….
Why? Let’s here your reasoning.
(calm down, i was joking)
What happens at PIT is actually an interesting sidebar to this discussion. US has a brand new operations center and primary maintenance facility at PIT. What if anything happens to these facilities?
I miss the days of connecting at PIT. Great terminal and airspace is wide open unlike PHL being smashed in-between NYC and DC. If I had a nickel for every time I have been 15+ in line for takeoff at PHL I would have a lot of nickels.
Well, if we’re going this direction, ditch ORD and rebuild STL!
If we’re going back that far we should ditch ORD and build up DAY from the Piedmont days!
Nice analysis Cranky. I’m always a bit mystified in the popularity of the idea that CLT somehow goes away in this merger. Frankly, I sometimes wonder if some of these “experts” have ever been to Charlotte. I do expect there will be some reductions in Caribbean and Latin America flying, and Europe flying from Charlotte will probably come down to just the big 3 of LHR, FRA, and CDG. I could be wrong. Lufthansa manages to fill an A340 to MUC, but the loss of Star Alliance connectivity will negatively impact that. The area within a 60 mile radius of Charlotte is filled with big companies that do a lot of travel. I expect CLT will still be a hub for the new AA in 10 years….just not the same hub that it is in the unique world of US Airways.
Marshall – See, for Europe, I expect we’ll see London, Madrid, and maybe Barcelona. I don’t think Frankfurt sticks around. I also bet that the Lufthansa Munich-Charlotte flight gets cut. Without US Airways on that end, it can’t be a great flight to operate. But it does show the power of the alliance. It will be really interesting to see how networks shift because of the shifting traffic flows.
CF, good point on Madrid, and Barcelona. I tend to forget about Iberia and the rest of Oneworld now that I lead a Delta-centric Atlanta based life. :) Like you, I doubt the BMW plant in GSP is enough to keep the MUC flight going on its own. You are so right about the power of Alliances.
I would love to see someone compete with SWA on the West Coast. I travel almost every week on SWA – no choice. I am a bit troubled with “American” trying again on the West Coast after the Reno Air and AirCal debacles, and PSA going away. Give me a decent flight up and down the coast [other than Alaska] WITH a seat assignment, and take me out of “line-ups” and 24-hour prior check-in’s and I’d be a happy guy. Delta flies out of OAK 4 times a day to LAX, but not to SNA, BUR, or ONT. Flight from OAK to LGB would be nice since JetBlue is not flying but a few a day to LGB. JetBlue needs to figure out a way to “lose” their punitive change fees, and although SWA makes you “upgrade” to full fare if you change your flight, at least now you can upgrade to BizSelect, but I’m not yet knowledgeable on how that works. Please someone come in and compete with Southwest out here – I know many biz people who’d pay more for LESS SWA hassle. Ever notice how often SWA cancels flights at the last moment to BUR and LAX when there seems to be noticeably less people in the lounge?
I think PHX will be just fine – look at is as USAA’s Southwest US version of DL’s SLC hub. Perhaps the right sizing of PHX and DFW will happen since they will both be competing for some of the same cross country fliers who need to connect through a hub.
I see LA being shrunk before JFK having cuts. JFK will continue to focus on the long-haul/international routes, while LGA will be serving the high profit, mid-con routes within its perimeter. Speaking of which, where is AA/US going to house its operations in LGA after the merger? In the main terminal where AA just finished its refurbishment is my guess, while the shuttle operations will migrate to Marine Terminals after its swap with Delta.
The one key question I have: On the map, what’s that lone red (=AA) city up in northern California, way north of San Francisco? It looks like Arcata/Eureka or perhaps Croissant City, but I don’t think AA offers service up there.
Oliver – Looks like Arcata/Eureka which was in discussions with American for LA service. I don’t think it ever happened, however.
I don’t see why there is a need for 3 northeast hubs. I could see DC surviving but why NYC and Philly. I believe the new American should keep CLT and MIA at current levels or even increase flights.
CF, I like your analysis; it is much more balanced than most I have seen (which either are reprints of merger-related press releases or slash and burn predictions). A couple of observations: (1) UA+CO is bigger than AA+US in Chicago based on total traffic, but if you look at the shares of O&D traffic, they are close. United carries a lot more connecting traffic, which may or may not be a good thing. (If you look at just domestic O&D traffic UA+CO, AA+US, and WN+FL have very similar shares.) (2) While I have seen the various CLT vs. MIA scenarios, I agree they function very differently and can co-exist. A more interesting inquiry to me is CLT vs. DCA – each have lots of regional, both have primarily north-south domestic connections. Since Washington has a larger O&D traffic base, why not add larger gauge capacity at DCA and trim at CLT? (3) US Airways PHX enplanements are two-thirds connecting with most of the connections to/from California. Why not reduce capacity at PHX and increase capacity in California markets? kc
I would hate to see the old PSA network dismantled as Brent suggests may happen. I know I would not want to have to connect in Phoenix just to fly from LAX to SFO or OAK. For those unaware PSA was the old inter-California airline during the pre-deregulation days. PSA was bought up by US Air in about 1986-1987. I can see eliminating Fresno as that is within driving distance of both LA and SF but other than that what is left of the PSA network serves a distinct purpose as long as it is cheaper than driving (figure driving costs at 55 cents per mile). Certainly LA-Sacramento needs to be maintained — if nothing more just for the state government to function adequately.
mharris – I hate to break it to you, but US Airways dismantled the PSA network many, many years ago. The only thing left are the links between Phoenix and California. US Airways has not one intra-California flight.
Good analysis on the AA/US hubs. Best one I have read. Doug Parker focuses on profit over prestige, and prefers to dominate a small market instead of competing in a bigger market. Most likely, the new AA will resemble the current US, but on a larger scale.
As for the hubs, I agree with your analysis on each of them. Additional thoughts:
MIA vs CLT – CLT is better for domestic connections within the southeast as well as north-south flows along the east coast. MIA is a better gateway to Central and South America and Carribean.
JFK vs PHL – PHL functions in a similar way as United’s EWR hub with a good mix of domestic and international routes. JFK could not be the hub that PHL and EWR are due to competition, airport layout, and market preferences. I think JFK would serve O&D traffic with connecting traffic routed via PHL. I don’t see AA/US shifting any trans-Atlantic flights from PHL to JFK; in fact we could see the opposite as JFK is the weakest hub and most likely to be axed over time.
LAX vs PHX: PHX could get international flights to London and Tokyo; PHX could also serve as the airline’s gateway to Asia. I think LAX focuses on routes with high O&D traffic with connecting traffic going through PHX. I have connected in PHX and LAX, and PHX is better optimized for connecting traffic.
ORD – I agree that using more appropriate aircraft for flights here would make ORD stronger. I could see Parker making an exception to his must-be-number-one rule and build a successful niche as a strong number two airline in ORD.
So of the hubs, I see Los Angeles and New York as most likely to be eliminated over time as AA/US consolidate operations. US Airways has already shown it can be profitable without a major presence in New York or Los Angeles.
Agreed, LAX and JFK remain focus cities, but not hubs. The ATC situation in the NY area is so bad, I would do anything possible to avoid having to connect through there.