The Best Slide I’ve Seen Showing American/US Airways Merger Benefits to Mid-Size Cities

American, US Airways

Last week, US Airways had its sixth annual leadership conference for every manager and above in the airline’s system. Each day for four days, a few hundred managers gathered to get the scoop from top management, and I was able to attend on the third day, Wednesday, courtesy of the airline.

Most of the presentations were the same as what we saw at media day a week earlier, but there were some differences. Most notably, the tone was different. Senior leadership was visibly more relaxed, especially during the Q&A session when they were often found playfully roasting each other. There were members of the American leadership team in the room each day, and they must have been completely bewildered by something that I couldn’t even imagine being done at American today.

But in addition to the difference in tone, this event had more slides that what we saw at media day. They took more time to talk through much of the rationale for the merger and the benefits it would bring. My favorite slide of the day was this one:

Network Connectivity

It was last March when I wrote about Jamie Baker’s discussion about the importance of an American/US Airways merger to “small to moderate East Coast cities.” But I think this slide shows it best.

All of these cities lie east of American’s big hubs in Dallas and Chicago. If you’re a resident of these cities, that makes heading west easy. But what if you need to go east? Some of these cities have limited service to Miami in order to connect to South America, but it’s not realistic to use that service to connect throughout the east coast. On this list, only Cincinnati has a flight to New York, but that’s a single daily flight to JFK meant to connect to Europe. It’s in the middle of the day and won’t work on a business schedule.

On the flip side, US Airways serves all these cities from its hubs in the east. (I’m not sure when they officially started calling Washington/National a hub, but we saw that mentioned multiple times at the events over the last couple weeks.) You can connect up and down the east coast and into Europe with ease. But you can’t go west. None of these cities have enough demand to support a flight to the only US Airways hub in the west, Phoenix.

When you bring the two networks together, you gain the ability to get people in all these cities (and there are plenty more not mentioned here) wherever they need to go. That allows the combined airline to compete with Delta and United, both of which can already go both ways from these cities.

Why does that matter? Well, it means the new American will be more competitive for corporate contracts in those cities. By providing a legitimate third option to United and Delta, it should increase competition in those place. That bleeds over into leisure demand as well. If people become loyal American fliers for work, it increases the likelihood of them choosing American for leisure. That’s particularly true if the AAdvantage program remains structured well and continues to draw people to it in droves.

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48 comments on “The Best Slide I’ve Seen Showing American/US Airways Merger Benefits to Mid-Size Cities

  1. “On the flip side, US Airways serves all these cities from its hubs in the east. .. You can connect up and down the east coast and into Europe with ease. But you can?t go west. ”

    I’m confused. When did Philadelphia and Charlotte stop offering Westbound connecting options?

    1. I am pretty sure that is a rhetorical question. But I will take the bait. I am pretty sure Cranky is talking about efficiency and want flyers want. Most people do not want to hop a flight east, connect, and then cover the same ground heading back west. If that is the only option, sure, people will do that. But, if they have choices to fly UA or DL without going back east first, the majority of people will. Plus the trips will be a lot shorter in time.

    2. Oh come on Gary. You can quibble with my wording, but you know the point that I’m trying to make. As Quest says, it’s an efficiency issue. Could I fly from Denver to LA by connecting in Philadelphia? Sure. But nobody will do it because it takes too long. That’s an absurdly extreme example, but the point is the same. The only person who is going to go east in order to go west is the person who isn’t time sensitive and is trying to save money. That’s not the kind of person the combined airline can appeal to.

  2. Hmmmm. Seems like a lot of lines coming from some fairly small markets. I’ll take the under on this map in 5 or so years. I’ll also take the under on 7 (seven!) hubs that continue into the future.

    1. I’ll take your under on the first part, but disagree on the hub situation despite JFK, PHL, DCA & CLT esentially in a row as they all serve different market segments.

    2. Well, the old US Airways listed 7 “hubs” on the East Coast alone: Boston, La Guardia, Philadelphia, Pittsburgh, Baltimore, Washington-National, and Charlotte.

    3. Jim M – So what hub would you eliminate? Unlike the Cincinnatis and Memphises of the world, these are all very big markets that can support hub service. The one exception in terms of size is potentially Charlotte, but that is the only city that can serve the south outside of Atlanta. It would be a mistake to close that.

      Now whether you call JFK a hub or not may be semantics. There will be some kind of presence there, but really, it’s irrelevant to this map. There’s only one flight from a small city on this slide that serves JFK and I bet that goes away anyway.

  3. Good stuff. What do you think about a city like PWM, that is served ORD by UA. Do you think new US/AA adds service to ORD ? I assume service to like DFW nonstop is a little bit of a dream. Some of these eastern cities are not served by AA and rely on ORD service from UA.

    1. My guess is that PHL, DCA and CLT are enough for USAA connections from Portland, especially since ORD is already served by UA.

      My other guess is that when USAA decides to start new service from spokes, whether to ORD or otherwise, they will look for new “monopoly” runs that are not currently serviced by any airline instead of matching existing service on a competitor (unless it’s a real gold mine of a run).

    2. I can see the new American adding service from cities like Providence, R.I. and Manchester N.H. to Chicago. Both probably have a decent base of current US Airways customers and are probably large enough to warrant new service. But the airlines probably hve a better handle on this than I do.

      1. To finish my point, I don’t know how big Portland, Maine is. But if it’s a big enough market, it may see service to Chicago. Don’t forget, United is losing the US Airways customer base with the merger, which may have an impact. It should be interesting to see what changes come about in any event.

    3. Derek – I really can’t make any predictions on a route-specific level. That’s too granular to know what will work and what won’t without seeing the internal numbers. But from a strategic standpoint. if there is greater, high dollar demand in and out of these cities, that could open flight viability to hubs further away.

  4. What do you think will happen with the very small cities like HVN and SWF that are serviced entirely by small regional aircraft, particularly the Dash 8-100/200? Especially with that fleet starting to reach EOL?

    1. Ben G – The small cities are a real issue. When the Dashes run out of time, these cities are at risk of losing service entirely, I’d think. I really hope someone comes up with a good prop replacement in that size category.

  5. “That?s particularly true if the AAdvantage program remains structured well and continues to draw people to it in droves.”

    This is but one loyal AA flyer’s opinion, but that, I think, is going to be the key to the whole merger for a lot of legacy AA folks, and one I hope that Doug Parker understands (that and avoiding a major meltdown period after systems integration). AA has certainly had many faults over the past few years, but AAdvantage has generally been regarded as an excellent program, and is a big reason why people stick with the airline. It’s a little different for someone like me who lives in a big AA hub – I’d rather keep my nonstop, even if the experience is downgraded, rather than deal with a connection on a different airline – but if you’re in a midsize city and have to do a connection anyway, IMHO, keeping the FF program leading edge could be a strong differentiator, especially for business travelers.

    I just hope they don’t screw it up by doing stuff like adding a fourth tier to downgrade Gold-level benefits and switching to a Rube Goldberg-like upgrade system that seems to flummox UA these days.

  6. At least RDU failed for AA years ago, so they don’t have to have the hard feelings of shutting it down after the merger in favor of bigger CLT.

    I wonder if any of those CLT points will move/be added to MIA for better Caribbean/Latin American service since MIA is way ahead of CLT in those areas.

    1. Yeah but that’s all MIA provides. CLT can still give many of these cities one stop service with reasonable connections to much of the US.

      MIA, like SEA, is definitely minimized as a connecting hub by being a geographic outlier. Even within FL, especially at the smaller airports, very few travellers connect via MIA relative to ATL and CLT and, when they do, it is usually to the Caribbean or Latin America. If people in FL won’t connect in MIA to destinations other than those, who will?

    2. David – I can’t see routes being shifted from Charlotte to Miami, but growth is possible. So maybe cities that didn’t have Miami service can support it for Latin connections. Maybe.

  7. I’m curious if there will be some rationalization. Does DAY need connectivity to/through ORD, DFW, PHL, DCA, and CLT? I know DAY used to be Piedmont’s hub but that was long long ago (with a concourse that is still closed, and will be torn down this year.) but that doesn’t mean it should be served like a hub anymore. :-p

    Perhaps the ORD flights get a capacity trim as they flow more traffic over DCA and PHL? I’m sure there will be some upgaging and flight cutting..

    1. I think you’re right, most spokes will need rationalization, whether via destinations or frequency. Let’s look at each of these in this instance (DAY).

      ORD and DFW may each have enough O&D traffic to support themselves and each is a logical choice for westbound connecting traffic. If both runs are not profitable or near break even on a standalone basis, I would guess DFW would be cut; however, that might result in increased frequency to ORD.

      DCA is slot controlled and all service is approved by DOT so few, if any, of the flights to DCA will be changed because that would require federal government authorization.

      Turning east, we have PHL, CLT and MIA. MIA is not served from DAY and it’s probably fair to say that MIA is served only from the larger spokes in the AA network currently and I don’t see this changing in USAA. Part of me wants to say that flights to CLT and PHL are duplicative in terms of connecting opportunities but that really isn’t the case. In fact, if CLT were cut in lieu of PHL, I would imagine there would be at least 20+ cities in the SE that would lose connectivity. I definitely don’t see USAA giving up this business to DL, especially since nearly every one of these spokes has ATL service on DL.

      If anything changes, PHL might be reduced to service that corresponds to intl connections but, otherwise, most spokes probably need service to CLT and PHL. Now frequencies… that’s probably another discussion!

    2. Rationalization was my first thought as well.

      I was surprised to learn YOW has service to PHL, DCA, and CLT. DCA obviously makes sense for O/D traffic, but can there really be that many people from Ottawa wanting to fly US to/through CLT or PHL? Perhaps USAA should replace One of them with JFK. Surely that would get more traffic, especially since the only current competition to NYC is regional service to LGA and EWR.

    3. Nick – I’m sure we’ll see frequencies change as they adjust traffic flows through the network, but I’ll be curious to see how many cities lose service to these hubs. For Dayton, using your example, I would think that most of these cities have decent local demand. Maybe not Charlotte, but that can really push people into the southeastern US so it might work well that way. I’m not sure. But would I be shocked if a mid-size city lost service to a hub? No. But I would downright expect frequency changes.

  8. I wonder what their internal slides say of places like AZO, FWA, and TOL where AA only has a presence to ORD (FWA does have DFW). I’m curious to see if they see any opportunities to fly an eastern hub and can make it work.

    1. That’s a really interesting point and IMO a few of these barely-utilized spokes might present a handful of opportunities for service to a former US hub that would not have been worthwhile previously. The cost of opening and operating a station is already accounted for so the incremental cost of adding new service is significantly less. Of course, the other side of the coin is that these stations could simply disappear from the USAA map. Definitely worth compiling a list of stations like these and keeping an eye on them.

    2. Flyinryan – Could be interesting to see if any could support service going east. It seems to me that if they can move the Dash 8s around, you could replace an ERJ with a Dash 8 going to Chicago and maybe east to Philly. Then tweak frequencies a little and you can provide a similar number of total seats but with greater utility.

  9. Great graphic! Now I’d like to see a similar depiction for the west half of the country. What would east-west flows look like for LAX/PHX/DFW/ORD for AA & US?

    When you compare traffic flows in the West, UA is solid with DEN/SFO/LAX; DL looks pretty good with SLC, its international routes from SEA/PDX/LAX with AS providing regional feed. AA/US looks a bit thin with just the PHX hub and trying to ramp up LAX.

    On a side note, interesting how AA wants to yet again boost LAX, when both it and US squandered opportunities in the west coast market: AA bought AirCal and Reno Air; US bought PSA, and none of those purchases, for many different reasons, panned out.

    1. All good points but remember that LAX service by all airlines not named UA and WN has vacillated pretty frequently over the years. DL has tried hub/focus city service on numerous occasions. I think USAA will actually have more LAX service than DL does currently and, don’t forget, many of the same west coast AS feeds for DL also codeshare for AA.

        1. Alex – Those numbers are a little misleading because it’s by operating carrier only. United has a much larger express operation at LAX, I believe, so United should be a clear number 1 in that sense. But this is also by passengers and not by frequencies. United has a lot of smaller airplanes as does Delta. If you look at frequencies, it might be different.

          Just wanted to add a little color.

          1. Agreed; that’s why I said mainline. (Takes more effort to gather the full primary marketed picture, a DOT issue you’ve certainly cavetched about many times.) The point stands that DL is markedly smaller than either UA or AA in capacity and that AAUS will be the largest in capacity.

          2. Fair point but I said “service” and I think the notion of not including branded service from regional carriers makes this comparison almost pointless. When considering an airline’s penetration at an airport, what matters most is (1) total departures and (2) total passengers — on all branded service.

    2. Nick – I wouldn’t expect to see much going into LAX after this merger from a small to medium sized city perspective. But I do think Phoenix can strengthen itself by increasing service to smaller cities around the west. One thing US Airways noted is that Phoenix has seen the greatest growth in revenues lately and it’s doing quite well. They seemed surprisingly bullish on it.

  10. What I’d really like to see is some decent service on the West Coast. Does anyone have any idea of how nice it would be to have an alternative to Southwest? Since AA bought and trashed both AirCal and Reno Air, and Delta trashed PSA, we have NOT had a decent alternative to SWA. I fly 60 times a year, and would love to have someone serve the CA and West other than SWA. Does 24 hour call-in and no seat assignments bug anyone other than me on SWA? 3-5 flights a day from SFO/OAK/SJC to LAX/BUR or SNA would make a world of difference. SWA advertises no change fee, BUT they REALLY do have one disguised as necessary upgrades to full fare if you change your flight on the day of travel. Finally, if AA/USAir would charge a reasonable change fee, say $50 for flights less than 1000 miles, I fly them all the time.

    1. Glen, DL didn’t trash PSA, USAir did. So between the ‘new’ AA/US they wiped out AirCal, RenoAir, PSA, plus the SJC hub AA was building up years ago. Now I wonder if secretly they now wish they had not done that. While times were different back then, WN chased them out of the west once they started to build up their north/south west coast service. Guess they feel the same now and will stick with east/west and north/south east coast markets where they have a good chance of competing better.

  11. Yeah I was thinking exactly the same thing about YOW. At the moment AA only flies to YOW 3x daily, 6:40AM, 1:25PM and 6:30PM. The last flight is too late to make 99% of connections (including any flights onward to SFO). I seriously considered switching to AA but the lack of any flights leaving Ottawa after 1:30PM is a deal-breaker for me.

    Now, though, they’re going from 3x daily to 7x daily. Makes them a whole lot more enticing…

  12. This enhanced connectivity is apparently where many or the revenue “synergies” will come from.

    From what I’ve read, American’s financial problems were more about revenue than costs. US Airways compensated for its revenue deficiencies through lower costs. And American was apparently following that same path.

    But together, the new airline has more revenue generating potential, and can pay its people better. At least that seems to be the plan.

    I still wonder if there aren’t too many employees. But with the impending retirements, it may not be as big a problem as some pundits envision.

  13. Cranky, this slide looks great, but what makes you so sure that the combined airline will keep all these flights? As we saw with the DL/NW merger, small and mid-size cities don’t need service to all the hubs and will slowly start to lose some of them. For example, Louisville is shown on the chart as having service to 6 of the hubs. I’m pretty confident that isn’t going to be the case for very long after the merger goes through.

    1. Jim – So what do you think will happen to Louisville? Which hubs get cut? When you look at Delta, there was a lot more overlap between hubs. From a Louisville perspective, Chicago to the northwest and Dallas to the southwest seem like good bets. Philly to the northeast and Charlotte to the southeast also work well. Miami is a one trick pony. They have one flight a day to connect to Latin. Maybe that survives, or maybe it doesn’t. But that’s relatively minor. And DC is its own world. All the government traffic means it exists in a weird little vacuum.

      1. I honestly have no idea which ones will get cut. Probably Miami like you said, perhaps either Philadelphia or Charlotte or DC, or two of them. There may be frequency cuts for the ones that remain.

        1. Few, if any, DCA flights will be cut because all of those slots and destinations have been approved by the DOT and require approval (and a good reason) to change. It’s either fly it or don’t, at least for the foreseeable future.

  14. “I?m not sure when they officially started calling Washington/National a hub, but we saw that mentioned multiple times at the events over the last couple weeks.”

    It was with the merger announcement. All the merger-related publicity has listed DCA as one of the hubs of the combined airline. I don’t think I’d seen it listed as a hub for US alone before the merger announcement.

    1. I don’t remember exactly when or have the reference, but I think US started calling DCA a hub just after the slot swap with Delta.

  15. I just returned from CLT on USAIR and their in flight magazine refers to DCA as a hub.

    CLT, it is a great airport and has a very efficient USAIR hub operation. I am in management consulting and get an inside view of where business travel is strong. CLT is a very corporate market with a lot of business travelers. I think it survives and potentially even thrives, post merger. It is a great southeastern alternative to ATL. As for MIA, it is a different animal. It is almost like JFK in that it is so strong internationally, with enough domestic traffic to balance things out so as not to be completed lop-sided internationally. I know they have cost issues, but I flew into MIA recently and was very impressed. I think they continue to push into Central and Latin America and do well…

    1. It’s true, CLT is a great hub airport. People in SE spoke cities generally prefer connecting using CLT as opposed to ATL unless they are slaves to SkyPesos (and I predict there will be a lot fewer of those as time passes).

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