Charlotte Observer: Stakes High For Charlotte In
Tue January 31, 2012
Charlotte Observer: Stakes High For Charlotte In US Airways Merger Talks
As merger talk heats up around US Airways, experts say an acquisition of American Airlines or a merger deal with Delta could affect Charlotte's status as a hub city, although it's too early to make firm predictions.
Any potential deal would be months, if not more than a year, away. But since American Airlines sought bankruptcy protection in November, speculation about possible tie-ups has increased. Last week, US Airways CEO Doug Parker confirmed his company has hired advisers to study a bid for American, something Delta also is reported to have done.
And late last week, The Wall Street Journal reported that Delta is studying making a bid for US Airways. It's been about five years since a US Airways bid to buy Delta failed.
Close to 90 percent of the daily flights at Charlotte Douglas are operated by Tempe, Ariz.-based US Airways or US Airways Express. Any merger deals involving the company could have a big impact on the city.
Three analysts interviewed Monday by the Observer said a merger with Delta, which has a major hub in Atlanta, could put Charlotte Douglas at greater risks for cuts. They also said they believed that scenario was less likely than a merger with American. That's because American and US Airways would have little overlap in their routes, and Charlotte could be a good fit in their combined map.
"Charlotte Douglas International is a very big factor in our promoting the region," said Russell Rogerson, senior vice president of the Charlotte Regional Partnership. "We like to tell people they're one stop away from anywhere in the world."
That's key to luring businesses to the region, especially companies that need to be able to fly easily to far-flung operations, bring in prospects and make corporate sales calls.
"Private corporate jet flying has reduced dramatically over the years, so having the airport and the US Airways hub is key to that," Rogerson said. He hasn't heard concern from the business community about a possible US Airways merger.
When Chiquita Brands announced it was moving from Cincinnati to Charlotte, the company cited the respective fortunes of the cities' airports. Flights at Cincinnati's airport declined drastically since Delta merged with Northwest, while flights increased at Charlotte Douglas.
Along with $22 million in incentive money, Chiquita CEO Fernando Aguirre said, the wealth of flights from Charlotte Douglas made up his mind.
A US Airways-Delta merger would raise concerns, however.
"With Atlanta just a few hundred miles away, the need for a dual hub in Atlanta and Charlotte is severely reduced," said Henry Harteveldt, an airline consultant with Atmosphere Research Group. Long-haul and international flights would be especially at risk. "It will be that much more difficult if those flights also operate from a nearby hub and are viewed as redundant."
That combination could run into antitrust concerns, however.
"I don't think the Department of Justice would take kindly to a merger between US Airways and Delta," Harteveldt said.
Several analysts said the other scenario, US Airways-American, would be far more realistic. That also could have consequences for the Charlotte hub.
"People will tell you American could really use a Charlotte hub," said Mike Boyd, president of airline consulting company Boyd Group. "It's a yes and no. It's another connection point in the South, but is it going to be traffic they really need?"
He noted that Charlotte Douglas has a significant share of smaller regional jet traffic, which doesn't bring in as much revenue.
But Boyd said with Charlotte Douglas' advantages in low cost and location in the growing Southeast, he wouldn't be concerned.
"That hub is as safe as Fort Knox," he said. "If you're going to bet on anything, bet on Charlotte."
While it is in bankruptcy court, American also has the right to propose a first plan of reorganization, meaning any bids are a long time away.
Harteveldt said in the event of a merger with American, the combined company could bracket Delta's Atlanta hub with hubs in Charlotte and Miami, giving it a powerful advantage.
A merger proponent
US Airways CEO Doug Parker has long been a vocal advocate of industry consolidation. In 2005, when he was CEO of America West, that carrier acquired US Airways while the latter was in bankruptcy court. Parker runs the combined company.
In 2006, US Airways made an $8 billion bid for Delta while that carrier was in bankruptcy court. Delta turned down the bid. US Airways also was twice in merger talks with United, neither of which led to a deal.
US Airways remains the smallest of the big five U.S. airlines. Analysts say it lacks an extensive international network that many other carriers, such as American, have.
Parker also said last year he believes there's one big deal left in the airline industry, a deal that involves merging one of the existing carriers with US Airways. And though US Airways hasn't been a merger participant since 2006, the industry has been swept by a wave of major consolidation since then: Delta and Northwestern in 2008, United and Continental in 2010, and Southwest and AirTran last year.
The airline industry has largely returned to profitability since the years following the Sept. 11 terrorist attacks, which saw bankruptcy engulf nearly every major U.S. carrier. US Airways was in bankruptcy twice, in 2002 and 2004.
"At the turn of the century, it was grow or die. Now, it's survive and contract," Rick Seaney, CEO of travel website Fare Compare.com , said describing the shifting mindset of airline executives.
For 2011, all the major airlines except American posted profits despite sharply higher fuel costs. They were able to cut capacity, raise fares, and charge for all sorts of services once bundled into the price of a ticket, such as checked bags.
US Airways faces issues
Things haven't been all smooth, however. US Airways has been unable to merge fully with America West as bitter labor issues still have the pilots union divided and flying separately, more than six years later.
"Before they move forward with any merger, they have to complete this one," said Capt. James Ray, a spokesman for the Charlotte-based US Airline Pilots Association. "It would be a real mess trying to put three airlines together."
Federally mediated talks between the airline and the union have been recessed, and a court case involving America West pilot seniority starts in Arizona next month. Ray said the union hopes to resolve its internal disputes within the year, and preferably sooner. That would remove a stumbling block from any merger.
It's unknown how US Airways' nearly 7,100 employees based in Charlotte would be affected in any merger scenario.
Ray said he thinks US Airways will make a bid for American. "They wouldn't go hire outside consulting partners to help them do this if they weren't really serious."