Thu February 14, 2013
How The US Airways Merger Will Affect Charlotte
The early indication is that Charlotte’s airport is safe in the just-announced merger of US Airways and American Airlines. The new American Airlines will be the world's largest, with a value of 11 billion dollars and an extensive network of destinations.
When merging, airlines combine operations, which means reducing duplicative routes and changing presences in airports. US Airways operates about 90 percent of flights in and out of Charlotte-Douglas every day—it is the airline’s largest hub.
“The combined airline is expected to maintain all hubs currently served by American and US Airways,” the airlines said in a joint press release announcing the merger.
The number of flights in and out of those hubs could change, though, US Airways CEO Doug Parker told investors on a conference call. Parker will lead the combined airline out of the larger American’s headquarters in Fort Worth, Texas.
But, Charlotte is known among major airports as an inexpensive place for airlines to operate. The city’s aviation director, Jerry Orr, says the airport’s low cost, combined with its central location, will continue to make Charlotte an attractive hub.
“We’re exactly half way between the Northeast and Florida on the East Coast, where two thirds of the people [in the nation] live,” Orr said on WFAE’S Charlotte Talks. “You layer on top of that we have an extremely efficient and effective air field and airport. That produces the lowest cost to the airlines of any major airport in the country.”
The two airlines have published state-by-state fact sheets, and North Carolina’s shows the two airlines employ about 9,800 workers across the state—the vast majority are US Airways employees in the Charlotte area.
Still, some concerns remain. The Charlotte Observer reports one of the top ratings agencies has expressed skepticism that all the hubs will remain active. Fitch Ratings analyzes bonds issued by Charlotte and its airport.
“While geographic location and separation helps support a rationale for hubs, it is still fair to ask whether maintaining as many as six hub airports at the same level of operations will be necessary to maintain an efficient single network," said a Fitch press release.
If the new American Airlines decides keeping six hubs does not make business sense, Charlotte will be one of the most at risk, according to Adie Tomer, a Brookings Institute associate fellow.
“Charlotte as well as Phoenix are most likely to see a dropoff in passengers,” he says. “The other major markets that US Air and American have are some of the major economic players across the globe, if not certainly within the United States.”
Tomer says the merged airline needs to fly into New York, Philadelphia, and Los Angeles, because of their status as major economic engines.
“Charlotte is the only metropolitan area in the country where over half of its passengers are not locally based,” Tomer says. “They’re just passing through the airport.”
Other hubs have suffered due to mergers, after an initially rosy outlook. Cincinnati stands as the most recent poster child, after Northwest Airlines merged with Delta Airlines in 2008.
In Charlotte’s favor, the flight networks of American and US Airways are more complementary than competitive, according to Parker. Only 12 routes overlap between the two airlines, out of nearly 1,000. That could mean less consolidation.
More merger news:
NPR breaks down how the merger could affect you, including what will happen if you have mileage rewards.
It seems likely American's Advantage program would survive, and the new company would honor mileage accrued through US Airways' Dividend Miles program.
So if you had lots of miles on each of the carriers, the combined total could get you rewards more quickly. And because of the huge route structure, you'd have more places to go on your free reward trips.
The Charlotte Business Journal reports the deal will help American Airlines emerge from its long bankruptcy:
Under the terms of the deal, US Airways (NYSE:LCC) stockholders will receive one share of common stock in the new airline for each share of US Airways held, representing roughly 28 percent of the diluted equity of the combined airline. The remaining 72 percent diluted equity ownership will go to stakeholders in American parent AMR Corp. and its debtor subsidiaries, American labor unions and current AMR (OTCQB:AAMRQ) employees.”
This Charlotte Observer graphic shows how 90 years of mergers and acquisitions have led to today’s announcement.