LCC & AMR Market Action

[SS255]

It just occurred to me that if AA bought US and folded DM into AAdvantage, I'd be an instant Million Miler, since AA counts "everything miles" and not butt-in-seat miles. US counts nothing.

 

[jimcfs]

It just occurred to me that if AA bought US and folded DM into AAdvantage, I'd be an instant Million Miler, since AA counts "everything miles" and not butt-in-seat miles. US counts nothing.

And I'd be an instant 2M!!

 

[FutureUScapt]

CLT is successful because Jerry Orr is a whore to US and there is no competition. Eliminate either of those, and any airline but US would drop CLT like third period french. US can't do it because they are locked in.

BTW--this has nothing to do with PIT--AA still does not want CLT.

Yes that is a big part of it. Though I have mixed feelings on Jerry Orr, he does an excellent job of keeping CLT's cost low. Do you really think that philosophy would change if the name on the side of the jetway suddenly read AA or UA instead of US?

No competition helps as well though CLT would not cease to exist if/when WN comes to town. Because of CLT's smaller O&D relative to other cities, it's unlikely that a low fare carrier would ever desire anything more than a token presence in CLT.

Wrong and wrong again. For 2007, CLT was 36th in the US for R&D. RDU was 37th. The difference between the two? 88 thousand pax over 8 million + emplanements. It's a rounding error. RDU is doing that without a hub.

BNA was 38th. 7.8 million emplanements. I'll bet if I find the 2008 data that RDU is actually greater than CLT, if for no other reason than the growth percentages because unlike CLT, RDU did not have one of it's primary industries collapse in 2008.

As previously stated--you are wrong on the sizes of the markets. The RDU market achieves CLT's O&D numbers just by being there.

I was speaking about the connecting opportunities at CLT vs. what AA offered at BNA and RDU. Perhaps I should've clarified that's what I was speaking about, but I thought that was rather obvious.

My criteria never included flights or seats. Yours did.

That does not make it "coveted." Anyone can build a hub airport anywhere. Making it work is something else. CLT works for US because US has a relative monopoly on the market and Jerry Orr would sell his mother to keep the hub. That does not mean it's particularly useful to anyone else.

Actually, that's about it. And because US has no other choice. Given their choice of cities, they'd dump CLT like 3rd period french to get into ATL.

And who in their right mind wouldn't? No one is disputing that ATL is better positioned to be a SE hub, but CLT is THE alternative to ATL in the southeast.

If you really think that CLT is an "overflow hub" all I can do is shake my head in amazement and laugh. Look at hubs that serve/served as overflow hubs, such as STL and CLE, and tell me what they have in common with CLT. How many daily flights do/did they see? How many unique destinations are served via those hubs? Simply put, CLT is not an overflow hub, not in any way shape or form.

The size has nothing to do with it. Ask the PIT people.

As for PIT, about the only thing CLT and PIT have in common is that they see/saw a substantial amount of more flights than the local traffic demanded. The similarities end there.

PIT was closed because of its astronmical costs. The cost per emplaned passenger just recently hit north of $15 per pax. The same cost in CLT is in the neighborhood of $2.50. That is a major reason why Southwest is actually reducing capacity in PIT.

Yes, you are right costs are part of the equation, but the other part of the equation is revenues. PIT was competing for the same flow traffic with 5 other major airlines at four nearby hubs - CVG (DL), CLE (CO), DTW (NW), and ORD (AA & UA) and against PHL as well. CLT competes with primarily one other major hub - ATL.

 

[ClueByFour]

1. O&D is not the all important number that people who post here tend to think it is. Take for instance PHX. It has great O&D numbers yet it is a marginally profitable secondary hub for US Airways. Why is that if O&D is so great? It is because PHX tends to have less premium business traffic. This may be due to the business climate or the fact that WN has a major operation there or both. Another case study is BWI. BWI has decent O&D yet US pulled their hub in one of the premier metro areas (DC-Baltimore) in the country. If it was all about O&D and nothing else, surely these airports would have larger hubs than CLT...But they don't. PHX has on average approx 300 less US Airways flights/day than does CLT and BWI has approximately half of the flights CLT has for all airlines. CLT however has premium traffic. In the metro for CLT there are HQs for 12 fortune 1000 companies (13 if you count Hickory) . Of those, 8 are fortune 500 and 2 of those are Fortune 50 companies. Doug Parker even said last year during the fuel crisis that CLT could survive due to it's premium traffic. This is at a time when airlines were not just unprofitable...they were bleeding money. Charlotte's premium traffic is worth more than vacation traffic. Think of it this way. Business traffic will often pay the unrestricted fares that are typically about 4 times more expensive than regular tickets. This means that for every one business traveler booked, 4 vacationers would have to be booked to make the same amount of money. In other words, 10 million O&D business travelers per year would be worth about 40 million O&D vacation travelers supposing an identical route structure.

A couple of notes:

1. Since US dumped BWI, the airline went bankrupt. Twice. Ponder that for a second.

2. BWI was far too close to PHL to work. US took PHL, largely to avoid WN dragging down yields.

3. CLT is 20 or 30 WN flights away from being unprofitable, because it will collapse yields. It has very little to do with what businesses are located there.

5. Finally, the idea of an organic buildup of RDU as a hub for AA would somehow be just as easy as starting out with a ready-made hub like CLT is preposterous. RDU does not have the infrastructure.

What makes you think that AA would want to turn it into a 500 flight/day hub?

Airlines that have not been bankrupt lately (AA and CO) have built their hubs (with a single exception) around cities that have adequate O&D. EWR does not require a ton of connecting traffic to work. Neither does MIA, although it makes a natural connecting point from Latin and South America. NYC (JFK and LGA) for AA also comes with built in traffic.

CLT does not. If you look at what CO does at CLE--it's a "right sized" hub for them. However, CO has options for it's "primary" hubs (IAH and EWR) that have significant O&D.

US, OTOH, has to run 500 flights a day over CLT because the area lacks the O&D and they have nowhere else to go (US, that is). It speaks volumes that US runs, for instance, the vast majority of it's transatlantic operation out of PHL, if CLT is the "primary hub." Why do you suppose that is? ATL does not seem to have that problem (plenty of TATL service). The difference is the local population that'll support making those flights $$$$.

Bottom line, CLT would serve AA well, much better than Raleigh or BNA.

It might. But they won't actually pay for it. There are about 5 places in the country where people might actually pay to buy a hub operation (ORD, SFO, ATL, MIA, and one of IAH/DFW). CLT, not so much

 

[back2CLT]

Stupid Southwest......if only they would enter CLT, they could drive US out of business....what idiots for not placing the knockout blow....sigh. <_<

I love the argument "CLT has to be large-scaled to be profitable, but CLE is a better model because it is "right-sized".....huh????

I have no idea what ClueByFour is saying. Is Charlotte really on the brink? If so, why is US expanding most rapidly there?

CLT has been a major hub for over 3 decades, surviving 2 major acquisitions that saw several larger metros (with higher O/D) lose hub status (Baltimore, Pittsburg, Las Vegas) yet it has seen the net benefits to each of these mergers/hub closures.

I think one can point to many factors: cost structure, geographical placement, high share of business travel, customer loyalty, airport management, good weather, airport infrastructure, etc as all contributing factors.

We get it, ClubByFour doesn't value those benefits enough to deem CLT a worthy hub. Of course I'm sure there were plenty of people that ridiculed Delta 20-30 years ago for having such a large presence in not-very-impressive Atlanta. It worked out for them alright.

 

[AirbusAVE]

Parker just said in an interview not to long ago that Charlotte was the "jewel of US Airways."



And if O&D is so little from Charlotte. Why in the hell would Southwest ramp up service to a level that would run airways out of Charlotte? :huh:



Southwest will most likely not serve Denver, Boston, LGA, Las Vegas, nor Pheonix to Charlotte, in my opinion (slot restrictions, gate space, transcontinental) I could only see WN serving some Florida and Baltimore routes. I'd love to hear other peoples opinions on which flights they'd think WN would take on.

 

[cltbwimob]

A couple of notes:

1. Since US dumped BWI, the airline went bankrupt. Twice. Ponder that for a second.

2. BWI was far too close to PHL to work. US took PHL, largely to avoid WN dragging down yields.

3. CLT is 20 or 30 WN flights away from being unprofitable, because it will collapse yields. It has very little to do with what businesses are located there.

OK, I see...You are saying in your first point basically that the death of BWI was a causal factor in 2 chap 11s. Then your second point is BWI could not work anyways because it was too close to PHL and WN was dragging yields down. So on the one hand, BWI helped keep US out of BK, on the other hand the yields in BWI were dropping fast enough that US had to re-trench and consolidate its operations elsewhere...BWI making enough money to keep the airline out of BK; BWI losing so much money that operations had to go elsewhere. There is a certain natural law that comes to my mind. It states that "two opposite statements can not be true at the same time or in the same setting." If I remember correctly that is called the "Law of Non-Contradiction", and if your first two points do not violate that law, then they are awfully close to violating it.

Your third point is not true. Airtran and Jetblue have approximately 20-30 flights to some of CLT busiest markets [NYC, BOS, ATL, BWI, MCO, FLL]. US yield has not collapsed though. In fact, since the addition of those two airlines, US has increased their service by about 50 total flights, and continues to expand. To further illustrate the fact that yields in CLT have not collapsed, Doug Parker recently referred to CLT as a "jewel" , and said last year that the CLT hub could even survive $130+/bbl oil due to the type of customer that uses CLT...the high yield business crowd. (By the way, WN doesn't have business class or first class; just some food for thought). Furthermore, if 20-30 flights is all that separates CLT from unprofitability, then US at PHX should be under right now considering that it has approximately 200 WN flights. The ratio of US to WN flights in PHX is pretty close to 1:1; your 20-30 WN flights in CLT would make the ratio of US to WN flights about 20-30:1 yet somehow CLT would be unprofitable??????? Heck WN is already in PHL, PHX, LAS and by proxy in the DC area through BWI, with major operations in all those areas. Why not just come on down to CLT, lease 3 gates and drive the US hub to unprofitability, that would be another nail in the US coffin. That's what I would do. If all I had to do to kill a major competitor would be to serve the last market they own with a minimal amount of flights...I would do it. And if Jerry Orr continued to "whore himself to US" like you said, I would travel 20 miles up I-85 to Concord Regional Airport build a 5 gate terminal and serve the Charlotte region from there. If that were all that had to be done to kill US or at least grab a major portion of their profits, I will guarantee you that WN would have been there at the onset of the first BK.

The problem with your argument is this. You first question the validity of people's assertions as if they have no knowledge of the situation whatsoever (ie your treatment of the Ted Reed article in the Street). You attempt to downplay their arguments by name-calling like calling FutureUSCAPT junior (for all you know, he could be a Flight Officer just waiting to become a CAPT). Then you make random assertions that are, at best, speculative (ie your comments regarding DCA being the best asset for US). You base your entire argument on O&D numbers and ignore other factors such as nuber of gates/runways, type of passenger, cost per passenger, geographic location etc.

More to come on your other points later.

 

[Dog Wonder]

Reading any long rambling post should remind each of us to think whether or not anyone would listen if the same post were spoken.

 

[FWAAA]

I'm convinced. Arpey is beyond stupid for not buying US to acquire the valuable CLT hub.

 

[cltbwimob]

I'm convinced. Arpey is beyond stupid for not buying US to acquire the valuable CLT hub.

The point is not that AA should buy US just to acquire CLT, but rather if they did merge with US, CLT could be valuable for AA just like it is valuable for US. Like Reed said in his article, the Southeast is dominated by 2 carriers, Delta in ATL, and US Airways in CLT. If AA bought US, it would be nonsensical to drop the CLT hub and essentially leave one airline to dominate an entire region of the country especially when US already has a major route system in place in the SE.

 

[ClueByFour]

Stupid Southwest......if only they would enter CLT, they could drive US out of business....what idiots for not placing the knockout blow....sigh. <_<

It happened. PHL. The second bankruptcy. Remember any of this?

CLT has been a major hub for over 3 decades, surviving 2 major acquisitions that saw several larger metros (with higher O/D) lose hub status (Baltimore, Pittsburg, Las Vegas) yet it has seen the net benefits to each of these mergers/hub closures.

In return, it has some of the highest airfare in the country. It's also got essentially no low cost carrier presence of any merit.

I think one can point to many factors: cost structure, geographical placement, high share of business travel, customer loyalty, airport management, good weather, airport infrastructure, etc as all contributing factors.

Cost structure and geography are legit. The rest is negligible.

We get it, ClubByFour doesn't value those benefits enough to deem CLT a worthy hub. Of course I'm sure there were plenty of people that ridiculed Delta 20-30 years ago for having such a large presence in not-very-impressive Atlanta. It worked out for them alright.

"A worthy hub?" It's got cheap costs and zero low cost competition. Take the yields away (which exist because of the dearth of competition, not the demographics of CLT) and it becomes troublesome.

As an aside, the Atlanta MSA has 5 million people. CLT has 2.5 million people. That's why ATL works.

 

[cltbwimob]

As an aside, the Atlanta MSA has 5 million people. CLT has 2.5 million people. That's why ATL works.

Decent observation.

Atlanta has twice as many people as Charlotte. ATL has about twice as many flights as CLT. 2 times the people, 2 times the flights. ATL works for Atlanta's size. CLT works for Charlotte's size.

Although if you want to speak strictly from population numbers, Los Angeles MSA is about 10 million, yet LAX sees just over half of the passengers ATL sees. Strictly speaking from population numbers is not indicative of how large an airport should be.

 

[cltbwimob]

It speaks volumes that US runs, for instance, the vast majority of it's transatlantic operation out of PHL, if CLT is the "primary hub." Why do you suppose that is? ATL does not seem to have that problem (plenty of TATL service).

OK, what's your point. AA in MIA has more international service than DFW. Does that mean that MIA is the primary hub and not DFW? I am pretty sure that AA considers their DFW hub their primary hub. Same with CLT in the US network.

 

[cltbwimob]

OK, I see...You are saying in your first point basically that the death of BWI was a causal factor in 2 chap 11s. Then your second point is BWI could not work anyways because it was too close to PHL and WN was dragging yields down. So on the one hand, BWI helped keep US out of BK, on the other hand the yields in BWI were dropping fast enough that US had to re-trench and consolidate its operations elsewhere...BWI making enough money to keep the airline out of BK; BWI losing so much money that operations had to go elsewhere. There is a certain natural law that comes to my mind. It states that "two opposite statements can not be true at the same time or in the same setting." If I remember correctly that is called the "Law of Non-Contradiction", and if your first two points do not violate that law, then they are awfully close to violating it.

Your third point is not true. Airtran and Jetblue have approximately 20-30 flights to some of CLT busiest markets [NYC, BOS, ATL, BWI, MCO, FLL]. US yield has not collapsed though. In fact, since the addition of those two airlines, US has increased their service by about 50 total flights, and continues to expand. To further illustrate the fact that yields in CLT have not collapsed, Doug Parker recently referred to CLT as a "jewel" , and said last year that the CLT hub could even survive $130+/bbl oil due to the type of customer that uses CLT...the high yield business crowd. (By the way, WN doesn't have business class or first class; just some food for thought). Furthermore, if 20-30 flights is all that separates CLT from unprofitability, then US at PHX should be under right now considering that it has approximately 200 WN flights. The ratio of US to WN flights in PHX is pretty close to 1:1; your 20-30 WN flights in CLT would make the ratio of US to WN flights about 20-30:1 yet somehow CLT would be unprofitable??????? Heck WN is already in PHL, PHX, LAS and by proxy in the DC area through BWI, with major operations in all those areas. Why not just come on down to CLT, lease 3 gates and drive the US hub to unprofitability, that would be another nail in the US coffin. That's what I would do. If all I had to do to kill a major competitor would be to serve the last market they own with a minimal amount of flights...I would do it. And if Jerry Orr continued to "whore himself to US" like you said, I would travel 20 miles up I-85 to Concord Regional Airport build a 5 gate terminal and serve the Charlotte region from there. If that were all that had to be done to kill US or at least grab a major portion of their profits, I will guarantee you that WN would have been there at the onset of the first BK.

The problem with your argument is this. You first question the validity of people's assertions as if they have no knowledge of the situation whatsoever (ie your treatment of the Ted Reed article in the Street). You attempt to downplay their arguments by name-calling like calling FutureUSCAPT junior (for all you know, he could be a Flight Officer just waiting to become a CAPT). Then you make random assertions that are, at best, speculative (ie your comments regarding DCA being the best asset for US). You base your entire argument on O&D numbers and ignore other factors such as nuber of gates/runways, type of passenger, cost per passenger, geographic location etc.

More to come on your other points later.

This post is borderline attack. Although I think that points I made in the post are still valid, I went about it in a rude and sarcastic manner. I apologize for doing this, and will refrain from approaching debates in this manner.

 

[FA Mikey]

The point is not that AA should buy US just to acquire CLT, but rather if they did merge with US, CLT could be valuable for AA just like it is valuable for US. Like Reed said in his article, the Southeast is dominated by 2 carriers, Delta in ATL, and US Airways in CLT. If AA bought US, it would be nonsensical to drop the CLT hub and essentially leave one airline to dominate an entire region of the country especially when US already has a major route system in place in the SE.

I guess you missed the obvious sarcasm. Try to understand AA doesnt want CLT, or Usair. You may believe it is the jewel of the South East, but it hasnt saved LCC from having to file bankruptcy twice, or saved it from still losing tons of money, when oil is no where near 130 a barrel.