US, AA merger could cost Charlotte

[AirwAr]

No they both currently survive and make a profit for AA and US.

For those that think US Hubs will not only survive, but thrive, would you have the same belief if Horton was running the new American?

My belief is that much of AA's management is going to survive, and therefore, much of the AA mentality. And if they do, they will eventually convince Parker, if he doesn't already know, that the US hubs will need to be right-sized, leaning more and more on the AA cornerstone cities. Certainly he will realize this in the next downturn.

 

[700UW]

Parker stated the hubs will survive and everyone at AA has to reinterview with him.

You have to remember US is making money, AA isnt.

And Parker is finance man.

 

[AirwAr]

Parker stated the hubs will survive...

That's exactly what Parker needs to say to make sure he has as much political support he can get for the merger. In addition, he doesn't want to anger the US employees yet. If I'm not mistaken...Anderson made the same claim of the DL/NW hubs.

...everyone at AA has to reinterview with him.

And you don't think everyone at US HDQ isn't nervous?

You have to remember US is making money, AA isnt.

You have to remember who was begging for a merger. There's a reason for that.

And Parker is finance man.

That's exactly my point. When it comes time to rationalize the hubs...he will run the numbers...and not just go on emotion.


In reality, we're all guessing what's going to happen here. I'm just a little surprised that you think, after this year long pursuit of AA, after the merger of two major carriers, creating a $11 billion dollar monster, and $1.4 billion in cost savings...that Parker's plan is to keep everything the same. I guess time will tell.

 

[Pi brat]

I think the Republican power grab in CLT will ultimately be it's demise as a major hub!

http://www.usatoday....irport/1985323/

I'm scratching my head on that move too. I wonder what the company thinks of the latest developments in CLT.

 

[WorldTraveler]

Very interesting chart for sure! I was surprised to see ATL has the 2nd lowest O&D traffic and DFW the 3rd lowest....

The chart is sorted in the order of Cost per Enplaned Passenger which simply says that CLT is a very low cost hub for US and also happens to have the highest percentage of connecting passengers of any major US airport - probably any US airport period.
There is nothing in the chart that shows the size of the local market.

BTW, wings, if you click on the first chart in the article, you will see "New York" which is way off the charts expensive compared to the others...but since New York has 3 major airports, who knows which one that statistic applies to - but New York is also a major longhaul international gateway so the higher cost per emplanement might not be so out of ordinarily if the percentage of int'l vs. domestic traffic was comparable for each airport.

 

[700UW]

delete

 

[700UW]

Authorities said the 2012 total of 95.5 million passengers is 3.35 per cent higher than the previous record of 92.4 million passengers, set in 2011.

So out of the 95.5 million passengers 68% were connections and not all of them are carried on DL.

 

[WorldTraveler]

The statistics are by AIRPORT including the transfer statistics. In airports like DEN, ATL, and ORD which have more than one hub carrier, the transfer statistic refers to all carriers.

 

[Non Rev]

The chart is sorted in the order of Cost per Enplaned Passenger which simply says that CLT is a very low cost hub for US and also happens to have the highest percentage of connecting passengers of any major US airport - probably any US airport period.
There is nothing in the chart that shows the size of the local market.

OK help me out here. The far right side of the chart lists transfer passengers. It lists CLT as having 75% of transfer passengers. I am not disputing CLT's low O&D #'s. I am surprised that ATL runs a close 2nd to the lowest O&D market....

 

[WorldTraveler]

The data in this chart doesn't say anything about the size of the hub, the total passenger boardings, or the size of the local market.

This link contains some of that data.
http://en.wikipedia.org/wiki/List_of_the_busiest_airports_in_the_United_States

All the chart 700 cited shows is that the cost to board a passenger at CLT is the lowest of any large airport. The cost per passenger boarding is a cost to the airlines which just means that US pays very little to board passengers at CLT. Part of the low cost is because the physical structure of the CLT airport is a lot smaller than comparable airports but a lot of it is related to the fact that US has pushed a lot of traffic thru an airport that wasn't necessarily designed to carry that much traffic and therefore the costs are low; CLT is also very efficiently run. Cost per passenger is also low because connecting passengers count in passenger boardings but they use very few services from the airport. All a connecting passenger needs is a bathroom, perhaps a restaurant, and seats at his departure gate - plus the infrastructure that US needs to operationally handle that passenger (bag sort/tug areas, ramp control, employee offices/breakrooms etc.)

ATL as a local market is almost 3X larger than CLT and the DL hub at ATL is about 40% larger than AA's hub at DFW, the second largest hub in the US - but that information isn't in any of the two articles above but it does provide perspective on how CLT ranks relative to other large hubs - which many people here continue to bring up.

All that really matters for this conversation is that CLT's high percentage of connecting traffic COULD be a liability to the combined AA/US network because connecting traffic is not as profitable as local traffic since the passenger has to be handled more than once.

OTOH, US has the advantage and AA/US should retain it that CLT is a much lower cost hub than MIA for connections but MIA is not a terribly large domestic connecting airport now - driven by geography; CLT predominantly handles connecting traffic which is why DL's hub at ATL is CLT's largest competitor. AA carries a lot of Latin America connections thru MIA and the higher costs are not as big of an issue because the ticket price is higher. Still, CLT should be an attractive airport that AA/US could use to grow Latin America traffic because of the low costs of the airport, even if the local market is relatively small. AA's presence in Latin America will help CLT be able to develop new traffic to Latin America.

In the NE, PHL is a lower cost airport than JFK per passenger but PHL also does not have a local market the size of NYC. US pushes more connecting traffic onto its international flights than AA does in comparable markets from JFK. Obviously, PHL and JFK compete with EWR and IAD in the NE and PHL compares fairly well to those hubs in terms of costs and local market. Remember than EWR has a much higher percentage of connecting traffic than LGA and JFK do.

The challenge for the new AA is that if you start pulling the connecting traffic off of AA's flights at JFK or MIA and rerouting it thru lower cost hubs, you have to replace that connecting traffic w/ local traffic or you run the risk of the hub size shrinking, allowing competitors to take a larger share of the local market.
Pulling off connecting traffic also pushes up the cost per passenger for the passengers who remain. Most of the costs for operating the terminal will remain but if there are fewer passengers going thru the facility, costs per passenger will go up. AA's facility at JFK already has very high costs per passenger in part because they are not pushing near as many passengers thru it as they thought they would pre 9/11 when it was planned. In contrast, B6's costs per passenger are probably the lowest at JFK in part because they don't use widebodies.

Esp in NYC where AA is the 3rd largest network carrier and #3 at JFK, pulling connecting traffic off of AA's flights to route it thru PHL is a potentially risky venture.

There is a greater chance you will see new Latin America flights added to CLT to overfly MIA than you will see AA by choice rerouting connecting passengers from JFK to PHL unless competitive changes dictate otherwise.

 

[usa1]

US/AA might benefit by having the easy option to pull traffic from MIA & JFK and move it to CLT. MIA & JFK might lower theirs to be more competitive?

 

[wings396]

I wouldn't count on that. I have seen airports lose traffic from one of their biggest airlines, and actually raise their prices to cover the loss. The remaining airlines end up taking the hit. Many smaller airports have attempted to do this, and in return they have driven off other airlines in the process.

 

[WorldTraveler]

usa1


The problem w/ getting costs out of a hub airport is that most of the facility costs are on long-term leases – often 20-30 years or more. Airports would not commit to building a facility and developing all of the supporting infrastructure and run the risk that a hub airline could walk away after a few years. Of course, BK provided a means to do that – and that is why PIT is still reeling from US’ decision to walk away from a facility that they thought they could support before 9/11 but found was not viable after it. The expectation that you can lower hub costs at JFK and MIA without pushing a lot more traffic thru the facility is not reasonable. Given that AA controls a high percentage of the local MIA as well as US-Latin America market and Latin America is growing, they have much more control over their finances in Latin America and MIA because they can grow revenues to match their costs much better than they can do at JFK where they are a smaller player and the US-Europe market is barely growing, if at all.

The bigger part of the question about the amount of flow traffic at CLT isn’t related to facility costs at all. As has been well-discussed here, US FAs and pilots are lower paid than their peers at other airlines including AA. That fact is why so many US employees support the merger - plus AA employees have been told they will see pay return post BK faster than they would have as a standalone. But US’ lower costs have allowed it to compete for more connecting traffic and US has needed to carry a higher percentage of connecting traffic than other carriers in order to maintain a size as close as possible to the other large carriers. As pay goes up, the value of carrying large percentages of connecting traffic go down faster than it does for local traffic. In addition, AA brings a lot more presence in large local markets like NYC, CHI, and LAX where AA’s size should help US better compete for local traffic and get higher revenues.

There are a lot of moving parts and it is way too early to know how they will all work out, including because competitors will implement their own strategies as well.
What doesn’t change is that CLT Is a very viable hub and will continue to be…. There are at least as many positive as negative factors that will impact CLT and no one can really predict with certainty how they will all come together but at its core, CLT is a strong, viable hub as well as a decently high value local market in a region where AA/US needs to have a strong hub where standalone AA doesn’t have one right now.

 

[johnny kat]

We will have clarity on the issue after the last BK extension in May. As WT has pointed out, US used the eleventh hour to do one of the most important things before emerging from BK...cancel most of the Pit gate leases, because they could not get the airport authority and county officials to understand the fundamentals of airline economics. If the folks in NC and other hubs are smart they will look very closely at the results in Pittsburgh.

 

[wings396]

The PIT situation was a bit different, as the company was looking to bail out anyway. The local officials being difficult, just gave them all the more reason to dump the leases at the 11th hour. If US really wanted to keep the PIT hub, they would have made it a priority to get a deal done.