In February, American Airlines agreed to merge with US Airways, the dominant airline in the state with its largest hub in Charlotte. The announcement sparked some concern, as recent airline mergers often have led to the elimination of a major hub as the two carriers combined their operations.
Such fear is misplaced in this case, though there’s reason to expect some reduction in the size of the combined carrier’s Charlotte hub, and, by extension, flights to other cities in North Carolina.
American Airlines’ business model has changed in recent years. It now offers flights almost exclusively from just five “cornerstone” markets: Los Angles, Chicago, New York City, Miami, and Dallas. Of these, only Dallas and Chicago actually function as domestic hubs.
American’s New York City operations at LaGuardia and JFK airports are too small to offer much in the way of connecting opportunities. Miami’s location makes it a great place to connect to fly to Latin America but also makes it a rotten (and expensive) place to connect for purely domestic travel.
Fear that the merger will result in the elimination of either or both of US Airway’s Charlotte and Philadelphia hubs is misplaced. The combined carrier has no workable substitute for either hub.
That does not mean, however, that there will not be changes in the scale of operations in Charlotte or Philadelphia. US Airways’ business model recognized that it could not generate the sort of revenues that American, Delta, and United have received. US Airways compensates for this by lowering its costs, particularly for labor. With the merger, US Airways employee pay will go up to match the higher rates American pays. This is exactly why most of US Airways’ unions are all for the merger.
From this it follows that not all of US Airways’ existing flights will make sense at American’s higher labor costs. That could mean some routes could be eliminated — some of the international flights from Charlotte are particularly vulnerable — but could also translate into a bit less service (i.e., fewer flights a day) to cities relatively close to Charlotte, including cities in North Carolina. Increased revenues could offset some of the higher labor costs, but that necessarily would translate into higher fares and fees.
Communities often see airline mergers as an opportunity for additional service. Mergers certainly do create opportunities to “connect the dots” between, say, American’s operations in Chicago, Dallas, and Miami, and markets American currently doesn’t serve in North Carolina.
There could be some potential for new routes to appear, but that potential is limited by the realities of the airline business. Airlines are not eager to add long flights to small markets on high-cost-per-seat-mile 50-seat regional jets. And that’s especially true if they fly over a major hub like Charlotte.
Indeed, airlines’ dislike for smaller regional jets stretches beyond using them on 800-mile routes. New labor agreements at Delta, United, and, yes, American, pave the way to begin replacing 50-seat regional jets with larger aircraft. Which is to say that the bar for air service soon will be raised. Much of the growth in air travel will come via larger aircraft, not more flights.
It always takes a while for the impacts of mergers to become apparent. Industries, including the airline business, always adapt to changing conditions. There’s no reason to believe that North Carolinians won’t continue to enjoy excellent access to air transportation, including a major hub in Charlotte, when all is said and done.
Michael Lowrey is an associate editor of Carolina Journal.