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GAO: Charlotte hub not guaranteed in airline merger

By Curtis Tate
McClatchy Washington Bureau

WASHINGTON Charlotte Douglas International Airport’s status as a major airline hub is not guaranteed in the proposed American Airlines-US Airways merger, according to Senate testimony Wednesday.

In its review of the $11 billion deal, the Government Accountability Office wrote that changing business conditions could compel the combined air carrier to shift hub operations from Charlotte to Miami and other airports.

“The combined airline could be expected to rationalize its network over time,” the GAO wrote in testimony submitted to the Senate Commerce, Science and Transportation Committee, “including where it maintains hubs.”

Executives from both airlines have repeatedly assured lawmakers and other stakeholders that Charlotte, the world’s sixth-busiest airport, would not be downgraded in the merger.

“We have a high degree of confidence the hubs we have will remain in place,” Gary Kennedy, senior vice president and general counsel at American, said in testimony to the House of Representatives in February.

US Airways CEO Doug Parker, who will lead the combined company if the merger is approved, has consistently said he believes the new airline would increase flights out of Charlotte, to as many as 700. The airline today has 649 daily departures from Charlotte, its largest hub.

Michelle Mohr, a spokeswoman for US Airways, said Wednesday the airline remained committed to maintaining the nine hubs the merged company would have.

“Charlotte is a key part of the new American Airlines,” she said. “With increased connectivity, (Charlotte) will be a key hub in the combined airline’s global network, resulting in more travel options for North Carolina customers.”

But the GAO’s written testimony raises doubts.

Wednesday’s hearing before the Senate Subcommittee on Aviation Operations, Safety and Security didn’t directly address the issue of what hubs could be affected by the merger. But on Page 22 of its testimony, the GAO laid out a scenario under which Charlotte could lose some of its importance.

As an example of how the merged airline could consolidate its operations, the GAO wrote that New York’s John F. Kennedy International Airport could take over Philadelphia’s international gateway, while Miami could take over Charlotte’s. Miami International Airport is already American’s gateway to Latin America, and the GAO added that 59 out of 116 domestic airports served by US Airways from Charlotte are also served by American from Miami.

“Miami could be a better hub than Charlotte in the Southeast,” the GAO said.

Reduced competition?

The GAO found that the merger would reduce competition on more than 1,600 routes traveled by more than 53 million passengers.

That’s a greater loss of competition than occurred with the 2010 merger of United Airlines and Continental Airlines, the GAO found.

Antitrust regulators at the Justice Department are reviewing the proposed American-US Airways deal, which also faces a vote by US Airways shareholders and would need approval by the federal judge overseeing American’s bankruptcy case. Charlotte would be the combined airline’s second-largest hub.

American and US Airways executives have defended their merger by noting that they overlap on only 12 nonstop routes. But the GAO also considered connecting routes – those with at least one stop.

Parker told the Senate panel Wednesday that the deal would be good for consumers by creating a bigger airline with service to more locations than either American or US Airways can offer on their own. It would be the world’s biggest airline.

“A broader airline network is better for passengers because it gives them more choices, a wider variety of services, and more competition on more routes,” Parker said. He added that it would create a more powerful competitor for United and Delta, which are much bigger than No. 3 American or No. 5 US Airways.

US Airways and American Airlines parent AMR Corp. announced the proposed merger in February and hope to complete it in August or September.

Winners and losers

Gerald Dillingham, director of physical infrastructure issues for the GAO and the author of the testimony, said airline consolidation has almost always meant winners and losers as companies adjusted to changing conditions.

The American Airlines hub at St. Louis diminished when the carrier acquired TWA in 2001. The Delta-Northwest merger of 2008 resulted in downgrades to Delta’s Cincinnati hub and Northwest’s hub in Memphis, Tenn..

Robert Poole, director of transportation policy at the Reason Foundation, a libertarian group, said that the GAO was simply looking at the reality of what happens in airline mergers. No airline in the world has as many hubs as the new American would have, he said, adding that the company would be doing a disservice to its shareholders if it didn’t look carefully at opportunities to consolidate.

Aviation consultant Bob Mann said in an interview Wednesday that fears about Charlotte losing hub traffic are “understandable, but overblown.”

“The real difference is that Miami is a very, very expensive airport (in terms of the fees airlines pay for services),” Mann said. “Charlotte is the polar opposite.

“There is no reason to pull up stakes and make less money,” he said.

Additionally, Charlotte’s airport has expanded, including a fourth runway, so that it can handle hundreds of flights a day, something that could be difficult for Miami to absorb.

The Charlotte airport is also poised to have an ally in Washington in Charlotte Mayor Anthony Foxx, who awaits Senate confirmation as the next U.S. transportation secretary. But there may be little he could do to influence whatever decision American makes about his hometown airport.

Dillingham told McClatchy that just because American could potentially downgrade Charlotte doesn’t mean it will, but that it’s a scenario that’s within the realm of possibility.

“If it wasn’t a possibility, we wouldn’t have raised it,” he said. Staff Writer Steve Harrison and the Associated Press contributed.

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