Why should Miami (and Orlando) be worried about the AA/US merger?

by Charlie Leocha on June 21, 2013

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Senators and Representatives from Florida don’t seem to be too concerned with the pending merger of American Airlines and US Airways. They seem to feel that their airports are safe from any disruption. But that was when American Airlines (AA) was ruling the roost. Now, US Airways executives will be taking over the executive suite and they do things differently.

Even I thought that the most likely scenario for the New American Airlines would be to move its international flights from Charlotte, NC, to Miami. On the face of it, the move seemed to make sense — consolidate the international base where the majority of AA flights were handled.

However, there is a reason that US Airways is making record profits and AA is mired in bankruptcy. That has to do with knowing how to save money. Doug Parker and his team of Scott Kirby and Robert Isom know how to do just that.

If their playbook in the future is as it was in the past, Charlotte, rather than losing international flights, may see an increase. Here’s the new calculations.

Should the merger go through, the New American Airlines will not be married to Miami airport with no other base for its South American routes. It will have Charlotte. But would Charlotte be a better South American gateway? It could be.

Charlotte Airport is the lowest cost major airport in the country. The airport’s frugality is a reflection of the current US Airways management and soon-to-be AA management. They know how to save money.

In some cases, landing a plane in Miami can cost many more times the cost of landing in Charlotte. That is a big reason to move to Charlotte — to save money, lots of it. It is no wonder that Fort Lauderdale claims almost all the low-cost airlines headed to South Florida. Southwest and the other low-cost carriers find Miami just too expensive — the New American Airlines may also for much of its traffic.

The second reason has to do with customs and border protection (CBP) operations at Miami. Ever since the CBP began releasing hourly statistics on immigration throughout at the major gateways in the country, Miami has stuck out like a sore thumb. There are regular four-hour waits to clear customs on weekends.

In Charlotte, customs and immigration seem to be a breeze. Maybe it is the fact that the Miami airport personnel are shared in some ways with the cruise ship terminal, or perhaps it is only mismanagement, but there is a big problem.

The union grip on airport services in Miami is, I believe, far stronger than that of the unions working at Charlotte. These work rules are something that make airport costs far more expensive and more difficult to change.

So, the New American Airlines management will find itself with an interesting decision. Miami has more prestige and plenty of connecting flights (but not that much more than Charlotte) and it costs significantly more to land and service aircraft.

Miami has some of the worst customs and immigration holdups in the country. Charlotte does not.

Miami has entrenched unions and a difficult regional and city government that has already built, torn down and then rebuilt the airport over the last decade. Charlotte has had steady management with only recent tension between the city and the state.

I wouldn’t be putting my eggs into a Miami basket when Charlotte has a better and more affordable operation. It seems a bit premature, without something in writing for the Florida representatives to sign off on this merger carte blanche.

As for Orlando, it will probably see a cutback and some dislocations at that airport should AA and US Airways merge. There are 25 city pairs that will be duplicated between the two merging airlines.

These routes are also prime candidates for “rightsizing.” That means on each city pair flights may be reduced to increase load factors. Plus, the ground operations of these two airlines will be combined — that means layoffs and perhaps some related bankruptcies as ground operators who support one or the other airline will find themselves losing a big customer.

These mergers are not so simple. Though the airline executives claim that they will not lay off any airline staff and may hire more, you can bet that there will be layoffs somewhere. Figuring out where they will be is the trick.

Big, expensive airports (even hubs) may be one casualty; the others may be significant large non-hub airports that have service from both of the merging carriers.

A warning to politicians: Be careful of what you support. There can be a bevy of unintended consequences. Another rule might be: whenever an airline promises anything, get it in writing. Cincinnati, St. Louis, Pittsburgh and Memphis sure wish they did.

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  • sirwired

    Orlando has probably more competitive service than any other single airport in the country. Even if AA/US were to reduce frequency, the overall effect on competition would be nearly zero.

    And AA chose Miami as their hub with eyes wide open. The extensive Air Cargo operations in Miami, close proximity with the port, and huge base of local traffic make it more profitable than you’d otherwise think.

  • Graham

    Isn’t there a reason why you breeze through international arrivals at Charlotte? It’s small and there aren’t that many international arrivals. Move AA flights from Miami and will the terminal be adequate?

  • MeanMeosh

    This analysis ignores one fundamental point about how successful hubs work – CLT has a tiny fraction of the international O&D traffic that MIA does. One of the reasons that airports like PHL, STL, CVG, etc. ultimately failed as hubs is because there was insufficient O&D traffic to sustain the operation in the face of streamlined operations during a merger. It makes no sense to shift a bunch of Latin American flights to CLT, thus forcing South Florida traffic to connect in lieu of nonstop traffic. If USAA were penny wise and pound foolish enough to do that, someone else will swoop in and serve that traffic, leaving USAA with a big bag of nothing.

    What I suspect is more likely is a combination of 1) some domestic connections will be routed away from MIA to CLT, except for onward connections to international flights, and 2) the larger USAA will push for cost concessions from the MIA airport authority – probably with the threat of moving flights elsewhere – at which point they will accede to the airline’s demands.

    What you should really worry about is Doug Parker and Scott Kirby, masters of the cheap that they are, hastening the “LCC-ification” of AA. In other words, despite promises to the contrary, the new airline will look a lot more like US than AA, with downgraded First Class service, reduced F and Main Cabin Extra seating, annoying “enhancements” like ads on the tray tables and the credit card hard sell on every flight, and the re-introduction of soda fees. Unfortunately, the recent announcement of adding more seats to the 737s seems to indicate that’s exactly the direction the airline is headed in.

  • TonyA_says

    Hubs and International Gateways? What a great discussion.

    International Gateways are really driven by consumer demand. You cannot just simply change these cities. MIAMI will always be the gateway to Latin and South America and the Caribbean. The same can be said for LAX and JFK for their respective customer bases (not just people but cargo, too). These gateways are prime O&D cities. People have a strong desire to go to these cities (not just connect in their airports).

    HUBs are a different story. They are located primarily for operational efficiency. I have ZERO desire to visit Philly or Charlotte (or Phoenix for that matter) but I have to connect at these airports if I fly USAir.I could say the same thing for Atlanta, Minneapolis and Detroit when I fly Delta. For this reason, I think HUBs that are not International Gateways are easier to replace and get rid off. Looked what happened to Memphis and Cincinnati. Does Delta still need these cities?

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