What is Philly's future with US Airways-American merger?

Posted: February 16, 2013

Now that US Airways Group Inc. and American Airlines are merging, what will it mean for air travelers?

And, in the long term, will Philadelphia International Airport retain the service it has enjoyed as a US Airways hub, given that American maintains a hub at John F. Kennedy International Airport in New York City?

There was speculation Thursday that the new American Airlines, which would be the world's largest carrier by passenger traffic, would not sustain nine hubs and that some could fall away, as happened to Pittsburgh, Cincinnati, Memphis, and St. Louis after airlines consolidated.

US Airways chief executive officer Doug Parker, who will head the new company, said that while routes and markets could be recalibrated, all the hubs would be needed, including Philadelphia.

"Philadelphia is going to be an enormous part of the new airline; it's a huge part of US Airways," Parker said in a telephone interview, joined by American's chairman, Tom Horton.

"Philadelphia has so much feed, something that even the new American won't be able to replicate in JFK," Parker said. "It provides us the ability to do some things that just can't be done in and out of New York in terms of both feeding international flights, as well as doing a lot of connections over the United States. Philadelphia is going to be a critical part of this combined airline."

Said Horton: "If you look at Philadelphia and New York, both are very big, rich local markets with great demographics. We are going to be looking to mine that every way we can."

The $11 billion all-stock deal, unanimously approved by both boards of directors, comes as American exits bankruptcy and still must be approved by U.S. Bankruptcy Court, regulators at the Justice Department, and US Airways shareholders.

Several U.S. senators said Thursday they would hold a hearing on antitrust implications, to examine the impact on airline competition and consumers.

The two carriers' networks are mostly complementary: Of 900 routes, only 12 overlap. The new American will have 6,700 daily flights to 336 destinations in 56 countries, and $40 billion in revenue.

The merger is expected to become final in the third quarter. It could take an additional 18 months to integrate technology, reservation systems, flight schedules, and labor contracts.

Until then, each company will operate separate flights. Eventually, US Airways planes will be repainted with American's logo, and its brand will disappear.

Internationally, the new carrier will fly to 118 destinations on more than 250 routes. American's Latin America network will complement US Airways' Caribbean and Mexican destinations, and the number of destinations served in Europe will almost double, Parker said.

Philadelphia officials hope to persuade the new company to launch more international service from the city, especially to South America and Asia.

"Fifty-five percent to 60 percent of our traffic annually is origin and destination" - passengers who begin and end their journeys here - as opposed to connecting traffic, said Philadelphia airport CEO Mark Gale. "Philadelphia offers opportunities to the new airline that they might not get at JFK, given capacity limitations and congestion issues."

JFK is a slot-controlled airport, and its owner, the Port Authority of New York and New Jersey, and the Federal Aviation Administration restrict the number of flights each airline can operate there.

"As PHL's primary carrier, US Airways has played a major role in our city's success competing in the global marketplace," Mayor Nutter said. "I am eager to learn more details about the proposed merger, and I am optimistic about the possibility of more international air service to Philadelphia."

In the past, US Airways did not have airplanes big enough to fly nonstop to China, South Korea, or Japan. US Airways and American have ordered 607 new planes, including 517 narrow-body and 90 wide-body international aircraft, officials said.

"The combined airline will have the scale, breadth, and capabilities to compete more effectively and profitably in the global marketplace," Parker said.

The spin on some reports Thursday was that New York, Los Angeles, Miami, and Washington would be seen as more valuable hubs and more likely to survive, while smaller hubs, including Charlotte, Phoenix, and Philadelphia, could shrink.

"Philadelphia has strategic value," said airline analyst Jeffrey Kauffman of Sterne Agee. "My guess is Philadelphia is going to be fine because it keeps United Continental's Newark, N.J., franchise in check."

"If you meaningfully downsize Philadelphia, you risk losing a lot of traffic to United's hub in Newark, and Delaware and northern Maryland traffic that comes to Philly might go to Baltimore or to D.C.," he said.

Airline hubs that have disappeared had more connecting passengers than originating traffic.

"Philadelphia is not Pittsburgh," Kauffman said. "Pittsburgh didn't need to be a hub for US Airways because it was almost all connecting," whereas US Airways' and American's hubs "all have value."

Said Parker, "I don't think it's fair to suggest that just because other airlines, in the past, decided they didn't need some of their hubs, that we will.

"The industry has already gone through and culled out all the flying that didn't make sense and the hubs that didn't make sense," Parker said. "That's not the situation here. All the hubs that we have at US Airways do very well. All the hubs American has do well for them. If you put them together, they should only be enhanced, not harmed."

Fitch Ratings analyst Seth Lehman cautioned that airline hubs are not created equal and that recent mergers have shown that some hub airports lose service.

He questioned whether maintaining nine hubs "at the same level of operations will be necessary to maintain an efficient single network."

For the combined carrier to achieve the stated goal of more than $1 billion in annual cost savings by 2015, there will be job losses.

Pilot and flight-attendant unions at both carriers welcomed the merger.

"It's been a long, tough road, but the result is well worth it," American flight attendant president Laura Glading said.

"This merger came about due to the cooperative efforts of both management and labor," said US Airways pilots' president Gary Hummel. "As pilots, we are proud to be part of the new American Airlines."

Dennis Tajer, spokesman for American pilots, said Parker and the leadership team would return American to "a position of industry preeminence." The goal, he said, was to create a strong future for American and to protect and improve the pilots' careers. "This merger accomplishes that."

Members of US Airways' Dividend Miles frequent-fliers program were notified they soon would be able to earn and redeem miles from an expanded global network and partnerships.

"I think it's great," said Steve Lapin of Elkins Park, a US Airways frequent flier for 32 years.

"The first thing for me, American's mileage program lets you redeem miles for one-way travel, whereas with US Airways you can't. Even if you are going one way, US Airways makes you redeem miles for a round-trip."

Contact Linda Loyd

at 215-854-2831 or lloyd@phillynews.com.

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