MIAMI — The first casualty of the American Airlines – US Airways merger is the route between Charlotte and Rio de Janeiro, which will be cancelled in early 2015 and likely moved to American Airlines’ largest Latin American hub at Miami.

American Airlines spokesperson Davien Anderson confirmed that the carrier will be ending the route, stating:

US Airways will no longer operate service between Charlotte, N.C. and Rio de Janeiro beginning early next year.  The change is part of constant evaluation of our overall combined network to ensure we are maximizing our fleet and profitability and matching customer demand.

In a similar vein to the elimination of Charlotte – Rio, the role of Charlotte in the new American’s international network is likely to see some evolution over the next couple of years. This should all be prefaced with the following, Airchive does not believe that Charlotte will be de-hubbed as a result of the merger.

Charlotte is not a hub like Cleveland, Cincinnati, or Memphis. Its connecting traffic flows cannot be replicated by other hubs in the new American’s network. And while its origin and destination (O&D) traffic figures are similar in volume to St. Louis or Cincinnati, that O&D traffic is higher yielding (higher O&D revenue) thanks to Charlotte’s status as a banking center and much more profitable. And unlike former Rust Belt hubs like Pittsburgh, St. Louis, Cleveland, or Cincinnati, Charlotte has a growing population and economy, improving its forward O&D outlook.

Today American operates roughly 650 peak day departures at Charlotte, serving 128 destinations in 2013. Charlotte is American’s second largest hub by capacity and daily departures behind Dallas Fort Worth, which has more than 830 peak day departures. Throughout the 2000s, Charlotte’s role in the US Airways network had steadily expanded, nearly doubling the airport’s traffic from 23.1 million in 2000 to 43.5 million in 2013.

More than 75% of these passengers are connecting in Charlotte, as the airport plays a similar role to Atlanta in Delta’s network, connecting passengers from all over the nation to and from the Southeast and more broadly the entire East Coast. It serves a unique, growing, and extremely valuable domestic traffic flow that cannot be effectively replicated at any other airport in the Southeastern US. And the new American has positioned Charlotte as a growth airport.

Turning back the page to the summer of 2013, pre-merger US Airways and American combined operated nearly 671 daily departures from Charlotte (excluding overlapping flights to and from New York La Guardia, the slots for which were effectively divested as part of the settlement of the merger). And American recently made comments to the press saying that they thought they could grow Charlotte to nearly 700 daily departures by adding new markets in the Midwest. but in the longer term, Airchive believes that the Charlotte hub will settle in at between 550 and 600 daily departures.

The reason is that 50-seat regional jets (and smaller aircraft), which represented 206, or 67.1% of daily departures from the Charlotte hub in Summer 2013, are rapidly being rendered uneconomical by rising maintenance costs and elevated fuel prices. Replacing those 50 seat jets with more efficient 80 seat jets like the Embraer E175 would require just 120 daily departures versus 206.

And the other place where Charlotte will likely see some reductions is on international flights. Currently, Charlotte is scheduled to see roughly 37 peak day (Saturday) international departures in the summer of 2014, serving 32 destinations around the globe. The tables below show US Airways’ current winter peak international network [excluding Canada] from Charlotte (including Rio) as well as additional routes [again excluding Canada] served only during the summer from Charlotte (in that order).

Year-round International Routes

Destination Frequency Weekly Frequency Aircraft Seats Weekly Capacity
Antigua Saturday Only 1 A319 124 124
Aruba MWThFSaSu 6 757-200 190 1140
Barbados Saturday Only 1 A320 150 150
Belize City Saturday Only 1 A321 187 187
Cancun Daily 7 A330-200 258 1806
Cancun MTuWThFSu 6 A330-200 258 1548
Cancun SaSu 2 737-400 144 288
Cancun Saturday Only 1 737-400 144 144
Cozumel Saturday Only 1 A319 124 124
Frankfurt Daily 7 A330-300 291 2037
Freeport MThFSaSu 5 CRJ-700 67 335
Grand Cayman WThFSaSu 5 A321 187 935
Grand Cayman Sunday Only 1 A319 124 124
Grand Cayman MTu 2 A320 150 300
Grand Cayman Saturday Only 1 A321 187 187
Liberia Saturday Only 1 A319 124 124
Liberia Sunday Only 1 A320 150 150
London Heathrow Daily 7 A330-300 291 2037
Mexico City MThFSaSu 5 A319 124 620
Montego Bay MTuWThFSu 6 A321 187 1122
Montego Bay SaSu 2 A321 187 374
Montego Bay MThF 3 A320 150 450
Montego Bay MTuWThF 5 A320 150 750
Nassau MWThF 4 737-400 144 576
Nassau Daily 7 737-400 144 1008
Nassau Saturday Only 1 A320 150 150
Nassau Sunday Only 1 A319 124 124
Providenciales Daily 7 A321 187 1309
Providenciales Saturday Only 1 A321 187 187
Providenciales Saturday Only 1 A319 124 124
Punta Cana MTuWThF 5 A319 124 620
Punta Cana MTuWThF 5 A321 187 935
Punta Cana Daily 7 A321 187 1309
Punta Cana SaSu 2 A320 150 300
Punta Cana Saturday Only 1 A321 187 187
Punta Cana Sunday Only 1 A321 187 187
Rio de Janeiro Daily 7 A330-200 258 1806
Sao Paulo Daily 7 767-200 204 1428
St. Kitts Saturday Only 1 757-200 176 176
St. Lucia Saturday Only 1 A320 150 150
St. Lucia Sunday Only 1 A319 124 124
St. Maarten Daily 7 757-200 190 1330
St. Maarten Saturday Only 1 A319 124 124
St. Maarten SaSu 1 757-200 190 190
San Jose (CR) MTuWThFSa 6 757-200 190 1140
San Jose (CR) Sunday Only 1 A320 150 150
San Jose del Cabo (MX) Saturday Only 1 A320 150 150
TOTAL 154 28840

Summer Seasonal International Routes

Destination Frequency Weekly Frequency Aircraft Seats Weekly Capacity
Barcelona Daily 7 A330-200 258 1806
Bermuda MWthFSaSu 6 A319 124 744
Brussels Daily 7 767-200 204 1428
Dublin Daily 7 757-200 176 1232
Lisbon Daily 7 757-200 176 1232
Madrid Daily 7 767-200 204 1428
Manchester Daily 7 757-200 176 1232
Paris Charles de Gaulle Daily 7 A330-300 291 2037
Rome Fiumincino Daily 7 A330-300 291 2037
TOTAL 62 13176

The role that Charlotte played in pre-merger US Airways’ international network is perhaps best characterized as that of a “poor man’s” Atlanta. Its primary function was to serve as a reliever trans-Atlantic hub (alongside the primary trans-Atlantic hubs at New York JFK [for Delta] and Philadelphia [for US Airways] respectively) and a primary Latin American gateway. Unlike Atlanta, there are no Asian, Middle Eastern, or African flights at Charlotte. But Delta’s hub at Atlanta is also twice the size of American’s hub at Charlotte with a much larger base of international O&D (nearly 3.3 times as much). Regardless, those two roles are reflected in the current network profile at Charlotte.

But there are three distinct factors working against international service at Charlotte. First, after the merger is fully completed, the new American’s costs will be higher than those of pre-merger US Airways. This means that some of the lower yielding trans-Atlantic destinations like Manchester or Dublin will no longer be profitable to serve from Charlotte. Compounding this is the fact that the other two of the four new trans-Atlantic destinations launching next summer are all Star Alliance hubs (except Barcelona).

Once US Airways leaves Star Alliance in favor of oneworld and loses onward connectivity, these destinations will likely not stick around. And oneworld doesn’t have comparable secondary hubs in Europe to replace these destinations – the best that could happen is Madrid becoming a year-round A330 (or pre-merger American 767-300ER). And third, many of the Latin American destinations will be better served via Miami, which will retain its title as the merged carrier’s primary Latin American gateway. The reason is simple. Because Miami has so much more O&D demand to Latin America than Charlotte (14,000 passengers per day each way versus roughly 800), it can support more flights to Latin America (see graphic below) and is thus more profitable. Many of the Saturday only flights to the Caribbean and the South American flights at Charlotte will likely be transferred to Miami, further reducing the international scope of the Charlotte hub.

Turning to the specific dynamics of Charlotte-Rio, Airchive’s independent sources in the industry have indicated to us that the new American would likely seek to shift the route authority for flights to Rio de Janeiro to Miami, though as of press time no formal filing to that effect been made with the US Department of Transportation or Brazilian authorities.

In 2010, Brazil and the United States signed an OpenSkies agreement that would take full effect in October 2015. Immediately, secondary Brazilian destinations like Brasilia, Manaus, and Porto Alegre became free for all US airlines to enter using a general pool of frequencies (which today has unused frequencies).

Meanwhile, the more restricted airports of Rio de Janeiro Galeao and Sao Paulo Guarulhos would be governed by destination specific frequencies. However, in October 2015, the OpenSkies agreement will take full affect, allowing US carriers to serve Sao Paulo freely so long as they can acquire suitable take off and landing slots. Meanwhile Rio de Janeiro access is more restricted than for the rest of Brazil, but there are still seven unused weekly frequencies for US carriers to use to serve Rio de Janeiro at any time.

US Airways launched its services between its then largest hub at Charlotte and Rio de Janeiro in 2009, when it became US Airways’ first South American destination. The route was initially launched with 204-seat (18J / 186Y) Boeing 767-200ER equipment year round, though as the Charlotte hub continued to grow, it was up-gauged to a 258-seat (20J / 238Y). Airbus A330-200 in the peak season.

Last year, US Airways applied for the right to serve Sao Paulo from Charlotte beginning in 2014, winning its request over competing proposals from American Airlines (pre-merger) and Delta Air Lines. In the interim, it launched flights from Charlotte to Sao Paulo on June 8th, 2013 using slots and frequencies leased from former Star Alliance partner United Airlines.

The initial slot timings were rough, requiring US Airways to schedule a return flight departing Sao Paulo at 9:00 am. Since high yield business travelers prefer redeye (overnight) flights to and from South America from the US (because they allow them to get a full day of work done on the day of departure on both ends), this was a significant challenge for the route’s prospects. However, late last year, the carrier was able to secure more attractive red-eye timings for its flights as follow:

US802 –> 762 –> CLT – GRU –> D: 2250 A: 0930+1
US803 –> 762 –> GRU – CLT –> D: 0230 A: 1140

However the game changer for US Airways’ Rio de Janeiro services was certainly the airline’s merger with Dallas Fort Worth based American Airlines, who was the largest airline by capacity, frequency, and routes served between the United States and Brazil by virtue of its hub at Miami. Unlike Charlotte, Miami has significant business ties with Rio de Janeiro and much higher local demand, at nearly 177.3 passengers per day of demand (in 2011 – likely close to 300 today) versus roughly 26 passengers per day for Charlotte, at a much higher average fare.

The Charlotte market is admittedly fast growing (see graphic below) and Charlotte has much more connectivity than Miami (with nearly twice as many daily flights and destinations). But many of the large connecting traffic flows to Rio (such as New York City, Texas, and California) can be adequately replicated across Miami at a higher average yield (because less capacity will be available). And given that costs on the pre-merger US Airways network are set to rise for the new American, it makes sense to consolidate operations at the higher yielding and higher demand hub.

The same calculus will likely play itself out for services to Sao Paulo, which saw nearly 630 passengers worth of per day demand in each direction to Miami in 2011 (likely close to 750 today). Meanwhile, Charlotte demand was just 9.9 passengers per day each way (though this has likely grown to similar levels as Rio de Janeiro due to the stimulating presence of a nonstop flight).

While US Airways is tied in to operate Charlotte – Sao Paulo until October 2015 (authorities to serve Sao Paulo are route-specific), afterwards, it is free to use those slots to serve Miami – Sao Paulo (or Chicago O’Hare – Sao Paulo as American applied for last year). Airchive’s sources indicate that the slots, amongst the most valuable in the world after those at Tokyo Narita and London Heathrow, will likely be used for additional services from Miami, though once again, this is far from confirmed.

So in summary, the elimination of Charlotte-Rio de Janeiro is a harbinger of things to come for international service for the new American at Charlotte. With the airport positioned for immediate domestic growth with new flights to the Midwest, the composition of the Charlotte hub should continue to evolve sharply over the coming months.