MIAMI— They say it ain’t over until it’s over. But for American Airlines and US Airways, the merger process is about to be over.

On October 17, US Airways will operate the final flight under its own code, marking the official end of US Airways and drawing the lengthy integration to a close. Some highlights from the process include obtaining a single operating certificate from the Federal Aviation Administration (FAA), merging employee seniority lists, and ultimately, combining reservation systems and tossing out the US-designated flight identification code.


But despite crossing the merger’s formal finish line, American Airlines will undoubtedly keep evolving somewhat over the next several years as it continues to blend the two brands. One of the most pressing questions still hanging over the airline is how it will handle the high number of hubs it currently maintains. Speculation has been bubbling up that some of its current hubs – most notably, Charlotte, Philadelphia, or Phoenix – might endure cuts in the future.

If history offers any applicable lesson, American will more than likely at least scale back operations at one or two of the facilities to more fully realize some of the economic efficiency from merging. For various reasons, its hubs at Dallas/Fort Worth, Chicago O’Hare, and Miami appear almost entirely safeguarded (if not reinforced), with drawbacks most probably due to affect the US Airways side of the equation. The question is which, if any, are most firmly on the chopping block?

Charlotte Douglas International Airport (CLT) draws some skepticism predominantly because of its location outside of a more major metropolitan area. Larger cities, of which Charlotte is not one, tend to bolster origin-and-destination (O&D) traffic. A successful megahub largely relies on connecting traffic, but local passengers play a significant role as well, and tend to be highly profitable for an airline.

Typically, research supports the idea that local fliers tends to pay a bit of a hub premium, or higher fares in exchange for the convenience of non-stop service to virtually anywhere in the country. Many call into question whether a city the size of Charlotte, which ranks only twenty-second by population among metro areas domestically, can support such a sizable operation.

But many factors insulate Charlotte from bearing significant cuts, if any at all. First, despite Charlotte’s relatively small aggregate population, American benefits particularly from the vibrant banking industry in the area, which drives business fliers to the airport. Airlines love the business travel segment because it typically exhibits much less price sensitivity than the leisure travel audience. With many lucrative corporate travelers originating in the area, American is unlikely to abandon the area in any significant way.

Second, American enjoys very small operating costs at the airport. DWU Consulting estimates Charlotte’s cost per enplaned passenger (CPE) at a mere $1.33 as of 2014 – the lowest by far among all airports it considers “large hubs,” actually. Charlotte owes some of that cost advantage to the sheer volume of travelers passing through the airport, which naturally depresses CPE as non-linear costs spread more thinly across passengers. But even neutralizing for expected economic efficiencies, the costs of operating in Charlotte are phenomenally low. Given Charlotte’s role as primarily a connecting airport in American’s network – in other words, one in which American wants to cap costs especially tightly – it seems like an overall good match.

Finally, American maintains an unquestioned hegemony in Charlotte, owning a stunning 88-percent of the market share. American is probably not too eager to cede much of that control, which serves as a competitive advantage for the airline.

Certainly, for all the talk of possible drawbacks in Charlotte, such forecasts have hardly materialized yet. A recent study from OAG ranked Charlotte among the top ten most quickly growing megahubs globally in terms of connectivity, undermining the idea that American plans to scale back activity. It would appear American envisions an important role for Charlotte in its route network long-term.

Philadelphia International Airport (PHL) attracts some attention primarily because of its close proximity to other northeastern airports significant in American’s network. The airline officially maintains hub operations at Washington Reagan slightly to the south, and at New York JFK slightly to the north. American also enjoys a sizable footprint at New York’s LaGuardia Airport. Many raise questions about Philadelphia’s future with American supporting a myriad of nearby hubs. We all know American’s not leaving New York, and we all know that American’s not leaving Washington D.C., so how about Philadelphia?

DCF 1.0
DCF 1.0

But while several other dots lurking around Philadelphia probably don’t bode particularly well for its future, they may not necessarily threaten it very severely. All three of the competing airports mentioned previously support far fewer daily flights than Philadelphia, owing much of their traffic to O&D rather than connecting fliers. If American axed its hub in Philly, it would have a difficult time shifting all of the connecting traffic to nearby hubs, with practical limitations preventing drastic expansions in either New York or Washington D.C.

Each of the other airports occupies a more niche role within American’s system. Philadelphia is the only facility prepared to handle large volumes of connections (and in a more cost mindful way than shuttling passengers through the Big Apple or the nation’s capital), effectively sheltering it from large scale cuts.

Also, Philadelphia benefits from the very same factor many believe spell Charlotte’s downfall: city size. The Philadelphia area ranks among the ten most populated nationally, and with American controlling a dominant market share at the airport (albeit not as commanding as in Charlotte), it seems unlikely that it will burden a large local audience with significant cuts. Collectively, Charlotte and Philadelphia are in some very mild jeopardy, with the downward potential to lose some flights perhaps but almost certain to retain a large footprint with the new American.

Of the three generating speculation, Phoenix Sky Harbor (PHX) appears the most vulnerable to eventually losing its hub status in a very material way. Many industry analysts have questioned Phoenix’s role within the new American system ever since the two airlines announced intentions to merge and declared that the headquarters would remain housed in Fort Worth, Texas.


Primarily, Phoenix suffers from an awful case of route duplicity, unfortunately lying sandwiched in between American’s strongholds at Dallas/Fort Worth and Los Angeles. DFW clearly isn’t going anywhere, supporting the most daily flights of any American hub, and Los Angeles conveniently handles connections along the west coast better than Phoenix. Internationally, the airline’s Latin American veins run through DFW, and Los Angeles rests quite ideally for Asian-bound passengers. This leaves Phoenix without a clear role within American’s route network, adding little value independently to existing operations.

American’s recent moves seem to confirm Phoenix’s relegation to the periphery in its network. American has augmented international service from both DFW and Los Angeles recently, but chose to bypass Phoenix completely. The airline also announced intentions to vacate the old US Airways headquarters building in downtown Tempe, relocating employees to other facilities in the area. While American loudly proclaims the decision holds no bearing for Phoenix’s future, with employment in the area remaining about constant, it certainly could suggest the beginning of the end out in the desert. There are very subtle signals, but signals nonetheless.

Additionally, American faces formidable competition in Phoenix, which cannot be said of the situations in Charlotte or Philadelphia. Low-cost-carrier Southwest Airlines runs one of its largest focus cities at the facility, creating some revenue headwinds for American. A quick look at Department of Transportation (DOT) data reveals that the average fare at Phoenix falls well below the average for similarly sized airports, a sign of revenue weakness certainly unideal in a hub.


Adjusted for inflation, passengers paid on average $357.80 to fly from Phoenix during the first quarter of 2015. The average fare at Philadelphia clocked in a $427.91, and soared to $463.77 at Charlotte, highlighting the revenue gap.

Granted, many factors influence the average fare from an airport such that it may not reflect profitability very accurately. One large driver of average fare that we might expect is average stage length, or the average distance flown from the facility. We’d typically assume that longer trips should reasonably result in higher fares, so airports with higher average stage lengths could naturally exhibit higher average fares with no particular bearing on profitability.

But in Phoenix, we might expect that the average customer will actually fly longer than in Philadelphia. Positioned in the bustling northeast, Philadelphia lies near many potential destinations of interest while fewer other prominent cities lie close to Phoenix. Without any hard data to back up this assumption, we can’t fully say for sure, but even given perfectly equal stage lengths there is still a huge gap in average fare. And we could very reasonably think passengers pay less to fly more from Phoenix, which would only further support the idea that Phoenix falls short of Philly and Charlotte financially.

At least on the face, it surely seems American probably can’t extract the same degree of profitability from Phoenix as it can from its other hubs, for whatever reason. It does appear fair to say that American faces more competitive heat out in Phoenix, based on the heavily involved presence of Southwest and based on data displaying relatively low average fares. And when airlines draw up plans for a hub operation, a high degree of competition locally is just usually not in the blueprint.

Without a clear practical purpose in American’s network, combined with a much warmer competitive landscape, Phoenix very well could be left out in the desert in the coming years, suffering the same fate as a number of old airline hubs following a merger. And you need only call up Pittsburgh, or Memphis, or more recently Cleveland to name a few to see how that affects a community.

Maintaining such a wide variety of hubs certainly offers advantages to American. More hubs minimizes the total travel time for passengers beginning their journeys in virtually any area of the country, which could help American lure more customers who value getting to their destinations quickly. The world’s largest airline post-merger undoubtedly will need a strong hub backbone in order to appropriately support such a large volume of traffic.

But by just about any measure, nine is too many. One of the primary motivations to merge rests in the financial benefits afforded by economies of scale, which are hardly realized if American simply chooses to leave its network structure unchanged. Our view is that one of American’s citadels are due to fall. It’s only a question of which one and when.

And my money’s squarely placed on Phoenix to endure the worst.