US Airways May Shed Gates in Charlotte

US Airways is willing to surrender gates at Charlotte Douglas International Airport to ensure that its merger with Delta Air Linesis approved, a company executive said Wednesday.

The move could remove a major obstacle to the proposed merger, which some experts say is a long shot because it would leave a single airline in control of the two principal hubs in the Southeast, Charlotte being one and Atlanta the other.

The number of gates to be divested could be important in determining whether intense competition on connecting Southeast routes would continue.

"It's not inconceivable that we would have to give up gates in Charlotte," President Scott Kirby said in an interview. "Giving up gates is something we might do, but I don't think divesting ourselves of the hub is conceivable."

He declined to specify how many gates might be shed, and he said he doesn't anticipate that another carrier would want to establish a Charlotte hub.

In preliminary discussions with the Justice Department about the antitrust ramifications of the proposed merger with Delta, the Charlotte divestiture wasn't mentioned, although US Airways' offer to part with a shuttle was, Kirby said. Both Delta and US Airways operate shuttles between New York LaGuardia and Washington National airports.

Charlotte Douglas is US Airways' biggest hub, with 534 departures to 122 nonstop destinations. But it pales by comparison with Hartsfield-Jackson Atlanta International Airport. The world's busiest airport handled 87 million passengers in 2005, including 28 million local passengers. By contrast, the total number of passengers in Charlotte, including connecting passengers, was about 28 million.

Delta's Atlanta operation is the world's biggest hub, with about 1,000 daily departures to 243 nonstop destinations, and is considered a crown jewel of the airline industry.

Companies involved in joining their operations often part with some assets in order to assure the government that competitive concerns are being addressed.

"Virtually every merger with antitrust concerns is fixed by a divestiture of some sort," says Andy Klevorn, a Chicago antitrust attorney. In one recent example, Boston Scientific (BSX:NYSE) acquired Guidant last year for $27 billion, then sold off an overlapping business for $4.6 billion in order to gain Federal Trade Commission approval.

In airline mergers, regulators typically review route overlaps city by city and then determine whether the overlaps can be alleviated, Klevorn says. "A Charlotte spin-off would go a long way towards mitigating the impact," he says.

Essentially, giving up the Charlotte hub would mean that US Airways would arrange to turn over most of its gates to another carrier.

New York aviation attorney Tom Salerno, who represented bondholders in the United Airlines (UAUA:Nasdaq) bankruptcy, says hub divestitures are challenging. For one thing, "It's a huge public relations issue," he says. "A hub airline likes to be viewed as the hometown airline."

Additionally, Klevorn questions whether any other airline would want to establish a Charlotte hub. "In this day and age of airlines watching their costs like hawks, this isn't the time to be adding those sorts of ventures," he says.

Other carriers have shown interest in Charlotte, however. The airport offers some of the lowest per passenger costs of any major hub, provides an alternative to Atlanta and is currently building a third parallel runway in order to minimize congestion at peak operating times -- a problem that plagues Atlanta.

When United(UAUA:NASDAQ) was pursuing a merger with the old US Airways in 2000, Charlotte seemed alluring. "We do not have an effective way to serve the Southeast," United CEO Jim Goodwin said at the time. "When we look at Charlotte, we look at having access to a large part of the country where we can't compete."

Southwest(LUV:NYSE) has also noticed. In 2000, CEO Herb Kelleher discussed the possibility that the US Airways and United merger might involve divesting assets. He told a transportation conference that Charlotte was a city where, if regulators "said you have to give up half your gates, we'd be interested in looking at them."

Southwest's position hasn't changed. If Delta and US Airways are required to turn over assets to satisfy regulatory requirements, LaGuardia and Charlotte are both places Southwest might choose to serve, spokeswoman Beth Harbin said recently.

Requiring some Charlotte divestiture is not unlikely, says Mike Bell, who retired from Delta in 2004 as vice president of schedule development. During his career, Bell presided over scheduling and also evaluated the network efficiencies of mergers, most of which were never completed.

Of all the U.S. carriers, US Airways has the most overlap with Delta, and the situation is particularly acute in the Southeast, Bell said. "You look at the traffic flows over those two hubs, it is almost an identical overlay," he says. "There are only a handful of routes available on [Charlotte] and not [Atlanta]. The concentration could make the federal government say 'Charlotte has to go.'"

For a combined Delta and US Airways, a hub divestiture would have pluses and minuses. On the negative side, "You introduce a competitor, someone who would set up shop competing against the operation in Atlanta," Klevorn said.

As an offset, the combined carrier would shed costs. "A hub is a big cost item for an airline, not just another city you fly into," Salerno said. "You don't want multiple cost centers that are unnecessary in the same area."



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