Charlotte Airport Growth Could Stall Without Merger

Aug. 15--Charlotte Douglas International Airport could miss out on future growth if the U.S. Justice Department succeeds in stopping the planned US Airways-American Airlines merger or forces serious concessions, analysts said Wednesday.

Meanwhile, attorneys for US Airways and American Airlines laid out their legal strategy to challenge the lawsuit and dug in their heels for a fight.

"We're litigating this case, period," attorney Paul Denis of Dechert LLP told reporters.

The Justice Department unexpectedly filed suit to block the merger on Tuesday, arguing the deal would squelch competition and drive up fees and fares. The move surprised airline industry watchers and US Airways executives, who had expected the merger to win antitrust approval in the coming weeks and close next month.

The lawsuit puts the merger in doubt, though US Airways CEO Doug Parker said he thinks the companies can still close the deal this year. US Airways has been pursuing the merger since American sought bankruptcy protection in 2011.

And it raises more questions for Charlotte Douglas, which is heavily reliant on US Airways. Combined, US Airways and American would operate about 94 percent of the airport's daily flights. Charlotte would be the new airline's second-largest hub, after Dallas/Fort Worth.

Both airlines' stocks continued to fall Wednesday after sharp drops on Tuesday. Shares of US Airways closed down 1 percent, at $16.17, and AMR Corp., American's parent company, finished down more than 13.5 percent, at $2.74.

Some antitrust lawyers said the companies might not be able to salvage the merger.

"My take is that the deal is dead," Allen Grunes, an antitrust lawyer with GeyerGorey, told Bloomberg News. "Based on the complaint, this merger doesn't look like it can be fixed with divestitures or slot sales."

He compared the case to the Justice Department's 2011 lawsuit seeking to block AT&T's proposed takeover of T-Mobile USA Inc. AT&T eventually dropped its bid for T-Mobile.

Charlotte's future

Since the merger plans began circulating, Parker has promised numerous times that a merged airline would bring more flights to Charlotte Douglas, which is US Airways' busiest hub.

The airport has about 650 daily flights operated by US Airways, a number Parker said could grow to more than 700 after a merger.

Charlotte Chamber President Bob Morgan said Wednesday that the merger would be good for the region. "The Charlotte Chamber of Commerce believes the merger of US Airways and American Airlines will further advance our ability to attract new companies and create jobs for our local economy," Morgan said in a statement.

Henry Harteveldt, a travel analyst at Hudson Crossing, said Charlotte will lose out on possible future growth without a merger, especially in international markets such as Latin America and Asia where American already has a large presence.

"It would be very difficult for US Airways to replicate any of this," he said of American's route network, which also includes more West Coast and Midwest destinations.

"It's much more difficult for Charlotte-area residents to reach Asia if the merger doesn't go through," said Harteveldt. "While US Airways has worked to get some access to Central America, it offers a much more limited route network to South America than American."

Aviation analyst Mike Boyd said if the merger is called off now it's "no harm, no foul" for Charlotte. A worse scenario, Boyd said, would be that the merger is approved after US Airways and American agree to serious concessions at hubs they dominate, such as Charlotte Douglas.

"(The Justice Department) might do something really stupid, where they say, 'You can do the merger, but you've got to let somebody else take over Charlotte," said Boyd.

Boyd doesn't think other airlines would be eager to jump in with more flights at Charlotte Douglas, which fits into US Airways' route network as a major connecting hub. Charlotte has a much smaller population than cities with comparably sized airline hubs, such as Chicago and Miami.

He also said the city would see less growth in the future than if it were a part of the new American Airlines, which would be the world's biggest airline and operate more than 6,700 daily flights.

"If this merger goes away now, Charlotte unfortunately would miss out on a lot of future growth," said Boyd.

But this much is clear, with or without a merger: Charlotte Douglas is one of the world's cheapest airports for airlines to operate. Charlotte's cost-per-enplanement is 96 cents, and is expected remain below $1 through 2017, according to credit rating company Fitch Ratings. That compares to $9.65 at Philadelphia International Airport, another US Airways hub, and $6.59 at Dallas/Fort Worth.

Fitch said Wednesday that it doesn't see any immediate impacts on the hub airports if the merger is blocked.

Block may be a benefit

Tom Reich, director of air service development at AvPORTS, an industry consulting firm in Dulles, Va., said blocking the merger might actually help Charlotte. Without the merger, US Airways would seek to climb out of its spot as the nation's fifth-biggest airline, and that could mean growth for Charlotte.

Under Parker, who engineered the America West-US Airways merger in 2005, US Airways has sought unsuccessfully to merge with both United and Delta.

"With a merger with American, for the next three years all the new airline would be doing is figuring out how to cut unprofitable routes," said Reich. "Growth would not be on the radar."

"It potentially expedites growth" for US Airways to lose the opportunity to expand through a merger , said Reich.

Airlines vow to fight

As both airlines press their fight with the Justice Department, a bankruptcy judge in New York is set to rule on the merger Thursday. Both airlines hope to schedule a hearing on the antitrust case in time to close the merger by year's end.

"They got this one very wrong," attorney Rich Parker of O'Melveny & Myers said of the Justice Department. "Both of these companies are looking forward with confidence to our day in court."

Both the Justice Department and the airlines have said they would listen to any suggestions the other side has for how to fix the competitive issues the government raised and move forward to the merger. But neither side has said it has concessions it thinks could solve the issues.

The airlines' attorneys reiterated Wednesday that the merger plans don't call for any negative changes at Charlotte Douglas.

"There are absolutely no plans whatsoever to sell, close or alter the Charlotte hub," said Denis.

 

Copyright 2013 - The Charlotte Observer

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