ANALYSIS: Network overlap limited through American merger

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Henk Ombelet, aviation consultant at Flightglobal consutlancy Ascend, looks at the network impact of American Airlines-US Airways proposed merger

American Airlines' planned merger with US Airways would follow US major rivals Delta Air Lines and United-Continental in creating a combined entity among the biggest carrier groups in the world.

A merged American and US Airways would second only to Lufthansa by revenues, based on data from the 2011 Airline Business World Airline Rankings. Combined revenues of $37.3 billion would have put the airline just ahead of United-Continental which had revenues of $37.1 billion in 2011.

US carrier revenues for 2012 would still place a combined American-US Airways at $38.7 billion in sales above United-Continental with $37.2 billion and Delta Air Lines with $36.7 billion.

ROUTE ANALYSIS 

As with all North America network carriers, both airlines operate a hub and spoke system. American has Dallas/Fort Worth and Chicago O'Hare as its main hubs, with Miami as an important international hub - American operations at Miami in fact rank fourth in terms of seats.

US Airways operates Charlotte and Philadelphia as its main hubs, with a secondary hub in Phoenix.

The two airlines do not share a hub (the only airport that is shared as a hub by two airlines is O'Hare, although they do have substantial operations at some of the key airports such as New York JFK or Lox Angeles. US Airways also has significant operations at Washington National.

Because American and US Airways do not have hubs at the same airport, and typically only have between a 2-4% share of departures at the other main airports, the consolidation of the two does not alter the market shares significantly at any of the Top 10 airports in the USA. All US majors dominate their hub airports (with the exception of Chicago O'Hare which is shared by American with United), and so the small contribution of another partner does not change the structure.

us departures 2012 

departure share pre merger 

departure share post 

Assumes US Airways joins Oneworld through merger

ROUTE NETWORK 

Looking at the map of the combined domestic route network two things are immediately obvious. Firstly, a merged American with US Airways is very much concentrated in the south eastern triangle of the country - roughly south and east of the line between San Francisco and Chicago. In other words, the north western states are not covered as comprehensively.

Domestic networks 

 international breakdown map

 Source: Innovata Flightmaps Analytics (American routes in blue, US Airways in green)

Secondly, there are very few routes on which the airlines overlap. American operates 524 routes, US Airways 398 but there are only 12 route pairs that both airlines operate on, and three further city pairs. All of the overlapping routes are between the respective airline hubs or former hubs and focus cities.

So the expectation is that while there may be some consolidation of frequencies on these hub-to-hub routes, very little is going to change immediately. But there are two further considerations when looking at the combined route network. One is the international services, the other is the actual markets served, rather than just the individual routes.

 aa us domestic share

While the airlines do not have a lot of overlap in direct routes served, they serve many more markets through their respective hubs. Looking at those markets, there is a lot more overlap. Ascend has undertaken some analysis of the connecting markets that both airlines serve. Assumptions have been that two airports are connected if the non-stop connecting flights arrive and depart between one and five hours of each other, and the total distance of the connecting flights is not more than 50% extra over the direct route. If there is more than one possible route (eg connecting through Chicago O'Hare or Dallas/Fort Worth), we have only used the shortest route.

 aa us international shares

American Airlines has a much wider international route network than US Airways. American is traditionally the largest carrier on the Latin American and Caribbean markets, and operates to 32 airports in the Caribbean from Miami and New York. It also still operates a small hub in San Juan, Puerto Rico, serving some of island destinations from there. US Airways operates to 17 airports from its hubs in Charlotte and Philadelphia. All of the US Airways destinations are served by American Airlines, so some consolidation might be expected among the US Airways destinations.

American also has the upper hand in Central America and Mexico. In Central America 10 destinations are served by American, the larger ones from both Dallas and Miami. Three of these are also served by US Airways - again candidates for consolidation.

USA-Caribbean routes 

 aa international map

 Source: Innovata Flightmaps Analytics (American routes in blue, US Airways in green)

US Airways has 10 destinations in Mexico, served mostly from Charlotte and Phoenix. American Airlines has concentrated its Mexico programme in Dallas, but also flies to some of the major Mexican destination from Miami and Chicago. Dallas/Fort Worth really has the strongest position, although Phoenix is well placed to feed from the western part of the United States.

USA-Mexico routes 

aa mexico map

 Source: Innovata Flightmaps Analytics (American routes in blue, US Airways in green)

South America is very much dominated by American Airlines. All its 20 destinations are served from Miami, and some of the key ones are also served from Dallas (five, with Lima to be added in 2013) and New York JFK (four). US Airways only serves Rio de Janeiro from Charlotte.

USA-Latin America routes 

aaus - latin american map 

 Source: Innovata Flightmaps Analytics (American routes in blue, US Airways in green)

Europe is a more even split. American operates from seve US airports to a total of eight airports in Europe. US Airways operates from its two hubs to 12 airports in Europe. The differences are partly driven by the different alliances the two airlines belong to.

While American does operate European services from seven airports, three of those (the non-hub airports of Los Angeles, Boston and Raleigh-Durham) are only to London Heathrow, driven by the hub of its Oneworld and joint venture partner British Airways.

Transatlantic services were traditionally run from New York built upon the largest international long-haul route between London and New York. American's strong European network from New York is testament to this. It has since built up European flights from its key hubs at Dallas/Fort Worth, Chicago O'Hare and Miami to feed into its domestic network from Orlando and Dallas/Fort Worth, and Latin American network from Dallas and Miami - hence services to Spain from both these cities.

US Airways serves more destinations in Europe (and also flies to Tel Aviv). As part of the Star Alliance it operates from both its hubs to Frankfurt, where Lufthansa is based, but it also serves other destinations across Europe. On the assumption that the merged carrier will choose Oneworld as its alliance, some of the routes will probably change. Firstly, the Charlotte-London Gatwick flight will probably be moved to Heathrow. Secondly, the routes to the Star Alliance hubs, such as Frankfurt, Munich, Zurich and Brussels might be reduced or scrapped, as the feed there will start to dry up. Service to Italy and France might stay, but some of the available capacity could be redistributed to another Oneworld hub in Europe, Finnair's Helsinki base.

US-Europe routes 

 aaus europe map

 Source: Innovata Flightmaps Analytics (American routes in blue, US Airways in green)

Finally, US Airways does not have any services to Asia Pacific, and American only has service to Tokyo, Beijing and Shanghai, albeit from four points in the US. Asia Pacific is clearly seen as the weak part of the new alliance as most of the economic, and hence aviation, growth is expected to occur in this region.

MARKET SHARE 

The combination of US Airways and American Airlines will become the largest carrier within the United States, taking 25% of the domestic capacity. The structure of the US domestic market will be reasonably evenly balanced - four carriers accounting for 83% of capacity, split fairly equally between them. If the merged carrier consolidates some of its routes over the next few years, its market share may even fall a little.

Latin America (including all of the Caribbean, Central America, Mexico and South America) has two alliance decisions pending. Firstly the LATAM group airlines are still in different camps, LAN belonging to Oneworld while TAM is in Star. The Brazilian carrier though must quit Star under a competition ruling relating to AviancaTaca also being in that alliance, and is expected to join Oneworld.

Equally, if the American/US Airways merger results in US Airways leaving Star and joining Oneworld, the balance changes. Before any airline movements, capacity on the US-Latin routes was split with around 30% for Star and Oneworld, and 16% for SkyTeam, with around 23% to unaligned carriers. If both the changes happen, 10% of the market will shift from Star to Oneworld, making the latter by far the largest alliance on this route.

On the North Atlantic the effect of US Airways switching is not as large. Oneworld is currently the smallest alliance on this route with 24% of the capacity, against Star with 38%. A US Airways switch would transfer 4% of the share from Star to Oneworld.