Over the past decade, American has failed in efforts to build a significant hub at JFK. Competition is intense at JFK, because Delta and JetBlue (JBLU - Get Report) also operate hubs and because the congested airport offers little opportunity to expand. US Airways has repeatedly said that it is profitable primarily because it operates 99% of all of its flights at airports where it is the dominant carrier. In a merger, that would still be Philadelphia, not JFK.
It is unclear what exactly US Airways would do if it operated both hubs, but it seems just as likely that Philadelphia would gain service, as more American passengers are pushed through this profitable hub, as it does that Philadelphia would lose service. The Philadelphia Inquirer reported Wednesday that Mayor Michael Nutter's administration supports a potential merger, believing that it would bring more business and new travel options to the airport, including the possibility of nonstop flights to China and Japan.
Regarding Pittsburgh, it is true that US Airways has significantly downsized in Pittsburgh. The effort began long before the 2005 merger with America West. One problem was that Pittsburgh competed with multiple area hubs including Chicago and Detroit, which survive, and Cincinnati and Cleveland, which barely survive. Another problem with Pittsburgh is that airport costs rose to unsustainable levels as the airport built too much infrastructure. This should be a warning to Philadelphia, given the proposed expansion project.
"The airlines serving the Philadelphia International Airport, including US Airways, anticipate that the entire project will cost about $10.5 billion, which is far higher than the airport's assessment that the project cost is closer to $6.4 billion," US Airways said late Tuesday, in a prepared statement. "We do not oppose expanding PHL's facilities but as we've stated before we are concerned that escalating costs at the airport will potentially damage the future viability of our hub operation there." The project costs would, in the end, be paid largely by US Airways passengers.At a media day in Phoenix in April, US Airways executives told reporters that they did not oppose plans by Charlotte/Douglas International Airport director Jerry Orr to build a fourth runway, but they did oppose the Philadelphia plan. Why the difference? Because Orr estimated the cost of his new runway at about $120 million, while the estimated cost of a new Philadelphia runway is $1.8 billion to $3 billion. The lesson here is that even though it is a profitable place for US Airways to operate, Philadelphia International Airport's future viability is in question. But that is because of the overly costly planned expansion, not because of the merger that US Airways so desperately wants. Follow @tedreednc -- Written by Ted Reed in Charlotte, N.C. >To contact the writer of this article, click here: Ted Reed
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts