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US Airways Charlotte Hub Likely Safe in Merger, GAO Expert Says

Stocks in this article: AAMRQ.PK DAL LCC

CHARLOTTE, N.C. ( TheStreet) -- Although a government report on the pending merger between US Airways (LCC) and American (AAMRQ.PK) suggests that Charlotte could lose flying to Miami, the report's author said that is just one possible scenario, nothing more.

"There's a distinct difference between what we said as a possibility vs. a probability," said Gerald Dillingham, General Accounting Office director of physical infrastructure, in an interview. "I wouldn't argue with the conjecture that it may not happen.

"The Charlotte hub is a pretty strong place for the airline, with the infrastructure there and the network from there," Dillingham said. "Miami is strong for American as well. We aren't saying (what will happen) .... What we said was that no one really knows because the merged airline has not given any specifics."

Dillingham authored the GAO report, "Issues Raised by the Proposed Merger of American Airlines and US Airways," that was released Wednesday, the day of a Senate subcommittee hearing on the merger, where Dillingham testified. The report included the sentence, "New York could serve as a better hub and international gateway than Philadelphia in the Northeast, while Miami could be a better hub than Charlotte in the Southeast," which was striking in that it seemed to contradict what the two airlines have been saying about future growth of the Charlotte and Philadelphia hubs.

In the interview, Dillingham said that what applies to Charlotte also applies to Philadelphia: it could diminish relative to New York, but there is no reason to assume that will happen. He noted, however, that before the 2009 merger between Delta (DAL) and Northwest, Delta said Memphis would remain a hub. Following the merger, that changed, largely due to dramatic fuel price increases. "Who would have thought that?" at the time of the merger, Dillingham asked.

It is important to remember that Memphis was a relatively weak hub even before the merger, and that it did exactly the same thing Delta's Atlanta hub does. In the case of Charlotte and Miami, the hubs perform far different functions -- Charlotte, like Atlanta, is a major Southeast hub; it primarily connects Southeast destinations to the rest of the U.S. and the world. Miami, by contrast, is a unique gateway hub that connects passengers between three continents and serves a smattering of about 50 major domestic destinations.

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