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

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 hearingon 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.

As for Philadelphia, it succeeds because robust domestic feed enables a major trans-Atlantic operation. American's JFK hub relies primarily on local traffic between New York and international markets, principally London Heathrow. Philadelphia will likely grow following the merger because it will draw international passengers from a far larger network.

In a prepared statement following the release of the GAO report, US Airways reiterated that Charlotte will remain a major hub. "Charlotte is a key part of the new American Airlines," US Airways said. "With increased connectivity, Charlotte will be a key hub in the combined airline's global network.

"We remain committed to maintaining the current nine hubs of both American and US Airways," the carrier reiterated. "Importantly, our combined network will offer more origins and destinations through each hub, resulting in more travel options for customers and benefits for communities."

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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