US – AA merger: The 1000 routes of competition
Background
The department of justice (DoJ) last week sued to block the merger of US Airways (US) and American Airlines (AA). The merger would have created the largest airline in the world. That title today is held by United Airlines and/or Delta (depending on how you measure ‘largest’). The DoJs lawsuit states that the merger would be bad for consumers (travelers) in the United States as it would reduce competition in the marketplace. It would leave only four major carriers in the US (the new American, United, Delta and SouthWest). They assert that US and AA compete on ‘1,000 routes’ where competition will be eliminated by the merger.
What are these 1,000 routes you speak of?
The ‘1,000 routes’ statement got me intrigued. What 1,000 routes? For that matter, what is a route in their view? They certainly do not mean ‘flights’. (IAD – LGA is a route. There may be 5 flights in a day on that route by US Airways). So, I set about an analysis. Here is what I found.
The two airline combined fly 6,700 daily flights to 336 destinations in 56 countries – according to the merger website. Note, this is 6,700 flights, not routes.
There are 336 destinations. Every destination pair is a potential route. So, if the airlines flew on every possible route, there would be 112,560 routes (336 x 335). But US Airways and American Airlines do not fly every route. Almost all their flights originate at a hub or focal city.
US Airways has five hubs – Charlotte (CLT), Philadelphia (PHL), Washington Reagan National (DCA), New York LaGuardia (LGA) and Phoenix (PHX). American Airlines has five hubs too – Los Angeles (LAX), Dallas-Ft. Worth (DFW), Chicago O’Hare (ORD), New York JFK (JFK) and Miami (MIA). So, if we look only at flights starting at these 10 hubs, we would have a total of 3,350 routes. However, both airlines don’t fly to every route and so they certainly don’t compete on every route.
The routes they can potentially compete on would be routes they both fly (of course). That would only be routes between each others hubs. For example, US Airways flies from Charlotte (their hub) to Orlando (non-hub for either), but American Airways does not fly that route at all (no hub involved). Similarly, American Airlines flies from Miami (their hub) to Washington Dulles (IAD) (non-hub for either). Both however, fly between Dallas (AA hub) and Philadelphia (US hub). So, the only possible routes they complete on would be between their hubs. That leaves only 20 possible routes (5 x 4) that both airlines fly and hence compete on today! A far cry from 1,000.
What am I missing here? Are they looking at markets instead of airports – Washington area airports (IAD, DCA and BWI) are a market, so are New York area (JFK, LGA and EWR)? Even then, 1,000 routes sounds too high.
What is flawed in my logic? How did the DoJ get to 1,000 flights? Does anyone know?
Quite obvious, or maybe not. They count connections. So if both fly from point A to C with a connection in X, they compete, with X beig a different hub for each airline.
I’m not sure why otherwise intelligent bloggers are suddenly becoming less-intelligent over this issue.
There are many routes that you can only fly using US or AA — with a connection.
To figure these out, you don’t look at the hubs. You look at smaller airports that are only served by AA and US.
I trust that DOJ did this analysis, so I am not going to attempt to look at every airport in America, but this is how it would work.
Blogger City is served by two airlines: US to Phoenix, and American to Dallas. I want to fly from Blogger City to Chicago or Los Angeles or Denver.
Currently, I have a choice of flying US or AA if I want to go to any of those three cities.
Post-merger, I would not have a choice.
Accordingly, competition has been eliminated on three routes (although it would likely be a lot more than 3 out of Blogger City alone).
This represents the reality that most customers in the US no longer fly nonstop.
This is not a complicated subject, and the only reason it is even an issue is that AA/US’s PR machine has planted the seed that there is something fishy here.
LaGuardia is not a US Airways hub. They have exactly two non-hub destinations — Boston and Pittsburgh
I agree with Adam, about the issues with Bloggers, especially those that didn’t see this coming and think this is a bad idea that the DOJ is blocking this.
Anyone that flew UA can say this has been TERRIBLE, I mean simply and utterly terrible. I used to fly 200K on UA, last year was 100K + 100K on AA, next year its looking like 40UA and 150AA, that merger has raised prices, there are less routes than before the merger.
Why was it that CO could fly EWR-CPH for a while, but the combined carrier couldn’t, my choices have gone away and I don’t see the combined carrier giving me much of an advantage, neither really fly to Asia, so expect more European cuts as a result.
they are not looking only at nonstop flights through hubs but connecting flights. which are a lot more.
that is what you are missing.
for exame dfw-bos. you can fly on american non stop or us air via philly. those are 2 available routes. guess what one route might dissapear.
maybe not the best example . another example might be two routes one for aa and one for usair originating and ending at non hubs for either airline. one route might dissapeat.
Truthfully, I don’t care how they came to that number. All I care about is blocking this merger. Of all US majors, US Airways is the least customer friendly, least responsive and least flexible. It starts at the top with Doug Parker, whose goal seems to ensure the survival of Greyhound buses by making the flying experience even more miserable, the same person who would head American Airlines. While I’d hardly say that AA’s customer service excels, I have never canceled a trip on AA because of how miserable a flight was going to be. Book a flight on US Airways, and see no available seats, and you know that you be seated in the middle next to the lavatory. And when they have the nerve to charge $150 for a premium middle seat, I’ll stay home. And have on a number of occasions. I could care less about 1000 routes, I just pray that yet another airline with a proud past, if not quite so proud present, doesn’t get destroyed by US Airways. That is All.
Of course, you could just read the complaint and attached exhibits that lay this all out in relatively clear form….
http://online.wsj.com/public/resources/documents/airlinescomplaint0813.pdf