Thursday, February 22, 2018

Why an American Airlines Monopoly Works for Charlotte, North Carolina: In contrast to many cities luring low-cost competitors to their airports, Charlotte, North Carolina, has stuck with a dominant carrier, accepting high prices in exchange for plentiful flights

The Wall Street Journal
By Scott McCartney
Updated February 21, 2018 4:32 p.m. ET

CHARLOTTE, N.C.—Many cities with airports dominated by one big airline have found they can bring in growth and low fares by luring low-cost competitors. But that’s not happening here.

American Airlines carries more than 90% of all passengers at the airport. Charlotte is the most profitable hub in American’s system and the airline, which inherited the hub when it merged with US Airways in 2013, says it pumps as much traffic as it can through Charlotte. The airport has about 700 daily flights to 170 non-stop destinations—far exceeding what a medium-size city could support on its own.

“We know we are the definition of a fortress hub,” says Brent Cagle, aviation director of Charlotte Douglas International Airport.

That’s a mark of pride in Charlotte, a city about the size of Austin, Texas, that has twice as much domestic air service and lots more international flights. Plentiful flights draw companies to the area, the Charlotte Chamber of Commerce says. Big companies like Bank of America rely on the airport to make it easy to get in and out of headquarters. And to keep it going when many medium-size cities have lost their hub status as airlines have consolidated, Charlotte has avoided actively recruiting new competition that would anger American and possibly change the economics of the hub.

People in Charlotte pay a premium for all that service. Charlotte’s average domestic fare of $407.30 in the third quarter was among the highest in the country, 21% more expensive than the U.S. average, according to the Bureau of Transportation Statistics. The average price was 1% lower than a year earlier, but other hubs saw deeper declines. The BTS says Houston’s Bush Intercontinental Airport average fare dropped 11% over the same period; Denver was down 9% and Newark, N.J., was 8% lower.

Low-cost carrier incursions into many fortress hubs have rocked the industry, leading American, Delta and United to offer “basic economy” fares that typically match low-priced competitors but come without amenities like carrying on bags and advance seat assignments.

Airports have stimulated some of the competitive growth by building new gates, forcing incumbents to share gates and offering airlines that bring new flights incentives such as marketing dollars, local fuel tax waivers and free rent on gates and check-in space. Some have angered big tenants and weathered threats of flight cuts. Houston, for instance, opened its secondary Hobby Airport to international travel despite United’s objections, in order to get some competition for United’s Bush Intercontinental hub. In the American and US Airways merger, the U.S. government forced American to give up landing slots or gates at seven major airports, but not Charlotte.

Lower prices matched by incumbent airlines are good for residents and airports. Cheaper prices stimulate more flying, so airports benefit from additional parking and retail revenue and higher fees charged on tickets.

But Charlotte worries that more competition and lower fares would cause American to kill the hub, as US Airways did with its Pittsburgh hub in 2004, and that it would end up with a lot less service. Charlotte just doesn’t generate the same volume of local traffic as larger hub airports.

Indeed, Southwest says it hasn’t grown beyond nine flights a day because the local population base is modest. “It’s a fraction of Atlanta or Denver, Phoenix or Dallas,” says Andrew Watterson, Southwest’s chief revenue officer. Southwest started Charlotte flights in 2013, taking over from AirTran Airways, which it bought.

There would be more local travelers if fares were lower, Mr. Watterson says. And Southwest plans to expand. “There’s opportunity for us in Charlotte,” he says.

Charlotte travelers say they are used to paying high fares and begrudgingly understand it’s a trade for convenience. Matt Lin, a financial analyst who travels frequently from Charlotte, says fares are so high he can save money by booking tickets to New York and then on to international destinations rather than flying directly from Charlotte. On business trips, “schedule and route availability remain the priority so we put up with it,” he says. “For leisure flying, the pricing is much harder to swallow.”

Travel agents say fares are better than they used to be. “Before the merger it was horrific,” says Cathy Reavis, co-founder of World Travel Mates in Charlotte.

One reason fares are high is that customers are locked into American’s frequent-flier program and corporate contracts, she says, and they won’t support rival airlines. Another is there aren’t many alternatives— Raleigh is nearly a three-hour drive away, for example. Allegiant serves Concord, N.C., north of Charlotte, but offers only a couple of flights per day.

American spokeswoman Katie Cody defends the high average fare and attributes it to the mix of passengers coming from Charlotte. The city has a high proportion of business travelers, she says, who typically travel on more-expensive tickets.

The premium prices can add up. A last-minute trip this week to Detroit from Charlotte, priced on Friday, cost $854 on American; to get to Detroit from Atlanta, a longer trip, on the same days cost $641 on Delta.

Even if you plan in advance there’s a Charlotte premium. Book now for a trip from Charlotte to Dallas on the peak Thanksgiving travel days and American’s price was $513 round-trip. The airline’s price for Philadelphia-Dallas on the same peak days was $466,10% cheaper.

Air-service development is an often-expensive endeavor. Airports send executives around the world chasing airlines at their offices and at conferences. Southwest’s Mr. Watterson sees a steady stream of city representatives pitching ideas for new service. Some airports have decided to build facilities, betting that new airlines will come, bringing lower fares.

Mr. Cagle says Charlotte has the air service it covets and doesn’t have an active development program. As the local economy grows, more passengers will draw more airlines organically, he says, and Charlotte’s best recruitment tool is its low per-passenger cost of $1.50 charged to airlines. That’s one of the lowest big-airport rates in the country—something that can make an airport more attractive to airlines.

“There’s never been an airline that said we want to come to Charlotte and we never could accommodate them,” Mr. Cagle says. “We’re not opposed to a strong carrier mix.”

But to make that accommodation easier, Charlotte is building. This summer, the airport will open nine new gates for airlines other than American. Southwest will go from one dedicated gate to two. And two years ago, the airport negotiated new leases with American and other airlines so that they have to share some gates if the airport can’t accommodate new airlines.

The construction is part of a major airport rebuilding plan, something many airports have already undertaken. A seven-year capital improvement program will expand overcrowded areas like the lobby and concourse walkways. The airport offers low parking costs. But it has long lines for its limited restaurant offerings, and a lobby built for a maximum of 8 million passengers a year now handles 12 million.

American wants more gates, too. “Our primary constraint is that it’s full,” Vasu Raja, American’s vice president for planning, said of Charlotte. “It got full because it’s so profitable.” As airport costs rise with new construction, that could change the airline’s appetite for flowing passengers through Charlotte, he says.

Original article can be found here ➤


  1. Look what happened to the Cincinnati area airport when Delta pulled the plug on Comair. Overnight, the airport went from a major connection hub with lots of international flights to a ghost airport.

  2. I live in Charlotte and travel for both business and personal reasons on a regular basis from KCLT. The airport plan that is currently being executed is nothing short of spectacular for a city our size. I happily will pay a premium to be able to fly direct to almost any destination I want within the United States, and we are continuing to grow our international offerings as well. This partnership between American Airlines and the city of Charlotte has worked well for both sides and I see that continuing in the foreseeable future.

    The real opportunity for low cost carriers wanting to break into the Charlotte area is Concord's airport. Allegiant offers flights to multiple Florida destinations from Concord for as low as $60. This would be a good way to keep AA happy with their dominance at CLT while also offering low cost carriers out of USA (Concord) for those in the Charlotte area that want to utilize these airlines.

  3. This article seems to say precisely why a city SHOULDN'T let one airline dominate the market...

  4. American in Charlotte reminds me of Northwest into Minneapolis in the late 80's. I had to travel from Dayton, OH to Minneapolis one week and to the Newark, NJ area the next.

    Round trip from Dayton to Minneapolis close to $800. Round trip from Dayton to Newark (on Piedmont [before USAir bought them]) was $250.

    Looks like when you get a single airline dominating your community, you pay for it.