Airline merger may be plus for area airports

Airline merger may be plus for area airports

Expert foresees status quo now but additions later

SAVOY — Central Illinois airports could eventually gain air service as a result of the merger of American Airlines and US Airways, an airport consultant says.

That merger, expected to be finalized Monday, would create a new American Airlines that would rival the size of competitors United and Delta.

American, through its American Eagle subsidiary, serves the University of Illinois-Willard Airport in Savoy with five daily flights to Chicago's O'Hare Airport and one flight daily to Dallas-Fort Worth International Airport.

In central Illinois, American Eagle also serves airports in Bloomington, Peoria, Springfield and Moline.

Jack Penning, director of market analysis for the Portland, Ore.-based Sixel Consulting Group, said he expects American to continue flying to airports it serves — including Willard and Central Illinois Regional Airport in Bloomington — for at least three years.

"For central Illinois, it's likely the merger will lead to a status quo in service and possibly the addition of service," Penning said. "I think you'll see American connect to cities that used to be US Airways hubs."

US Airways has hubs in Charlotte, N.C., Philadelphia and Phoenix, while American has hubs in Chicago, Dallas, Los Angeles, Miami and Kennedy airport in New York.

Penning said over the next three years, he expects American to consider adding flights from cities in central Illinois to hubs like Charlotte.

"Charlotte is the most likely to see increases in regional flying," he said. "It's a powerhouse hub with a lot of capacity."

Penning said there's not a lot of overlap between the American and US Airways systems, making it less likely that many cities will be dropped as destinations over time.

"I don't think we're going to see, like in other previous mergers, large groups of cities losing service at the same time," Penning said, referring to the United-Continental merger in 2010 and the Delta-Northwest combination in 2008.

Penning said he doesn't expect United and Delta to make many changes to their systems until they see what the new American Airlines does.

"Delta and United will sit back and watch. They're not as willing to make decisions (on new service)," he said.

Willard Airport and Central Illinois Regional Airport each received federal grants of $500,000 last year to pursue new service to the East Coast.

"The grants are still good for another 21/2 years," Penning said.

Champaign-Urbana has been a profitable market for American Eagle, particularly since other airlines including Delta pulled out, he added.

Willard had a 78 percent load factor in 2012, meaning that percentage of available seats were filled, Penning said.

That average is much higher than in the 1990s, when the load factor "didn't even touch 60 percent," he said.

In those days, Willard was also served by Northwest, Delta and TWA, an airline absorbed by American in 2001.

The load factor remains high even though Willard has seen its average fare rise through the years, Penning said. In 2012, the average fare at Willard was $531.46, according to the U.S. Bureau of Transportation Statistics.

"Fares continued to increase, but the market continued to fill seats," Penning said. "People are willing to pay more to fly out of Champaign, so service is much more profitable than it was before."

Penning said those fare increases are bad news for passengers, but good news for Willard.

"For passengers, it can be more challenging because it's difficult to find low fares," he said. But service levels at the airport are healthy, helping the airport when it seeks additional flights.

Penning, who does consulting work for Willard and once lived in this area, said the Bloomington airport has a couple advantages over Willard as both airports seek to recruit service to the East Coast.

"Bloomington is able to keep the cost to airlines exceptionally low. It does that because the airport authority has taxing authority to help support the airport," he said.

Willard, owned by the University of Illinois, has no local taxing authority, so airlines have to pay higher rent to help cover the airport's costs, he said.

The other thing in Bloomington's favor is "it's right in the middle of Peoria, Springfield and Champaign," he said. "The other three on the edges can't leverage as many passengers as Bloomington can.

"The Bloomington market can appear bigger than it is because so many passengers are driving in from elsewhere."

Penning said he believes the American-US Airways merger will create "a more robust" American better equipped to compete with United and Delta.

Previously, American — without US Airways — "was in the shadow" of United and Delta. "It was difficult to compete with two powerhouse carriers," he said.

Now American will be the largest of the three in terms of total passengers and fleet size, Penning said.

United will still be the largest in terms of passenger-miles, and Delta will be the biggest in terms of total revenues, he added.

With greater size, American should be able to provide more services to the cities it flies to and make links to additional hubs.

The likely upshot, he said, is "more service in central Illinois rather than less."

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just_wondering wrote on December 08, 2013 at 9:12 am

Just like the Southwest-Air Tran merger was good for Central Illinois and brought more destinations. Oh wait, Southwest pulled Air Tran out of BMI.