The speculation runs rampant: will American Airlines survive bankruptcy alone or be the target of a takeover by one of three companies most often mentioned: Delta Air Lines, US Airways or private equity group TPG.

The consensus is that a Delta-American combination would have enormous anti-trust issues and divestiture of key slots, gates and routes would be required to pass muster. Clearly there wouldn’t be any problem with a TPG investment, and TPG has a track record of successfully investing in bankrupt airlines as they emerge from reorganization.

But many consider an American-US Airways combination the most likely outcome. US Airways is the smallest legacy carrier and the two systems are largely complementary. Very few routes overlap and only two of eight hubs present duplicative situations: New York JFK/Philadelphia and Charlotte/Miami.

JFK and Philadelphia are 90 miles apart. On the surface, it makes little sense to maintain these two hubs. JFK is the international gateway to Europe on the East Coast for American and Philadelphia serves the same purpose for US Airways. Indeed, many of the same routes are served by both airlines.

Charlotte and Miami are 670 miles distant. There are fewer duplicative routes to Europe from these two hubs.

American Airlines and US Airways Routes to Europe

Sources: Company Web Sites, Executive Travel SkyGuide;
Does not include code-sharing routes.

American and US Airways service to the Caribbean is largely duplicative from Miami and Charlotte. American dominates service to Latin America, especially to South America, from New York and Miami compared with US Airways’ Philly and Charlotte service.

The four hubs have distinct different differences that argue for retaining them rather than phasing one or two of them out in the name of cost reduction.

American’s JFK hub remains a throwback to the old “trunkline” era when Pan Am and TWA ruled international travel. The two airlines used JFK as a connecting hub for domestic traffic rather than origin-and-destination service (O&D). TWA relied on New York LaGuardia, closer to Manhattan, for its domestic service. Pan Am was barred from domestic service, though under deregulation it began feeder service to its international flights.

American largely follows the same pattern, with log-haul domestic flights supplementing international routes while La Guardia is the key domestic airport. Low cost carrier JetBlue is the only airline to use JFK as a full-blown domestic hub.

New York, of course, is the largest airline market in the US and one of the top in the world. JFK remains the primary portal serving the New York area, with Newark a hot competitor.

US Airways, on the other hand, uses Philly as a full-blown connecting hub domestically and internationally. Thus JFK and Philly are complimentary rather than duplicative. Furthermore, JFK and Philly bracket Newark, which is 75 miles from the latter and across the bay from the former. A combined US Airways-American Airlines could become a powerful means to divert traffic from United Airlines, whose primary hub is the former Continental Newark operation.

Furthermore, the Philly catchment basin at one time (and may still be) was the fourth largest in the US. This would be a large area to dismantle.

Charlotte-Miami, nearly 700 miles apart, is less duplicative by distance. But like Philly, Charlotte serves a domestic connecting function that Miami—largely a domestic destination city—does not. Although the cities are highly duplicative to the Caribbean, the international service to deep South America is dominated by American’s Miami hub.

In mid-March, we asked Doug Parker, US Airways’ CEO, which hubs might be duplicative in a merger. He ducked the question, saying he could not talk about specific potential airline combinations. Since then, US Airways announced an agreement with American’s unions on how a merger would affect seniority lists. But still no detail on hubs.

As the reader knows, US Airways retained advisors to evaluation a combination with American. We believe it likely a combination will be proposed, but American wants to wait until it is out of bankruptcy and in control of its own destiny again. As long as it retains exclusivity for a bankruptcy reorganization plan, it could fend off a hostile takeover. But the powerful creditors committee can also force a deal, whether AA’s management likes it or not.

Hubs of American and US AirwaysJP Morgan believes American should dump its Chicago hub, ceding the market to United. We doubt a combined American-US Airways would do so, nor do we think it should.

Thus, we believe that what you see today in the hub operations will pretty much be what you get if AA-US combine.