American Air’s spat with United threatens $8.5bn O’Hare revamp

Bloomberg

American Airlines Group Inc. is crying foul over a planned $8.5 billion renovation of Chicago’s O’Hare International Airport, claiming a “secret provision” awards additional gates to United Continental Holdings Inc. in a terminal slated to be torn down.
The arrangement favouring Chicago-based United was “inserted at the last minute,” American said. United called the claim “disingenuous,” denied there was a secret deal and said it had an agreement with the city for five additional gates back in 2016—a pact it said American has tried to block “at every opportunity.”
The spat between the airlines, which operate competing hubs that dominate the airport, threatens to disrupt a long-overdue expansion that is the biggest in O’Hare’s history. Chicago plans to issue as much as
$4 billion in bonds backed by the airport’s revenue, such as terminal rents and landing fees, to pay for the
first major capital improvements
at the hub’s terminals in more than 25 years.
“American and United hold all the marbles,” said Joe Schwieterman, transportation professor at DePaul University in Chicago. “Their objections could bring the whole project to a standstill. But expect them to play a poker game with full intensity, and I think that’s what American is doing.”

‘Turning Point’
The city said it wasn’t concerned that Fort Worth, Texas-based American isn’t on board with the deal. Chicago Mayor Rahm Emanuel called the eight-year project “a game changer for O’Hare” and a “turning point” for the city.
The renovation would create two new passenger concourses for domestic flights, while a terminal would be torn down and rebuilt as an international gateway shared by United, American and their alliance partners. United carries about 32 percent of passengers at O’Hare while American has 27 percent, according to the US Transportation Department.
“This was not about the competition between those two airlines,” said Emanuel, adding that he’s not picking one airline over another. “It was about the competition between Chicago and all the other cities and we’re securing that.”
But the expansion plan risks upsetting an uneasy balance of power between American and United.
The Chicago airport, once the world’s busiest, operates under an unusual master agreement that gives the two airlines veto rights over any major capital projects.
The agreement, which expires in May, stymied growth while preserving an equilibrium of sorts that allowed United and American to successfully operate dueling hubs even as competition shrank at airports such as Dallas-Fort Worth International and Minneapolis-St. Paul International.
“There was a mutual understanding that freezing O’Hare in place was acceptable to American and United because they were closely watching each other,” Schwieterman said. “Now that’s been blown open.”
United and American each announced plans in 2017 to add flights at O’Hare, in moves seen as attempts to defend their market share at a crucial mid-continent hub. Competition between the carriers already had been stoked in 2016 when Scott Kirby, a longtime colleague of American CEO Doug Parker, left as the airline’s president and took the same job at United.
The latest dispute focuses on Chicago’s agreement to award United five of eight gates that will become available in O’Hare’s Terminal 2.
American said that until February 15, it believed all eight of the gates in Terminal 2 would be for common use, or open to all carriers. It said the city unilaterally decided to award five of the gates to United, and then dismissed without explanation American’s request to speed construction of three other gates so it could counter the last-minute changes.