American Airlines yesterday announced its second major north-south route expansion in less than a month, when it said it will open a $60 million hub at the Raleigh-Durham airport in North Carolina and thus launch a direct attack on markets served primarily by Piedmont, Eastern and Delta.
American now has four flights a day at Raleigh-Durham. By mid-1987, it plans 40 to 45 flights a day serving 20 to 25 cities, most of them along the Eastern Seaboard, and intends to build the hub to 175 daily flights serving 53 cities.
On June 5, American announced plans to open another hub in Nashville to handle as many as 130 flights to 60 destinations, primarily west of the Appalachians and east of the Mississippi.
American is traditionally an east-west airline with huge hubs at Dallas-Fort Worth and Chicago. With these new moves it will become a major north-south player in the eastern half of the country.
American's ambitious expansion comes as the airline industry is moving into what Eastern Chairman Frank Borman calls "the second phase of deregulation" and others are calling a shakeout. That shakeout has characterized itself in recent weeks by these developments: On April 22, United Airlines announced plans to purchase Pan American World Airways' Pacific Division -- routes, planes and all -- for $750 million. If that deal is approved by the Transportation Department, United, already the king of the hill, will have the major Pacific presence it always has wanted and Pan Am will be able to concentrate on the Atlantic, where it has strong feed from its domestic network. On May 13, United purchased 25 airplanes from Frontier Airlines for $265 million. That is half of Frontier's fleet, and United plans to use those planes in western expansion. Frontier will revert to being a small regional carrier and much less of a competitor to United at Denver. On May 21, Northwest Orient Airlines, an established big-airplane carrier, entered a marketing agreement with America West, a Phoenix-based, low-fare airline with strong southwestern routes and a modern all-jet fleet. Although no money changed hands, Northwest and America West gained easy access to each other's markets through connections and coordinated schedules at Phoenix and Los Angeles. They jointly list each other's flights. Without a low-cost operation such as America West's, "There was no way we could compete in that low-fare Southwest marketplace" a Northwest spokesman said. On June 16, Trans World Airlines agreed to be acquired by Texas Air Corp., which owns New York Air and Continental Airlines, in a deal valued at $793.5 million. If that transaction is approved, TWA apparently will have traded an unfriendly takeover by corporate raider Carl Icahn for a friendly one. Texas Air will have three airlines whose route structures fit remarkably well.
"The secret of survival today is mass. If you don't have it or can't acquire it, you won't last," Texas Air Vice President Clark Onstad said.
American has been positioning itself for at least three years to make just the moves it announced yesterday. First it lined up a series of low-cost labor contracts, including the first major two-tier pilots' pay schedule in the industry. Then it purchased 69 new McDonnell Douglas MD80 airplanes, with options for another 100 planes. "We fully intend to exercise those options," American Vice President Lowell Duncan said. The planes will be used for expansion, not replacement.
In news conferences and a meeting with financial analysts in New York yesterday, American executives outlined their plans.
"The thing that came through loud and clear this morning is that American is playing chess and the other guys are playing poker," said John V. Pincavage, an analyst with PaineWebber.
Robert J. Joedicke of Shearson Lehman Brothers Inc. said that American will have to eventually build two hubs in the East, because "the band for north-south traffic east of the Mississippi is so wide you can't really cover it with one."
American is planning to increase its fleet of 260 airplanes by about 30 planes a year for the next five years, and analysts see no problem in building its two new hubs, then moving to Denver for planned expansion there that is awaiting a new runway at Stapleton Airport.
American will find competition. Piedmont Vice President Don McGuire said that, "As of Aug. 1, we will have 36 daily departures at Raleigh-Durham, within four of what American expects to have in 1987, and by 1987 we will have a helluva lot more than American."
A Delta official, who remembers "being escorted out of town" when Delta attempted an invasion of Piedmont's traditional turf, said that "anybody who gets in the briar patch with Piedmont better look out."
Eastern has 17 departures a day from Raleigh-Durham, and Eastern "is not going to roll over and play dead," Vice President Richard McGraw said.
American's expansion at Raleigh-Durham will be aided by commuter-feed service from Air Virginia, flying as an "American Eagle."