Skift Take

Isn't corporate posturing fun? American won't sign its Chicago lease because it fears United is getting a better deal. Since we're pretty sure American won't close its Chicago hub, we're betting this gets resolved. But how?

Just a few days after Chicago officials unveiled an ambitious plan to turn O’Hare International Airport into one of the world’s most modern facilities, American Airlines is refusing to sign the lease that would help pay for the project, saying the city is favoring United Airlines, its main competitor.

At issue is what American spokeswoman Leslie Scott said is a “a secret provision, inserted at the last minute,” awarding five extra gates to United. “The United gate deal creates a clear winner, United, and clear losers: namely, competition, Chicago travelers and American Airlines,” she said.

The city expects to spend roughly $8.5 billion to modernize O’Hare, which remains among the world’s busiest airports but has far fewer long-haul flights than many of its peers. Unlike many U.S. airports, it has not upgraded or expanded in recent years, and city officials fear it could fall further behind other domestic airports, including Los Angeles International and Hartsfield-Jackson Atlanta International Airport, if it does not improve and grow. By 2026, O’Hare could have as many as 220 gates, up from 185.

American and United are bitter rivals in Chicago, one of the only airports in the world with two major hub airlines. United, headquartered in Chicago, has long been slightly bigger than American at O’Hare, and American expected that to remain. But Scott said American recently learned United would have a 14-gate advantage at O’Hare, rather than the nine American expected.

United spokesman Frank Benenati framed it differently, saying in an email that the provision awarding United extra gates should not have come as surprise to American. United’s deal, he said, was reached 18 months ago.

“It is disingenuous for American to make these claims,” he said. “This was not a secret deal reached at the last minute. … American has been aware of our agreement for over a year and has worked to block the implementation at every opportunity.”

Told of Benenati’s statement, American’s Scott said, “We were not aware of an agreement between the city and United” over the gates.

Drama Not That Unusual

This kind of drama is not unheard of at U.S. airports. Every airline wants the best deal, and no airline wants to see a competitor gain at its expense. Early drafts of O’Hare’s plan suggest American and United would get nearly identical benefits, with each controlling its terminal. Both would have access to a nearby international facility. Other airlines would mostly cluster in what is now Terminal 5, a building relatively far away now used mostly for international flights.

U.S. airport improvements at this scale are generally paid for by airports, who fund them by charging rent to airlines. If for some reason American did not re-sign its lease, it could put the entire improvement project in jeopardy.

But it’s highly unlikely American would abandon its Chicago hub, one of the nation’s best, both because of its geographical location in the center of the country, and its status as a major global business hub. American has little desire to cede the Chicago market to United and Southwest, which operates a large hub-like operation at the city’s Midway airport.

What it wants is more parity with United. Interestingly what American is objecting to — a 14-gate deficit —is the same gate difference the airlines have today. But American is building a five-gate extension at its own cost (rare for both an airline and an airport), which opens in mid-April. Under the new lease, American expected the new nine-gate deficit would remain, not the old 14-gate gap.

“We would sign the lease if it did not include this provision,” Scott said. “Alternatively, we are prepared to compromise. Indeed, since learning of the United gate deal less than two weeks ago, American has sought to re-level the playing field by urging the city to accelerate the construction of three additional gates, and award those to American. To date, the city has dismissed that approach without explanation.”

A representative for Chicago Department of Aviation was not immediately available for comment.

However, United spokesman Benenati said the deal for the five extra gates is a direct response to American’s concourse extension that opens soon.

“Our agreement with the city for five additional gates was made more than 18 months ago in response to American’s deal with city for five additional gates,” he said.

Five gates might not seem like a lot, but if the average gate can be used by seven flights a day, that permits United to add an extra 35 daily departures — enough to gain a competitive advantage.

Major Competition in Chicago

United president Scott Kirby, who had the job at American until August 2016, has made Chicago a priority, saying he wants to grow the hub, mainly with new domestic flights. He told employees in a town hall meeting last year that United should “win” in Chicago.

“In Chicago, we have massive advantages,” Kirby told employees. “If people want to talk about our long-term plan for Chicago, it’s to grow it incredibly, and I hope to someday take over those gates that currently have the AA on them. We have the winning hand here.”

As the Chicago Tribune has detailed in a series of stories recently, this sort of back-and-forth between United and American is not unusual. And sometimes, the newspaper reported, the issues can be almost petty.

Eight years ago, the Tribune reported, American refused to permit the airport to pay to repair a leak at United’s Terminal 1, which opened in 1987, arguing United should pay the cost because of “poor architectural design.”

“Even though it’s childish, they play games,” the Tribune quoted one unnamed Chicago city official as saying. 

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Tags: airline innovation report, american airlines, Chicago O'Hare, united airlines

Photo credit: Travelers walk in American's terminal in Chicago. American is refusing to sign a new lease because of competitive issues with United. Kiichiro Sato / Associated Press

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