American, United Want Out Of Deal To Modernize Chicago O’Hare

American Airlines and United Airlines want Chicago O’Hare’s expansion that they signed off on in 2018 slowed down – or stopped – as the project runs $1.5 billion over budget. Somehow the carriers are surprised that a massive public infrastructure project, in Chicago no less, is spending far more than originally projected?

And in fact it’s only just the ‘next phase’ where a 24% projected cost overrun totals $1.5 billion more than expected. That’s before construction on the new terminal even starts! The project’s total cost has grown from $8.7 billion to a projected $12.1 billion. So the terminal’s overrun is only one piece of an overall $3.4 billion price increase.


New Terminal Rendering, Credit: City of Chicago


New Terminal Interior Rendering, Credit: City of Chicago

The new project replaces terminal 2, which many Chicago travelers are familiar with because it’s currently where passengers are funneled via airport train to pick up rideshares. The new terminal would handle both domestic and international flights.

It’s unclear whether Chicago’s Mayor will insist that airlines honor the contract or sign off on negotiations for modifying it. American’s performance in Chicago is weaker than United’s, so United could gain territory by playing chicken with American and supporting higher costs. (Historically higher costs in Miami have helped protect American from low cost carrier competition, although that’s been less true in recent years.)

Former Chicago Mayor and current Ambassador to Japan Rahm Emanuel is publicly chastising the two airlines, saying ‘a deal’s a deal’ but they signed off on the deal at a specific price point that’s already out of control, and likely to escalate further. That’s what you get of course with public infrastructure, not least of which in a city like Chicago, so they’re naive to expect costs to line up with original projections.


Current United Airlines Terminal, Chicago O’Hare


Current American Airlines Terminal, Chicago O’Hare

Emanuel suggests that the airlines already got what they wanted – runway work – so the city should get what it wants. And that this is important to remain a competitive hub. It’s a strange take to suggest that runways are less important for maintaining a premier airport.

The point of an airport is to get somewhere quickly, at reasonable cost, not beautiful spaces and high end retail. Aesthetics aren’t worth zero but billions in cost overruns hurt Chicago’s position competing for traffic. It makes some flights unprofitable at the margin and makes other connecting hubs more desirable for airlines to use.

If anything, the one thing that makes Chicago competitive for consumers choosing to travel through there over other hubs is Tortas Frontera, the only really great food option in a U.S. airport.

Senator Dick Durbin (D-IL) is fuming though of course his interest is both O’Hare airport and roasting the airlines who loudly oppose his effort to cap credit card interchange. United CEO has been especially vocal and derisive towards the legislation. Durbin is seeking federal investigation of frequent flyer program devaluations as retribution as well.

Meanwhile do we really believe United is going to pay for the new terminal at Dulles? Scott Kirby clearly thinks the concourse they operate from which was supposed to be temporary when it was built 40 years ago is good enough.

And American won’t even do a full investment at its DFW airport home. The new terminal there is only being partially built, with no check-in or security, and the C terminal is getting a refresh even though the head of the airport said it is silly to do that on the 50 year old building. The DFW CEO had argued for building a new terminal and using that capacity to tear down and rebuild C, using that as the effective airport expansion.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. If, as always, the devil is in the details; isn’t the question what the two airlines agreed to in the first place. Once having signed, was there an open ended committment to costs or was their language limiting their exposure? Not addressed as far as I can see in the newspaper article, Durbin’s comments or Gary’s post. If it’s the former, I’d imagine the airlines are out of luck unless they can demonstrate some way in which Chicago didn’t comply with the terms of the contract. It it’s the latter, the contract language will be ultimate determinant if both sides stick to their guns.

  2. Look for the union label….It’s Chicago. It’s Illinois. Anyone with an ounce of common sense could have seen this coming.

  3. How AA and UA thought that Chicago could deliver an already very, very expensive terminal on price target is beyond belief. The economics of an $8 billion terminal mean cost per enplaned passenger (CPEs) of $40+ which would make ORD the most expensive connecting terminal in the US. Throw in another $4 B at least and ORD is simply no longer economically viable as a connecting hub. In contrast, ATL and CLT both have of less than $5; DFW, DTW and MSP are in the $10-15 neighborhood; and DEN is heading in that direction due to aggressive growth.
    All local passengers pay the cost of using that terminal but the airline has to absorb the cost for connecting passengers.
    The only winners in all of this are DL and WN which managed to get into Terminal 5 which will have much lower PPEs, DL at DTW and MSP and WN at MDW.
    It is hard to imagine an airport that defined the early days of cross-country air transportation as much as ORD but Chicago leaders are interested in building a museum to themselves even though the economics as a hub won’t work.

    And AA and UA are spending tens of billions on terminal expansions in multiple cities; Scott Kirby’s NEXT plan adds tens of billions of debt above what any other airline will incur based on building higher capacity that the US aviation system simply cannot economically afford, even if it can at all.
    There will be all kinds of people that will strongly refuse to admit it but UAL is taking an enormous risk that is very likely to turn out the way Kirby thinks and UAL in a few years will look even worse financially than AAL is now.

  4. …UAL is taking an enormous risk that is very UNlikely to turn out the way Kirby thinks…

  5. That the current mayor of Chicago would have anything to do with how this plays out is beyond comical. That man has no idea what he’s doing just putting his socks on.

  6. I remember living in the Chicago area and working in Chicago for a summer. The city crews were always wolf whistling at the well dressed women. Cost overruns sound about right for a city like Chicago. United and American should have been cleverer about what sort of deal they signed.

  7. United and American are fine with upgrading facilities to world-class level as long as they don’t have to foot the bill. They screwed the public royally during Covid by making bad faith agreements when the Government was forking out billions to them and now they want the government to pay billions more for them again.

  8. Airport terminals need to be boring and deadly efficient. End of strategy. See entries for Frankfurt, Atlanta, Detroit and not much else.

  9. Chicago is a total dumpazoid. Get a grip ppl. And the current mayor – what a total loser. He is just holding the trip lever down on the toilet while the swirling action for the city gets even more swirly.

    The last time I was in ORD there was a repeater message from Lori Lightfoot saying that it was the USA’s favorite airport for like 18 years. I mean talk about lying to yourself.

    Obligatory mention of unfunded pension liabilities in the state of Illinois. If you can’t manage a pension (numbers and prudence), you can’t build an airport.

  10. @ Gary — How does Dick Durbin expect then to pay for O’Harae with capped credit card interchange?

  11. Massive cost overruns also happen with private infrastructures projects — some of that comes with front-end increases in costs, and some of that comes with back-end increase in costs that come forward chronologically due to going cheap the expensive way.

  12. The sad truth is that both UA and AA need better facilities at ORD. Both of their terminals are getting long in the tooth and there is only so much cosmetics at the gate that can compensate for facilities built out in the 1980s. Probably more crucial for UA than AA given how much AA has downsized ORD since the pandemic./

  13. Give it to AA to cut back on its international route network to let some other legacy major become more major at what AA’s traditional hubs. What AA did with JFK after its major investment into JFK T8 seems to represent a spirit that has not yet been exorcised from the company. It’s almost like AA wants to play from the NW playbook more than from the DL and UA playbooks, and so I am not surprised by AA wanting to avoid making a major plant investment at ORD. And UA seems more enamored with the East Coast and West Coast than with the Midwest and think they too want to get away without major terminal plant improvement investments from them.

  14. My opinion is that it wouldn’t be worthwhile because the only people that can visit it are travelers that have a plane ticket… Now years ago you used to be able to have lunch or dinner you know with a friend that might be having a layover or maybe as you drop them off at the airport but in order to get through security you have to have a ticket so that brings down your consumers greatly.

  15. More than likely is they will agree to a toned down terminal 2. The airlines need international services to be at the new T2 for convenience and not towing empty planes from T5. They don’t need the three satellite terminals and extensive tunnels and excessive amenities.

  16. AA and UAL can easily afford it, but they want to do like professional sports teams do and stick it to the taxpayer. Both airlines could pay it and then make it back in less than a year considering how much they rip off the traveling public in ticket prices

  17. ORD is an airport stuck in the the 1980s. Its a dreary place, desperately needing an upgrade.

  18. Runways aren’t the only thing these two carriers want. The logistics of all international flights arriving into T5 and then not only having connecting passengers and bags schlep back to T1 and T3 for departures but also having to tow the entire plane to the departure terminals is a massive waste of resources for UA and AA. Concentrating international arrivals and departures in the new T2 and having airside connections to their domestic terminals under the same roof would be a massive cost savings in the long run.

    You can throw around jabs about “that failing city” borrowed from whatever news channel you choose to tune into, but no one in their right mind thinks these two carriers are going to walk away from holding down major ops in a U.S. metro area of 9.5 million people.

  19. This. T5 was built at a time when AA and UA didn’t have much of an international presence at all. Times have changed. O’Hare is a phenomenal connecting and O&D airport in most respects, but I agree, its ability to handle inbound international traffic is poor. I have deliberately paid more to fly through other airports than avoid the T5->T1 exercise. I’m sure others have done the exact same.

  20. Chicago under the new Mayor (crime, corruption, chaos) is the new San Francisco.

    When you continue to vote woke, you are guaranteed to get more of the same nonsense.

  21. People harp on ORD (and Chicago) in general. However I connected through ATL a few weeks ago and I didn’t find it anything special. In fact, I found it a bit dreary and the restaurants weren’t anything special either.

  22. T5 was built when international T4 was the bottom level of the parking garage and a bunch of bus gates. T4 happened when T1 was rebuilt to accommodate United, probably in the late 1970s or early 1980s. T5 wasn’t nearly big enough but they really did not have any space other than building the long dreamed Western Terminal which would have zero freeway access.

    The upgraded T5 is still a narrow mess with the exception of the Delta SkyClub. T1 and T3 are ancient. T2 is almost as bad as pre-upgrade LGA Central Terminal. I still fly there to visit family, but as a connection airport the risk of C1 to E11 on United, or L21 to G20 on American are as bad as Charlotte or the dreaded A4A to B25 at Midway.

  23. Sitting @ T5 @ Ord right now listening to 3-1-1- announcement on a loop. Remarkable lack of anything. Due to Delta and Southwest moving in, available food before you check in is down to one small place. @ Gene. The Senator have never concerned himself with how anything get paid for.

  24. Can’t believe some morons still harping on *woke* shit. Looking @I Told You So. That overused idiot term died a year ago, but you keep going, babe.

  25. I know this article is about ORD but the point at the end about DFW makes my blood boil. The new Terminal F is a total joke and Sean Donohue is totally correct about nuking C and building a real F, then building a C replacement later.

  26. Jacobin,
    ATL isn’t anything special.
    But it is logical – all parallel concourses with a consistently working train through a completely pedestrian accessible tunnel.
    And there are far more food choices in ATL than any ORD except some of terminal 1.
    And it costs the airlines that use ATL far less than ORD costs its airlines.

    Many of WN’s terminals are about as good as ORD and also cost far less.

    DTW McNamara is by far the nicest, most logical and spacious terminal in the US and it still costs far less than ORD even in ORD’s current state.

    airlines do have to ask if it is worth continuing to dump money into a facility that will no longer be economically viable as a connecting hub.
    AA and UA are at that point for ORD.

  27. I flew in Polaris on a flight to Europe via IAD. Not going to do that again. The temporary terminal was bursting with people and there were zero seats anywhere in the Polaris lounge. Next time I’ll fly Air France or BA via the chilled terminal that actually looks like a terminal. What a horrible experience.

    Certainly can understand why United and AA are balking at those cost overruns. But yeah, the projections in a public project tend to go way over budget. The question is can’t the process be improved. Why is it automatically just accepted that when a government builds something the costs go out of control? No private enterprise is going to accept that.

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