American Airlines will ease away from the continuous hubbing that smooths operations at key airports, increases aircraft utilization and cuts costs as it returns to the peak-and-valley hub-and-spoke system adopted decades ago under former CEO Robert Crandall.

Although this will mean higher costs and big gaps in airport activity, the increased revenue potential–called the power of the hub under Crandall–will offset the increased costs, says Derek Kerr, CFO of American.

We were at American’s Leadership Council meeting for 1,500 employees yesterday. The meeting itself was off the record but we talked with Kerr afterwards on the record.

Kerr, CFO at US Airways prior to the merger between AA and US, said that the continuous hub can’t connect as many passengers as the traditional hub, leaving revenue on the table. Continuous hubbing allowed a 45 minute ground time, which is too short–an hour is needed to maximize connections.

Re-hubbing will occur this year at Chicago, Miami and Dallas.

Southwest Airlines was a pioneer in continuous hubbing, though it wasn’t called this until perhaps a decade ago. Southwest essentially rolls the airplanes up, deplanes, enplanes and departs. At its origin, long before carry on bags, bag fees, security issues and other factors arose, Southwest “turned” its planes in as little as 10 minutes. Today turns are 30 minutes or longer, in part as planes get larger and carry-on bags slow the enplaning process. Still, Southwest eschews the term hubbing and indeed its connection percentage is far lower than American and other traditional airlines.

The de-hubbing is just one step the US Airways management team is taking to remake American following its emergence from bankruptcy last year and the merger in December.

• Aircraft selection was completed at both airlines long before the merger, but engine selection of the A320 Family neo fleet is due within the next few months. Kerr said the Pratt & Whitney Geared Turbo Fan and the CFM LEAP engines “stack up really well,” and that commercial terms will be the deciding factor.
• One impact of re-hubbing will be to increase taxi times, one element adding to the added costs of the traditional hub. The prospect of electronic taxiing hasn’t risen to his level for analysis, he said.
• American hasn’t evaluated the Airbus A330neo. US Airways operates 22 A330 Classics; legacy American has none. US Airways has the A350-900 on order and American has the Boeing 787-8/9 on order, with first deliveries due this year. Initial 787 service will be between Chicago and Dallas for system integration before they are assigned to Asia.
• American is adding seats to its Boeing 777-200ERs, which currently have a capacity for 247 passengers–a level that makes the 772 the lowest margin aircraft in American’s fleet and difficult to make money with. Going to 289 seats makes the airplane profitable again, Kerr says.