Feeds:
Posts
Comments

Posts Tagged ‘United’

Today’s Chicago Tribune announced that United and Continental airlines have agreed to keep the Cleveland hub open for at least five additional years.

Earlier this month USA Today stated that Delta airlines will reduce it’s regional jet flying by 50% at it’s Cincinnati-Northern Kentucky hub.  Currently Delta’s departures from CVG are down to about 170 flights per day from it’s 2005 high point of 600 daily departures.

Understand that I am not an airline analyst nor an economist, but with a former airline background, I have some insight into this industry.  What happens at these two hubs, Cleveland and Cincinnati, is going to have a long-term impact on the Ohio economy.

The combined United/Continental will have major hubs at the time of the merger in the following cities:  New York, Cleveland, Houston, San Francisco, Los Angles, Denver, Chicago and Washington DC.  Merge the maps and route structures and it’s easy to see that Cleveland becomes rather redundant – sandwiched between New York and Chicago.

Considering Cleveland’s declining population and lack of industry, it’s not difficult to see the fate of that operation, regardless of what the merged company states.  Should the merged company close it’s Cleveland operation it would face a $20 million fine.  That’s not a very large amount and it’s conceivable that a $20 million fine is far less than keeping an operation running that isn’t profitable, if in fact that becomes the case.

Delta’s merger with Northwest created another integrated hub system that includes Los Angles, Salt Lake, Seattle, Cincinnati, Minneapolis, Detroit,  Atlanta, Memphis and New York,  This merged map puts Cincinnati right in the middle of two of it’s largest hubs, Detroit and Atlanta.  Detroit’s economic conditions would seem to make it a logical choice for reduction, but it’s sheer size may give it a certain momentum.  The Cincinnati, hub, however has already been reduced by nearly 60% which will further diminish it’s competitive ability.

Airline hubs bring in lots of money to their associated cities.  Flight attendant, pilot, mechanic and ground crews are based and scheduled from these hubs.  Associated jobs in services sprout up around these airports to support the stop-over traffic.  Hotels, restaurants and car rentals to name a few.  There is also facilities maintenance from outside vendors.  Airline hubs also bring in a Federal funds for runway and taxi way improvements, not to mention construction jobs for terminals, hangers and interchanges.

Airlines operate on economies of scale. Obviously.  Hedging fuel costs offers greater savings when bidding on larger quantities.  Bargaining power with aircraft manufactures is also greater.  And then there are the labor costs to consider and precisely crew scheduling.

Layovers are expensive.  Hotel contracts, down-time, legal rest periods and per-diem accounts for the crews.  An airline’s scheduling department also has to arrange for sick-calls, leave of absences, vacations and missed connections due to late arriving equipment.  The costs associated with crew scheduling can be mitigated when there is a larger pool of crew members to schedule in any one place.

It’s not uncommon for an airline to “deadhead” a crew (fly them as passengers) from one base to another simply for the sake of covering a flight that cannot be properly staffed because of local crew shortages.  Deadheading costs money and time, reducing the crew’s productivity even further.

There were many times when I would deadhead to Atlanta to cover a trip originating 1800 miles away from my home base.  There were also times when I would deadhead from Helsinki to New York because the airline had an obligation to get me home in time to fly my next trip – or be at a further loss again.

So again, economies of scale.  Combining personnel from multiple hubs into one hub creates better staffing options by reducing costs and time.  It makes financial sense for an airline to streamline its operations and the most efficient way to do that is to combine multi-hub resources into one location.

Now, with two mega-carriers (Delta and United) covering the US, Cleveland and Cincinnati become redundant when managing economies of scale.  They’re too close to larger hubs and essentially create little, if any versatility for their associated airlines.

The airline business is playing itself out as it must to survive and it’s outcome will likely impact Ohio economics.  In the mean time the Federal government is offering the State of Ohio funding to create a passenger rail system that some Ohio politicians want to stop.

If Ohio’s Cleveland and Cincinnati airline hubs shut down or are reduced to near-nothing capacity and the State of Ohio does not create a passenger rail system, a tremendous amount of national traffic will simply bypass Ohio completely.

Understand that one new passenger rail line will not outweigh the job losses at two airport hubs.  However, one passenger rail line, a line that starts a larger system, can have an impact on both airports as it connects both Cleveland and Cincinnati.  It is far more economical for an airline to rely upon another method of transportation to get passengers from nearby cities into their hubs than it is to fly them there themselves.

When I was commuting to Cincinnati while working for Delta, I had a choice of about seven or eight daily flights.  Imagine the scheduling requirements of flying an aircraft for less than an hour and less than 200 miles.  It’s also fuel-intensive because the majority of the flight time is spent ascending.

Imagine the savings in labor costs if those same passengers arrived by rail.  Delta would have no costs associated.  Amtrak would, of course, but Amtrak is looking for customers and Amtrak can transport them more efficiently with diesel fuel than an airline can with jet fuel.  Additionally, bringing passengers into a hub city by train reduces air traffic congestion – adding further efficiencies for the airline.

Failure to invest in an Ohio passenger rail system is going to have long-term negative effects for every single resident of Ohio.  Our manufacturing base has been reduced dramatically and it could very well be that our service industry falls next should the airlines begin the true consolidation that is needed to make them profitable.

The airlines have no allegiance to the State of Ohio.  One would expect, however, that it’s politicians would.

Advertisements

Read Full Post »