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Salt Lake City - a vulnerable hub?

17-Aug-2011

In our recent review of the world’s largest airports, Salt Lake City failed to make the list. As a matter of fact, it is far down that list according to the airport’s own web site, at number 62 globally and 25th in terms of US ranked airports.

A small, but dominated, hub

It did however, rate a mention in the overview of US hubs as being quite beholden to Delta, with nearly 75% of the operations and a seat share of about 73%. As shown in the chart, the carriers are few and there is no “other” category at all.

SLC seats by carrier (15-21 August, 2011)

Looming cutbacks

With this kind of dominance, Delta’s recent announcement that it would cut its offer by 14% in the autumn could have a significant effect on the airport as well as its short — and perhaps — long-term prospects. If we use the above number for reference, over 50,000 weekly seats will disappear and SkyWest has already announced significant layoffs (150) due to the cutback.

And doubtless SkyWest will take the brunt of the reduction. Of the nearly 90 destinations served from SLC, only 18 have only Delta mainline service and another 18 have a mix of DL and OO flights.

That leaves about 60% of the destinations with only SkyWest RJ/commuter service and those flights also account for the majority of operations in the Delta schedule. Like Cincinnati and Memphis, Salt Lake is predominantly served by small capacity aircraft.

All DL

Mix DL/OO

Anchorage

Boise

Atlanta

Dallas

Baltimore

Las Vegas

Boston

Los Angeles

Cancun

Memphis

Cincinnati

Oakland

Detroit

Ontario

Indianapolis

Orange County

Los Cabos

Phoenix

Mexico City

Portland

Minneapolis

Reno

New York

Sacramento

Orlando

St. Louis

Paris

San Diego

Philadelphia

San Francisco

Puerto Vallarta

San Jose

Tokyo

Seattle

Washington

Spokane

Part of Delta’s inheritance

Salt Lake City originally rose to prominence in 1982 when Western Airlines established SLC as a post-deregulation hub as it expanded eastwards. Salt Lake’s location made it an ideal collection point for traffic to/from the intermountain/southwest states. At that time Denver was still using the rather constricted facilities at Stapleton and SLC was expanded to provide a less congested alternative.

Five years later, in 1987, Delta merged with Western and incorporated SLC as a hub in its expanded network. At that time, Delta also operated a hub at DFW, where it challenged American’s dominance.

As with most US legacy carriers, the traffic declines following 9/11 resulted in operations that were both reduced and consolidated. However, by 2004 Delta was closing DFW and transferred the majority of its connecting traffic in the west to SLC, as shown by the passenger increases registered in 2005.

Generally stable

The boost that came to SLC in 2005 as Delta left DFW was rather short-lived and steady declines followed until 2010. But with a 14% reduction in seats pending, that stagnant trend will likely resume.

Salt Lake City--Snapshot of a Decade

 

SCL Pax

SLC Pax Ops

DL Pax

OO pax

DL Total*

DL Share*

WN pax

WN share

2001

18819131

245568

11009554

2471975

13481529

71.64%

2288154

12.16%

2002

18662030

268388

10165301

3539354

13704655

73.44%

2053208

11.00%

2003

18446758

273976

9456043

3677426

13133469

71.20%

2125830

11.52%

2004

18367316

299168

7877006

4648978

12525984

68.20%

2244500

12.22%

2005

22237176

346986

9748143

5372251

15120394

68.00%

2344590

10.54%

2006

21557646

311382

8677951

5468309

14146260

65.62%

2827996

13.12%

2007

22043233

315502

8737391

6768464

15505855

70.34%

2960303

13.43%

2008

20790400

292112

8054006

6293159

14347165

69.01%

2685516

12.92%

2009

20432218

282132

7728619

6510958

14239577

69.69%

2612764

12.79%

2010

20901533

276512

8578378

6268114

14846492

71.03%

2584393

12.36%

Salt Lake City is the smallest metro area in the US that serves as a legacy hub. According to the recent US census, it ranks as number 50 on the metro population charts with Memphis, another DL hub, being the next smallest at 41.

But with reductions

This is not the first paring that has taken place at SLC. The next chart lists all the cities that have lost nonstop service from Salt Lake City since the 2005 build-up. Especially noteworthy is the drawback from Fairbanks and two points in Hawaii, indicating that perhaps that the attempt to use SLC as a collection point for these flights was not sustainable.

Delta SLC dropped destinations 2006-2010

Aspen

Little Rock

Cleveland

Mazatlan

Columbus

Milwaukee

Des Moines

Monterey

Durango

Raleigh

Edmonton

Santa Barbara

El Paso

Sioux Falls

Fairbanks

Steamboat

Ft. Lauderdale

Tampa

Kahului

Toronto

Kona

 

A great spot—for domestic feed

The city became a hub because of its location, situated roughly midway between the Canadian and Mexican borders; a real anchor in a rather sparsely populated region of the US. The city itself has grown only modestly in the past decade with most of the metro growth centered to the north around Ogden and in Provo to the south, each roughly 40 miles from SLC.

Only recently has Delta, spurred by community efforts and support, begun to fly intercontinental routes from SLC. It began service to Paris in conjunction with Air France in 2008 and started Tokyo in 2009. The Tokyo flight is seasonal and does not operate daily even in the summer. The Paris service is daily during the summer, dropping to 5X in the off-season.

Like its regional peers of Denver, Phoenix and Las Vegas, long-haul international links are few and far between—and usually vulnerable in weak markets. Only 2.3% of its seats cross a border.

Should they worry?

So is SLC destined to be another Cincinnati, continually cut and reduced to a shadow of its former self? Probably not. But is it destined to grow in Delta’s network? Also a probable no.

Over the past decade, the traffic has fluctuated in a rather narrow band and that is likely to continue—with a gradual upward slope. There are a number of factors that lead to this conclusion.

  • SLC has an excellent location and serves well as a collection and distribution point for communities in the intermountain West, providing an alternative to Denver, which is larger and a battleground between United, Southwest and Frontier.
  • Unlike Cincinnati (or Memphis), SLC is far from any alternative connecting hub in the Delta network, again making the location an advantage.
  • Southwest has a very strong presence at both Las Vegas and Phoenix (with US Airways), making those points dubious hubs for any other legacy carrier. But WN does not have the local service, small-aircraft capabilities that are required for small cities like Billings, MT or Fargo, ND. The feed traffic that Delta enjoys at SLC is probably dependable and may even grow—with little or no competition.
  • Delta’s major hubs are built around a complex domestic/international cross-feed. The absence of that at SLC will continue to limit the hub’s expansion. While individual international flights may work, there is neither the synergy nor the customer base to support an extensive international network.
  • With a 75% share, most frequent travelers are probably Delta/SkyTeam devotees, and when traveling over long distances most will likely opt for a Delta connection over one of its other, frequently-linked, hubs. Another international hub is unnecessary.

All in all, SLC may be the right size and in the right place to ensure its stability as a Delta hub, with a limited yet important role to play in the carrier’s network.


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