San Francisco Airport: Keeping a close eye on United Airlines

Much like cutting a slice of tundra to see climate trends, by looking at the most recent 10-year period, we can see the effects of 9/11 and SARS, the current economic mess and a general directional drift towards Asia. This Asian focus is perhaps not surprising given geography and current economic trends, but San Francisco has traditionally had a strong European heritage.

The decade covered includes a great many figures and, consequently, the charts are big. Chart 1, taken from data collected by SFO, tracks the international service history as recorded each June month for the past ten years.

Numbers reflect reality

The total passenger line aptly reflects economic trends that were observed. In 2000 airlines were riding high but the economic weakness evident even before 9/11 is already visible in figures for June 2001. There followed a two-year downward spiral through 2002/2003 with recovery and steady growth building until 2009. The impact of the current global slowdown shows a passenger decline of 8%. While this pales in comparison to the roughly 19% drop between 2002 and 2003, few expect the kind of rebound that occurred in 2004 to be repeated in 2010.

SFO: A decade of international service statistics

June	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
International Flight Ops	4074	4080	3590	3240	3584	3942	3978	4488	4502	4264
- by US airlines	1534	1528	1380	1320	1432	1700	1556	1836	1752	1774
- by Foreign Flag	2540	2552	2210	1920	2152	2242	2422	2652	2750	2490
Total Passengers	775,975	736,947	666,601	543,192	689,734	742,211	780,850	804,426	825,919	760,102
- Europe	245,573	238,782	192,620	191,615	202,479	213,355	205,824	211,176	223,103	214,194
- Far East	329,893	323,129	321,544	209,467	337,759	355,505	357,522	372,150	380,601	329,893
- Australia/Oceania	14,406	14,012	15,948	14,644	16,658	24,751	41,205	43,659	39,213	39,280
- Mexico/Caribbean/Central America	70,321	62,281	45,296	41,166	44,051	56,021	65,729	64,065	67,235	66,122
- Canada	115,782	98,743	91,193	86,300	88,787	92,579	110,570	113,376	115,767	110,613

Source: SFO

A massive impact if United withdraws

San Francisco is well known as a United hub and is the carrier's major focus point for Asian service; with its offer from SFO far exceeding the UA capacity available from LAX. It is, with its domestic connections, a massively important customer for SFO.

Nonetheless, US airlines operate only about one third of the frequencies from SFO to foreign destinations. Chart 2 shows the foreign flag share of operations over the period in question. While the percentage has declined very marginally from its 2001 high of 63%, the majority of flights continue to be provided by foreign airlines. If United were to further weaken, there could be some interesting ramifications, as already-strong foreign flags jockey for a more prominent role.

Unlike LAX, with international service provided by Delta and American as well, United's longhaul competition at SFO from other US carriers is currently limited to a single DL/NW service to Tokyo so there is no heir-apparent in the case of additional United decline. It will be interesting to see if the new Continental/United ties will see CO increase its role at SFO.

In any case, the winter months will see the foreign flag proportion increased as United has announced discontinuation of its second daily services to London, Frankfurt and Tokyo for at least the winter timetable period, reducing UA's overall international departures by 21 each week.

Percentage of total annual international services operated by foreign flag carriers at SFO

2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
62	63	62	59	60	57	61	59	61	58

Source: SFO

The shifting international priorities

In Chart 3 we look at the distribution of traffic across markets as displayed by the percentage of travelers attributable to various sectors. Asia now claims the largest share of travelers but Europe has had a large share as well. Some of Europe's decline has come as a result of the loss of some European service juxtaposed against a rather constant supply of seats to Asia. As we will see in the last chart, in 2000 United operated a daily 777 to Paris and Swissair had a daily MD-11 to Zurich. The Europeans may bulk up again as economic conditions improve. Swiss International, Swissair's successor, had planned to resume A343 flights in 2009 but has now postponed the service.

Volumes to the other three geographic regions have been far more consistent. While the addition of both Qantas and Air New Zealand to the SFO market doubled the sub-region's share, it is still rather small. Noteworthy, however, by looking at Chart 1, is the fact that this market is the only one to show an increase June over June - OK, only 67 passengers but still…

Star Alliance & SkyTeam dominate Europe

Star alliance has the bulk of the European connectivity, with London, Frankfurt and Munich all being alliance on-line transfer points. Together they have a combined total of six widebodies for the summer, scheduled throughout the day. Skyteam has two, one each to Amsterdam and Paris and oneworld is limited to online connections at Heathrow with no AA codeshare on the current BA services. Just how an approval of AA/BA/IB antitrust immunity might affect the market is yet to be seen - even assuming it is granted.

Star carriers also predominate to Asia with United, Singapore, Asiana, ANA and Air New Zealand providing connections to multiple Asian destinations at a variety of gateways. Cathay, JAL and Qantas provide better representation for oneworld than is evident to Europe while Skyteam's Korean and Delta/Northwest trail in the tally and have far fewer options, especially to points in South Asia and Oceana.

Percentage of total international SFO traffic by region: 2001 to 2009

	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
Europe	32	32	29	35	29	35	29	29	26	27
Far East	43	44	48	39	48	39	49	48	46	46
Australia/Oceania	2	2	2	3	2	3	2	3	5	5
Mexico/Caribbean/Central America	9	8	7	8	6	8	6	8	8	8
Canada	15	13	14	16	13	16	13	12	14	14

Source: SFO

Given the large Latin American population resident in Northern California, it is interesting that the passenger levels registered in 2000 to Mexico and Central America have yet to be repeated. One possible factor is that both Oakland and San Jose host Mexico flights, so the traffic may have grown but more diffusely across the area's airports.

A ten year update: better Canada connections; Asia gauge downsizes

Finally, Chart 4 displays the actual services operated for the two summer timetables, 10 years apart, and again they reflect changes in the broader marketplace. For instance, especially to Canada there are a great many services operated with RJs. Calgary's weekly service went from 14 737s to 42 RJ flights. Places like Edmonton and Victoria that required connections to reach in 2000 now have nonstop RJ operations.

In line with the global move to fewer 4-engine aircraft, we see lots of 2000's B747s and A340s replaced with B777s, and for DL/NW to Tokyo, an A330-200.

Though a smaller metro population, Tokyo is served by the same number of flights as LAX. The offer between SFO and Hong Kong is larger than that from LAX, and with more incumbent carriers. LAX lost its Dublin link via Aer Lingus, while SFO has retained 4 weekly flights.

As is the case in virtually every US city, the European service is dominated by seats to London - both because of the strong O & D traffic as well as the vast number of connections that have traditionally been available. However, with Heathrow at or beyond capacity, other European hubs may see the benefit of Heathrow's congestion.

If headed to Asia, Tokyo dominates but is also a congested hub (at least until next year). However, SFO travelers headed beyond Tokyo have frequent connections over both Hong Kong and Incheon; airports with capacity and broad connecting networks.

Even more so than LAX, SFO has scant direct access to South America. While LAN provides broader LAX service via Lima, no such direct intercontinental service is available at SFO. Nor has it been since the brief and ill-fated Varig foray many years ago. Whether or not the new South American players, TAM and LAN will move into the SFO market is yet to be seen.

SFO Nonstop International Service

	Summer 2009			Summer 2000
City	Airline	Aircraft	Flts/wk	Airline	Aircraft	Flts/wk
Amsterdam	KL	747	7	KL	747	7
Auckland	NZ	772	5
Beijing	UA	777	7	UA	747	7
	CA	74E	7	CA	747	5
Calgary	UA	CRJ	28	UA	737	14
	AC	190	14
Cancun	UA	757	1
Dubai	EK	77L	7
Dublin	EI	330	4
Edmonton	UA	CRJ	7
Frankfurt	UA	777	7	UA	777	7
	UA	747	7	LH	747	7
	LH	747	7
Guadalajara	MX	319	7	MX	757	5
				MX	320	10
Hong Kong	SQ	773	7	SQ	747	7
	CX	747	14	CX	343	7
	UA	747	7	UA	747	7
Leon	MX	319	2
London	UA	777	14	UA	777	7
				UA	747	7
	BA	747	14	BA	747	14
	VS	747	7	VS	747	7
Los Cabos	UA	320	7	AS	737	7
	AS	737	7
Manila	PR	747	7	PR	747	7
	PR	343	1
Mazatlan				AS	M80	1
Mexico City	UA	319	7	AM	737	7
	MX	320	7	UA	320	7
				MX	320	7
Montreal	AC	319	7	AC	319	7
Morelia				MX	320	11
Munich	LH	346	7	LH	747	7
Osaka	UA	777	7	UA	747	7
Paris	AF	747	7	AF	747	7
				UA	777	7
P. Vallarta	UA	320	7	AS	M80	7
	AS	739	7
	MX	320	5
Salvador	TA	320	7	TA	320	7
Seoul	OZ	777	4	OZ	747	4
	UA	777	7	UA	747	7
	KE	777	5	KE	777	5
	SQ	777	7	SQ	343	7
Shanghai	UA	747	7	UA	747	5
				CA	747	2
Sydney	UA	747	7	UA	747	7
	QF	747	5
Taipei	BR	777	9	BR	747	10
	BR	747	3	CI	747	7
	CI	747	7	UA	747	7
Tokyo	UA	747	7	UA	747	7
	UA	777	7	UA	777	7
	NH	777	7	NH	747	5
	JL	773	7	JL	747	8
	NW	332	7	NW	747	7
Toronto	AC	320	28	AC	320	28
	UA	320	7	UA	320	7
Vancouver	UA	319	21	UA	727	7
	AC	190	28	UA	757	7
				AS	737	21
				AC	737	14
				CP	737	7
Victoria	UA	CRJ	14
Zurich				SR	M11	7

Source: Centre for Asia Pacific Aviation & OAG

Outlook SFO: On United we stand

United's international presence at SFO is very significant for the airport.

San Francisco Airport international capacity share by carrier (%)

Source: Centre for Asia Pacific Aviation & OAG

And, as much of the international traffic is connecting through the airport, the domestic flow-on, in terms of passenger throughput and domestic flights is also relatively heavily weighted towards international passengers.

San Francisco Airport domestic capacity share by carrier (%)

Source: Centre for Asia Pacific Aviation & OAG

So, the loss of even some of United's international traffic both creates some problems and some opportunities (for others) internationally and beyond the gateway.

The ongoing weakness of United provides interesting fodder for speculation should the carrier again enter bankruptcy. But the global traveling public repeatedly ranks San Francisco and its environs as one of the world's most sought-after destinations, so SFO will likely continue to grow.

Nonetheless, there will be a number of airlines - in the US and outside - who must have SFO plugged into their "potential" network plans, all the while watching United's fortunes very closely. LAX too will have more than a passing interest.