US hubs outlook wrap: Previous hubs still struggle, no easy solutions...


Part of the focus of the recent CAPA series on US hubs has highlighted those airports that have seen their hub status disappear or be fundamentally altered. The three primary examples were Pittsburgh, Cincinnati and St Louis. In the past weeks, new studies have been released by both PIT and CVG that highlight aspects of their efforts to maintain service and provide their communities with adequate air service networks.

  • Pittsburgh Airport has attracted international service by offering subsidies and has seen positive results in terms of seat load factor and passenger numbers.
  • The flight to Paris has a seat load factor of 68%, slightly below Delta's systemwide trans-Atlantic average.
  • The flight serves both O&D passengers and those connecting to other destinations primarily through SkyTeam partners.
  • Yields for the flight have been disappointing, resulting in a revenue shortfall and potential payment of the negotiated subsidy.
  • Efforts are being made to improve the flight's financial viability, including advertising support from the Airport Authority and targeting specific communities for promotion.
  • The outcome of these efforts is uncertain, but Pittsburgh has shown a strong commitment to maintaining international service.

Pittsburgh first

Our initial report chronicled the efforts of the Allegheny Conference to attract and sustain international service at Pittsburgh Airport, supplying vital global links for both the business and leisure constituencies. They were successful, and by offering subsidies if needed, attracted a Delta service to Paris.

The flight is about to enter its second year and the Conference has analysed both the effects and results of the experiment. The report contains good news and bad, as well as the realisation that continued and expanded efforts are necessary if Delta is to continue.

The good news first

The flight has a seat load factor, overall, of 68%; within the range of the original forecast, but lagging by 12-18 points against Delta's systemwide trans-Atlantic average. Delta has committed to another year, despite a general reduction of flights from other non-hub cities and has drastically cut its Cincinnati offer.

About 36% of the passengers are O & D with the balance using onward connections provided primarily by SkyTeam partners in the following order:

According to the DoT, in 3Q2009 PIT generated 407 trans-Atlantic passengers per day with the nonstop garnering over 21% of that number.

It appears that many of the assumptions made with regards to demand have been validated. Part of the report consists of testimonials from Pittsburgh business leaders that affirm the value of the flight and its role in meeting their travel needs.

"Westinghouse has found Delta's nonstop service to Paris to be valuable way to get to our clients around the world. We've used the flight to travel to destinations from Delhi to Zurich to Stockholm. For an increasingly global company, nonstop service enhances our efforts to open new markets around the world at a time when demand for new nuclear power plants is creating thousands of jobs here at home" - Stephen Tritch, Chairman, Westinghouse Electric Company

Nothing is ever simple

Nonetheless, there are also negative aspects that may threaten the sustainability of the flight beyond 2010.

Yields have been very disappointing. The average fare initially used to calculate profitability was derived from 1Q2008 aggregate yields, or an average USD528 per one-way fare. But the global collapse of traffic and yields produced, in 3Q2009, an actual average fare of USD413; a 31.6% drop from the corresponding period in 2008.

The resulting revenue shortfall will likely result in payment of the full USD5 million subsidy that was negotiated with Delta. In 2010, that amount is reduced to USD4 million, and should the overall situation not improve, this reduced payment may not cover the shortfall for the current year. Despite having a solid customer base, solid community backing and adequate numbers of passengers, financial viability is uncertain - a problem not uncommon in aviation.

A Plan

Faced with this reality, the Conference has refocused its efforts to support the flight and obtain a commitment from Delta to continue the service beyond the 2011 expiration of the current agreement.

They see some of that improvement coming from general improvement of economic conditions that may increase travel, raise yields and generally improve the flight's metrics. Additionally, a stronger dollar makes European travel less expensive.

But there are also active measures afoot which demonstrate the region's commitment to providing international links to the Pittsburgh market.

The Airport Authority has committed USD600,000 to advertising in support of the flight. Some of that money will be spent in Cleveland and Cincinnati where international service has been eliminated (CLE) or drastically reduced (CVG).

The travel agency and business communities are being specifically addressed, asking for their support and highlighting the ease of using nonstop service from PIT, bypassing crowed hubs as well as far less congested FIS facilities.

Given that two of the top ten destinations are in India, the Indian community is being targeted, emphasising the excellent network that can be accessed directly from PIT.

Will it work?

The final outcome is far from certain and airlines have shown an unwillingness to maintain services that fail to provide positive results, irrespective of community needs. In both Cincinnati and St Louis, community rebuttals to reductions went unheeded by the carriers involved.

But Pittsburgh, as a community and through the Allegheny Conference, has fully invested itself in first getting, and now maintaining, the international service deemed necessary for its market. Whether or not the work is successful, they will get high marks for the efforts expended. Delta would be hard-pressed to find a better partner.

And more insults for Cincinnati

Delta's stranglehold on Cincinnati continues to be problematic for the city and its travelers. As presented in our past articles, Delta provides 84.7% of the domestic capacity and 86.9% of its international lift.

With few options and no low-cost presence, the market is especially vulnerable to Delta moves and changes in the carrier's strategic plans. The DoT reported that CVG saw a 22% reduction in traffic for 2009 as compared with 2008, making it the national leader in traffic decline.

The end is nowhere in sight as OAG shows that Mar-2010 capacity is down 32% from Mar-2009 and while fares have fallen, the average CVG fare remains about 17% above the national average. The US retailer Target's tag line is "get more, pay less". Patrons of CVG seem to be experiencing the reverse, "pay more, get less".

As a result of all this, Delta will shutter Concourse A and reduce employment by 840 staff. Delta claims that the measures are intended to improve profitability; an understandable goal for the carrier, but with increasingly negative effects on the local community.

Perhaps it is too late, but those concerned by the ongoing downsizing and service reductions might be well advised to look elsewhere for service providers and admit that Delta's overwhelming influence is now a detriment to the community. Maybe a call to the Allegheny Conference for some advice?

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