The merger of two airlines may well be the most complex process that exists in the corporate world today, with some issues taking years, even decades, to resolve.
Just ask Cleveland. Residents of the Forest City were reminded of that fact in the worst way earlier this month, when United Airlines announced it intended to close its hub at Cleveland Hopkins International Airport. CEO Jeff Smisek said the airline would cut the number of daily departures by 60 percent at Hopkins, a hub it inherited four years ago from its merger with Continental. More than 400 workers will be laid off.
The decision, while not unexpected, has drawn the ire of local politicians.
And who can blame them? Cleveland, having lost more than half of its 1950 census population and continuing to shrink, is a city that needs all the help it can get. The hub at Hopkins–which once offered non-stop flights to Europe–may have been, for some residents and businesses, the only reason they hadn’t left yet.
But is losing a hub really so bad for a city? With so many airlines failing or changing hands in the last couple decades, there are plenty of examples to study. And ultimately, their precedent shows that the effects of “de-hubbing” are very much a mixed bag.
De-Hubbing Realities
For starters, Clevelanders will almost certainly see ticket prices go down as well–the result of increased competition.
That’s what happened to Pittsburgh over the last decade, after US Airways shuttered its once-substantial hub there. In the late 1990s, US Airways could pretty much charge Pittsburgh flyers whatever it wanted, given the lack of competition. The average ticket price hovered around $600 in today’s dollars.
US Airways abandoned its Pittsburgh hub in the early 2000s. Since then, ticket prices have dropped by one-third–a full $200–while Cleveland’s have actually increased.
With 73 percent of flights from Hopkins operated by United as of this month, the reduced service could encourage new competitors to enter the market. In fact, Delta has already expressed interest in picking up some of the routes United intends to abandon.
Of course, the difference is also one of convenience. Fifteen years ago, one could fly non-stop from Pittsburgh to Kansas City, Indianapolis, State College, and even London. Flying to any of those cities today requires traveling through a hub somewhere else.
This may be the core reason cities fear de-hubbing. Big companies, the reasoning goes, won’t set up shop in cities where they can’t easily access a national network of air routes.
Studies have borne out this theory. A 2003 paper by Jan K. Brueckner, a professor at UC-Irvine, concluded that the number of service jobs in a metropolitan area increases by one percent for every ten percent increase in airline passengers.
Relying on the ‘Eds and Meds’
It’s not quite clear, however, how applicable this finding is in practice.
In Cleveland, for example, the focus is no longer so much on encouraging private businesses to come back as it is on growing sectors of the economy that will never leave in the first place.
That’s a central but sometimes overlooked element of the “Eds and Meds” economy, which so many Rust Belt cities are transitioning to. Unlike an auto plant or a steel mill, a university can’t pack up and move to where the economy is better. The Cleveland Clinic’s mission is to serve Cleveland–it won’t relocate to Georgia or Tennessee or China because of labor costs.
Even if a large airport helps grow the regional economy, there’s no way to ensure those benefits are funnelled to the city itself. Often, growth is concentrated in the suburban areas right around the airport, creating a so-called aerotropolis. Detroit continues to lose five to ten thousand people every year, but passenger numbers at its suburban airport are stable.
Conversely, prominent examples exist of cities that have remained resilient despite losing hubs. Pittsburgh’s economy weathered the recession well. Raleigh-Durham, where American Airlines had a hub until the mid-1990s, is one of the country’s fastest-growing metro areas.
So where does all this leave Cleveland? Clearly, the city shouldn’t need to, and can’t, rely on Hopkins to revitalize its urban core. And at the price of reduced convenience, Clevelanders may finally start to see airfares more in line with what people in other cities pay.
More troubling, though, is what the Cleveland case may say about today’s airlines as a whole.
Leaving Fliers Behind?
With every merger, criticism has focused on the industry’s trend toward oligopoly. Less attention has been paid to the declining number of hubs, and the cities they serve.
Yet as the airlines consolidate, the reality is that more and more passengers are being funneled through fewer and fewer places.
That means fewer airports with growth potential and, if Brueckner is right, fewer cities benefiting from that growth.
That’s contrary to the spirit of airline deregulation, which sought to grow under-used airports by expanding the number of carriers. Throughout the 1980s, new airlines like America West and People Express opened hubs in places the big airlines had ignored.
Today, we risk having too few airlines and, perhaps more importantly, too few ways to fly them. American aviation could well become a case of haves and have-nots, as once-great hub cities like Memphis and Cincinnati become subservient to cities with mega-airports like Atlanta and Dallas.
Cleveland may weather the loss of its hub. But if the trend continues, it won’t be long before we find that only a few cities truly benefit from the growing airline industry. The rest can’t afford to be left on the ground.
Tags: airline costs, us airways, airline hubs, airline merger, cleveland, cleveland airports, cleveland hopkins international airport, cleveland ohio, delta, eds and meds, pittsburgh, infrastructure, united airlines
The North Coast’s Hub Problem
The merger of two airlines may well be the most complex process that exists in the corporate world today, with some issues taking years, even decades, to resolve.
Just ask Cleveland. Residents of the Forest City were reminded of that fact in the worst way earlier this month, when United Airlines announced it intended to close its hub at Cleveland Hopkins International Airport. CEO Jeff Smisek said the airline would cut the number of daily departures by 60 percent at Hopkins, a hub it inherited four years ago from its merger with Continental. More than 400 workers will be laid off.
The decision, while not unexpected, has drawn the ire of local politicians.
And who can blame them? Cleveland, having lost more than half of its 1950 census population and continuing to shrink, is a city that needs all the help it can get. The hub at Hopkins–which once offered non-stop flights to Europe–may have been, for some residents and businesses, the only reason they hadn’t left yet.
But is losing a hub really so bad for a city? With so many airlines failing or changing hands in the last couple decades, there are plenty of examples to study. And ultimately, their precedent shows that the effects of “de-hubbing” are very much a mixed bag.
De-Hubbing Realities
For starters, Clevelanders will almost certainly see ticket prices go down as well–the result of increased competition.
That’s what happened to Pittsburgh over the last decade, after US Airways shuttered its once-substantial hub there. In the late 1990s, US Airways could pretty much charge Pittsburgh flyers whatever it wanted, given the lack of competition. The average ticket price hovered around $600 in today’s dollars.
US Airways abandoned its Pittsburgh hub in the early 2000s. Since then, ticket prices have dropped by one-third–a full $200–while Cleveland’s have actually increased.
With 73 percent of flights from Hopkins operated by United as of this month, the reduced service could encourage new competitors to enter the market. In fact, Delta has already expressed interest in picking up some of the routes United intends to abandon.
Of course, the difference is also one of convenience. Fifteen years ago, one could fly non-stop from Pittsburgh to Kansas City, Indianapolis, State College, and even London. Flying to any of those cities today requires traveling through a hub somewhere else.
This may be the core reason cities fear de-hubbing. Big companies, the reasoning goes, won’t set up shop in cities where they can’t easily access a national network of air routes.
Studies have borne out this theory. A 2003 paper by Jan K. Brueckner, a professor at UC-Irvine, concluded that the number of service jobs in a metropolitan area increases by one percent for every ten percent increase in airline passengers.
Relying on the ‘Eds and Meds’
It’s not quite clear, however, how applicable this finding is in practice.
In Cleveland, for example, the focus is no longer so much on encouraging private businesses to come back as it is on growing sectors of the economy that will never leave in the first place.
That’s a central but sometimes overlooked element of the “Eds and Meds” economy, which so many Rust Belt cities are transitioning to. Unlike an auto plant or a steel mill, a university can’t pack up and move to where the economy is better. The Cleveland Clinic’s mission is to serve Cleveland–it won’t relocate to Georgia or Tennessee or China because of labor costs.
Even if a large airport helps grow the regional economy, there’s no way to ensure those benefits are funnelled to the city itself. Often, growth is concentrated in the suburban areas right around the airport, creating a so-called aerotropolis. Detroit continues to lose five to ten thousand people every year, but passenger numbers at its suburban airport are stable.
Conversely, prominent examples exist of cities that have remained resilient despite losing hubs. Pittsburgh’s economy weathered the recession well. Raleigh-Durham, where American Airlines had a hub until the mid-1990s, is one of the country’s fastest-growing metro areas.
So where does all this leave Cleveland? Clearly, the city shouldn’t need to, and can’t, rely on Hopkins to revitalize its urban core. And at the price of reduced convenience, Clevelanders may finally start to see airfares more in line with what people in other cities pay.
More troubling, though, is what the Cleveland case may say about today’s airlines as a whole.
Leaving Fliers Behind?
With every merger, criticism has focused on the industry’s trend toward oligopoly. Less attention has been paid to the declining number of hubs, and the cities they serve.
Yet as the airlines consolidate, the reality is that more and more passengers are being funneled through fewer and fewer places.
That means fewer airports with growth potential and, if Brueckner is right, fewer cities benefiting from that growth.
That’s contrary to the spirit of airline deregulation, which sought to grow under-used airports by expanding the number of carriers. Throughout the 1980s, new airlines like America West and People Express opened hubs in places the big airlines had ignored.
Today, we risk having too few airlines and, perhaps more importantly, too few ways to fly them. American aviation could well become a case of haves and have-nots, as once-great hub cities like Memphis and Cincinnati become subservient to cities with mega-airports like Atlanta and Dallas.
Cleveland may weather the loss of its hub. But if the trend continues, it won’t be long before we find that only a few cities truly benefit from the growing airline industry. The rest can’t afford to be left on the ground.
Tags: airline costs, us airways, airline hubs, airline merger, cleveland, cleveland airports, cleveland hopkins international airport, cleveland ohio, delta, eds and meds, pittsburgh, infrastructure, united airlines