Leading Meeting Professionals

Professional Convention Management Association

August 2013

Up in the Air: How Second-Tier Cities Are Absorbing the Brunt of Airline Cuts

By Jennifer N. Dienst

‘One of the underlying pieces of information that may be not intuitive in the numbers reported is that, when it comes to meetings and conventions, we get asked about the destinations served more than [the number of] flights.’ -Scott Beck, Visit Salt Lake



 

Takeoffs and Landings
Changes in number of flights at 10 U.S. airports from 2007-2012:

ORD

Chicago O'Hare

− 7.4%

CVG

Cincinnati

− 64.4%

DEN

Denver

+ 0.60%

LAS

Las Vegas

− 18.9%

MEM

Memphis

− 40.6%

MCO

Orlando

− 18.9%

PIT

Pittsburgh

− 39.7%

SLC

Salt Lake City

− 22.8%

SFO

San Francisco

+ 20.90%

SJC

San Jose

− 33.2%

SOURCE: Modeling Changes in Connectivity at U.S. Airports: A Small Community Perspective, MIT International Center for Air Transportation




The fact that Charlotte has been a low-cost facility for airlines to operate has ‘helped us grow as an airport hub. The [airport’s] management team runs it like a business; they understand that both passengers and airlines are customers.’ -Mike Butts, Visit Charlotte


“We have benefited immensely from all of the recent changes,” Beck said. “One of the underlying pieces of information that may be not intuitive in the numbers reported is that, when it comes to meetings and conventions, we get asked about the destinations served more than [the number of ] flights.”

 

Some of the cuts made at Salt Lake City International Airport eliminated duplicate service to cities, so the destination is still being served, but there are only two flights instead of three. This is an example of how, according to Swelbar, the airline industry is making itself more efficient. “Consolidation and capacity cutting are the two big contributors to a more financially stable and healthy industry,” he said. “... Just like we’ve seen winners in the airline industry, and losers that have gone out of business, we’re likely to see airports that won’t necessarily lose all of their service, but they certainly won’t get back to the levels of service they once enjoyed.”

WINNERS AND LOSERS

But why are some second-tier cities experiencing drastic cuts, while others are seeing only minuscule drops — or even increases in service? “At the end of the day,” Swelbar said, “it comes down to the local economics, which are very, very important in areas where airlines are growing and where they’re not.”

For example, Charlotte Douglas International Airport has seen a 9.7-percent increase in its flights from 2007 to 2012. It’s the world’s sixth-busiest airport in terms of aircraft movements, and the eighth-busiest U.S. airport, with 41.2 million passengers passing through in 2012. The US Airways hub, currently undergoing a $400-million expansion, could get even busier if it remains a hub for American after the two airlines finalize their merger.

“Charlotte has been diverse and vibrant from an economic perspective,” said Swelbar, who notes that the airport has also been a low-cost facility for airlines to operate. That’s not an accident. “[Those low costs] have helped us to grow as an airport hub,” said Mike Butts, executive director of Visit Charlotte. “The [airport’s] management team runs it like a business; they understand that both passengers and airlines are customers.”

And sometimes it’s just lucking out with the right assets. Denver International Airport has seen a 0.6-percent increase in flights from 2007 to 2012. In terms of aircraft movements, it’s the fifth-busiest airport in the United States and the 11th-busiest in the world. Besides having a vibrant local economy, Swelbar said, Denver International also has the ideal geographical asset of providing a good connecting point both domestically and internationally. The airport already offers nonstop service to 23 international destinations, and in June, United launched Denver’s first nonstop flight to Asia — on the new Boeing 787 Dreamliner — to Tokyo-Narita International Airport.

“We were very fortunate,” said Richard Scharf, president and CEO of VISIT DENVER, speaking about how recent airline mergers have affected airlift at Denver International, which is United’s fourth-largest hub. “It gave us an even stronger airport with more connections and international access. The United Airlines merger [with Continental in 2011 and the] Frontier Airlines merger [with Midwest Airlines in 2010] have been pretty positive for us.”



‘We were very fortunate [regarding recent airline mergers]. It gave us an even stronger airport with more connections and international access. The United Airlines merger and Frontier Airlines merger have been pretty positive for us.’ -Richard Scharf, VISIT DENVER




HIGHER PRICES AND A HEALTHIER FUTURE

So what will all of this cost? “Generally, fares have risen, if you look at the last seven years,” said Cornelius, who noted that the compounded annual growth rate of domestic fares has increased about 3 percent since 2005. “When there is lost competition, that’s basic economics — the consumer sees a price increase. But it’s also a market-by-market situation.”

For example, there are exceptions like Denver, where, according to Scharf, the number of flights has increased even as the average domestic airfare has dropped 27.5 percent since 2002. But experts maintain that the cost of flying as a whole will not drop, especially in destinations with less flights and less competition. “Fares will increase, absolutely, there’s no question,” said Michael C. Boyd, chairman of Boyd Group International, an aviation consulting, forecasting, and research firm. “Let’s put it this way — the cost of air travel will go up. Fares will go up a little bit, but other costs like bag and reservation fees, those are going to go up. The cost of getting on an airplane is going to go up. It’s going to appeal to fewer and fewer price-sensitive populations.”

Despite these fare increases and flight cuts, most of the experts and analysts Convene spoke with had positive outlooks on the changes happening in the airline industry and what lies ahead — for everyone. “I believe that absent another shock to the system, we have seen the end of whole-capacity cutting in markets around the country,” Swelbar said. “A lot of the capacity cuts were largely due to duplicate capacity. All the airlines were really doing was taking their flights to their larger, more efficient hubs so as not to compete with themselves.”

Another reason the future looks rosy is that airlines have had time to adapt to the triggers that have traditionally made it so susceptible to economic turbulence. “If you look at the cost of fuel right now, it’s very high, but [the airlines have] retooled themselves to be able to make money in this environment,” Cornelius said. “They’re a lot less vulnerable to external shock than they were at any point in history.”

And although meeting attendees who live in or travel to medium-sized destinations may view these service cuts as a hindrance, they’re actually a sign that the airline industry is moving toward becoming healthier and more efficient. “There are fewer flights and fewer seats, but the planes are more full,” Cornelius said. “The load factor is higher than it has ever been. The airlines are just doing a better job of matching capacity with demand.”

“It’s hard to say or suggest that there are lots of positives, because choice has been reduced, no question,” Swelbar said. “However, I do believe that what we’re seeing

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