–Smisek Lies Again: “Our hub in Cleveland hasn’t been profitable for over a decade”
-CLE Is Dehubbed; The Continental-United Merger Has Brought Nothing But Misery To All
1. The state of Ohio will be auditing United’s claim that Cleveland was not profitable.
I ended off the “Smisek Lies” article asking Ohio’s attorney general to audit United’s profitability claim. And I tweeted OH AG Mike DeWine as well.
He will do just that, though unfortunately the full details will never become public. The Plain Dealer notes the inherent dilemma in defining profitability. The merger-era agreement with Ohio makes no mention on exactly how profitability is to be determined. Accountants are all too good at shifting around costs to get the result they want.
There’s no doubt that Cleveland is completely extraneous in the merged United system. It made sense as a Continental hub because Newark was at capacity and their only other hub was in Houston which is a poor connecting option for most the US.
As soon as the merger closed I said that Cleveland’s days as an airline hub would be numbered as there’s little point in maintaining a hub located right in between powerhouses Chicago, Newark, and Washington DC.
However I showed numerous examples from the past decade through 2012 that Cleveland was a profitable hub for United. And unfortunately for United they could not fully shut down hub operation in Cleveland until 2015 if it was profitable.
Over the past couple years United has made Cleveland one of the most expensive airports in the nation to fly out of and made connections in Cleveland very hard to come by so I don’t doubt that it’s no longer currently profitable, at least for 2013. But profitable or not I do agree that it makes little operational sense for Cleveland to exist as a hub.
So why shut it down now instead of waiting until late 2015 and avoiding government scrutiny?
As I said last time, I still believe that the real reason is the double whammy of:
-Pilot qualification rules made in late 2013 that have caused a massive pilot shortage.
-Minimum rest periods for pilots just instituted last month that have exacerbated the pilot shortage problem.
Cleveland, more than any other United hub, is heavily dependent on regional flights. Those airlines pay their pilots as little as $21,000 per year and rely on pilots fresh out of school hungry to make their way up the ranks.
Now that these new rules came into play the major airlines have been snapping up the experienced pilots at regional carriers to keep their schedules going even with the new pilot rest directives. Additionally pilots must retire by age 65, so the major airlines are going to face a long-term crunch to keep enough qualified pilots.
The regional carriers can no longer just hire more freshman pilots as they now need 1,500 hours of experience as opposed to just 250 hours that they used to need. That sixfold increase is causing a huge crisis.
This isn’t idle speculation. Republic/Chautauqua is about to quit all United flying due to these new rules. Great Lakes suspended service to several airports due to the pilot shortage. ExpressJet told United before they announced the Cleveland hub closure that it would not longer be able to fly all of its contracted routes for United.
So United had to slash lots of regional capacity quickly. And there was no more efficient place to do that than in Cleveland with gobs of low margin regional flights that wouldn’t majorly affect the global system due to the lack of international flights from Cleveland. Taking those regional flights out of other airports would cause much more pain for the system as a whole.
Cleveland’s mainline flights are all staying intact except for the 1 daily flight to Phoenix.
Oh and the small issue of Cleveland continually being told over the past decade that it was profitable? Let’s just add some fixed network costs onto Cleveland and say it wasn’t profitable in a decade so that we don’t wind up paying a fine for closing the hub before 2015…
Riiiiiiiight. Because the same airline that removed pillows from first class to increase their profits by a few bucks would run a hub for an entire decade while it bled money the whole time.
Smisek lies. There is no decade of losses and I would love to be a fly on the wall in Columbus as they look over United’s funny math. Though my guess is that with no defined profitability metric in the agreement there will be nothing that can be done to force United to pay up or even admit playing a number’s game.
2. In the good news department other airlines see the blood in the water and are already starting to pick up the slack:
-Delta is adding nonstops to Indianapolis and Raleigh/Durham.
-Delta is upgrading the Cleveland-NYC route from 3 daily flights to a whopping 8 daily flights. Come June there will be 3 dailies to JFK and 5 dailies to LGA.
-Frontier just started flying between Cleveland and Trenton, NJ and must like what they’re seeing. They upgrading it from 2 flights per week to 4 in May.
-Southwest will upgrade Akron-LGA from 2 to 3 daily flights. 2 of those flights will be up-gauged from a 717 to a 737.
-Delta is upgrading Cleveland-Atlanta from regional to all mainline jets. Cleveland-Minneapolis is rumored to be upgraded to mainline as well.
-Frontier is increasing Cleveland-Denver flights from 5 to 12 weekly.
-Frontier will add 4 weekly Cleveland-Orlando flights, a new route for them. Intro pricing is just $69 each way.
-Frontier will add 3 weekly seasonal Cleveland-Seattle flights, a new route for them. Intro pricing is just $119 each way.
-Southwest is in talks to beef up CLE service. Don’t be surprised to see new flights to destinations like S. Louis, Tampa, or Phoenix.
-Other good possibilities include Jetblue service to Boston, JFK, Orlando, or Fort Lauderdale and Porter service to Toronto. There may even be a outside shot of landing Virgin America service to LAX or SFO, Sun Country service to Minneapolis, American launching Phoenix service, or Spirit service to Fort Lauderdale or Phoenix.
3. Cleveland may be unique in being dehubbed twice by the same airline, but it’s only the latest in a long line of closed hubs.
Cleveland is now the most populous metropolitan area in the nation without hub operations and it’s the only metro area of at least 3 million people without a hub airport. No doubt CLE was hurt by having 2 major airports within the metro region. Competition from CAK has been a thorn in CLE’s side ever since Airtran made Akron a focus city.
Not too many airports can lay claim to being dehubbed twice by the same airline. United closed CLE in the 80s, Continental came in and hubbed it, and United has dehubbed it once again.
But just in this century AA has ditched S. Louis, USAirways left Pittsburgh, American West axed Columbus, Delta jettisoned Cincinnati, Dallas, and Memphis, etc.
So which hub will be next to go?
United still has hub operations in Chicago, Denver, Houston, Los Angeles, Newark, S. Francisco, and Washington DC.
-An “expert” claims that United only needs hubs in Chicago, Houston, and Newark, and that all of the rest are in jeopardy.
That seems a bit much as that means shrinking down to Continental’s size, but just switching out Cleveland for Chicago.
I do think that both Denver and Los Angeles may be at risk in the coming years.
-On the American/USAirways side it’s hard to see a bright future for Phoenix. It’s days are likely numbered due to being sandwiched between hubs in Dallas and LA.
Philadelphia may also be troubled. Hard to imagine it remaining an international hub with JFK so nearby. I see it being phased out as well with long-haul flights to places like Tel Aviv being shifted over to places like JFK and Miami.
-Delta seems perfectly content to eat everyone else’s lunch as they contract. Operationally Delta runs the best major airline operation today and is in a position of power vis-a-vis American and United. Their mileage program is atrocious but they sure do seem to know how to run an airline. With Cincinnati and Memphis gone they may just hang onto their niche hubs in Detroit, Minneapolis, and Salt Lake City along with their powerhouses in Atlanta and LGA/JFK. They’re even beefing up for a new hub in Seattle to either take down Alaska or force them to merge with them or American.
Which domestic hubs do you think are at risk of closure?