Related post: CLE Is Dehubbed; The Continental-United Merger Has Brought Nothing But Misery To All
Cleveland and United have a rocky history.
United had a hub in Cleveland in the 70s and early 80s before jumping ship in 1985. Continental immediately filled the void by hubbing Cleveland, something that won’t happen again today due to considerable airline consolidation. Nobody has filled the void that American left in St. Louis, that Delta left in Memphis and Cincinnati, that America West left in Columbus, or that USAirways left in Pittsburgh. Pittsburgh just took another hit when they learned that AA would shutter their 6 year old USAirways operation center that was built with taxpayer funds.
If Cleveland is lucky perhaps we’ll get Porter flights to Toronto or JetBlue service to Boston and JFK. And if we’re unlucky perhaps we’ll get Spirit 😉
United CEO Jeff Smisek said in a letter to CLE employees that,
Our hub in Cleveland hasn’t been profitable for over a decade.
This is just another lie from someone who has been caught in a web of lies since the merger. He has lied about so many topics that it’s hard to keep them all straight. There’s a reason that passengers and employees alike can’t stand him and that United is bleeding cash and high value customers and corporate contracts. He has made strings of bad decisions that are hurting United in both the short and long term.
You have to love the irony that Cleveland is featured in this month’s United Hemispheres magazine and that Cleveland will host this year’s annual United shareholder’s meeting.
He turned it into a profitable well run and highly regarded airline. He was an ex-pilot and had a great relationship with both labor and passengers.
This ad summed up the customer experience at Continental while other airlines pinched every dime:
He passed on the torch to Larry Kellner who started the culture of service cuts at Continental. Still it was better than every other US airline.
In 2008 Kellner refused to merge with United, instead opting to ditch Skyteam and join the Star Alliance.
He said at the time rejecting the merger,
We have significant cultural, operational and financial strengths compared to the rest of the industry, and we want to protect and enhance those strengths – which we believe would be placed at risk in a merger with another carrier in today’s environment.
He was right. Continental went from being the most admired airline to becoming a part of what is now the most reviled airline.
United was shocked at Kellner’s rejection. Apparently, so was Continental’s board. Kellner was forced out less than a year later for Smisek, a Harvard educated lawyer.
Smisek immediately reached out to United and merged Continental with them.
Now here’s the rub with Cleveland. It added value to Continental’s route network as their only other hubs were Houston and overly congested Newark. The writing has been on the wall since the merger thanks to United’s more powerful hubs in Chicago and DC.
Still United had to say that Cleveland was losing tens of millions of dollars in order to close the hub without paying penalties.
Let’s look at some facts.
The Cleveland hub is too valuable to abandon, especially with Continental’s plans for a $50 million expansion at the airport.
Cleveland must be profitable, or Continental wouldn’t be expanding there. Why would you stop doing things that are profitable? Cleveland’s probably going to be OK.
There might be some rationalization, but I don’t see a huge shift. here would you move the Cleveland traffic to? I don’t see how Chicago could take much more.
Indeed, if CLE has been bleeding for a decade then why would they expand?
When oil prices started to soar the expansion was curtailed. However in June 2012, after the merger was finalized United’s senior vice president/network, Greg Hart, said,
Year over year, Cleveland Hopkins’ performance is better than some other hubs in terms of profitability. The hub is in a far better place than it would have been without the efforts of the team in Cleveland.
They were making some good money in Cleveland. I would be surprised if they substantially downsize Cleveland.
Noting that the majority of United’s flights in and out of Cleveland are on smaller, regional jets, Mr. Schwieterman said it wouldn’t make sense to move that traffic to crowded O’Hare or Dulles, taking slots now filled by more profitable international and transcontinental flights.
“It’s a pretty nice niche for United that hasn’t been a drain on its bottom line,” he said.
At that DO I had the pleasure to attend a session given by Brian Znotins, VP of United’s network strategy. I had never before spoken to someone so intimately knowledgeable with airline route planning and I just ate it all up and wrote it up back then. He knew the profitability levels of every route and was just a fountain of incredible knowledge.
He said that,
Cleveland is actually performing well and is profitable. The only reason a hub would be closed or a route would end would be if it was not profitable and if the company did not see a path to profitability.
At that same MegaDO I spoke with Martin Hand, United’s Senior VP of Customer Experience.
Here is what I wrote back then,
Martin Hand, United’s Senior VP of Customer Experience, was a pleasure to talk to as well. Being a Cleveland guy I once again brought up the future of Cleveland, calling it United’s step-child hublette. He joked that as a former Continental guy they love Cleveland and that I shouldn’t be calling it that!
He said that Cleveland’s local business community seems to know that they need to support United to keep the hub and they have been doing a good job doing that so far. He went on to ask why Cleveland folks seem so paranoid as to the future of United in Cleveland.
I could’ve said it was because United had already de-hubbed Cleveland once before in the 1980s before Continental eventually took it over and that nearb cities like Pittsburgh, Columbus, and Cincinnati have seen recent catastrophic hub closures, but I said it’s just Clevelanders natural rejection fearing attitude, helped in no small part by LeBron.
He and his former Continental colleague loved that response and started laughing out loud and heartily agreed with me and they both said they were shocked by that episode as well.
Now I’m not saying United has it out for Cleveland. I think the real reason is that United wants to ditch most of their regional jet flying and Cleveland just has too much of that. Perhaps there is some truth behind there being a regional pilot shortage due to the new FAA rules. For now only 1 mainline jet frequency is being cut from Cleveland’s schedule so all the pain is in the regional jet routes.
But this business about not being profitable in a decade seems like an utter farce. It strains credibility to believe that an airline would run a hub operation as a charity for that long of a period of time.
Profitability for a hub is a funny thing, so it’s probably easy for United to shift some fixed costs onto Cleveland and now it’s magically not making a profit. Perhaps it’s just to avoid having to make any payment to Ohio for closing the hub?
Per the merger agreement the audit will be completely at United’s expense. I sure hope Ohio’s attorney general takes a really close look at the full story here.