Posted On Fri, Feb. 13, 2004

usfliboi

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Aug 20, 2002
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Posted on Fri, Feb. 13, 2004





US Airways faces challenge from weak network of hubs

None of carrier's hubs is among nation's largest 18 airports

TED REED

Staff Writer


As established hub airlines struggle to pull out of a three-year slump, some of the strongest ones say they are relying largely on the traffic generated at powerful hubs to fuel their recoveries.

That's a problem for US Airways, which has long been thought to have the weakest hubs in the airline industry -- even before low-fare king Southwest Airlines said it will begin flying to the Philadelphia hub on May 9.

In the go-go days of droves of business travelers shelling out for high fares, weak hubs in Charlotte and Pittsburgh were a burden that US Airways could overcome.

But with the downturn in business travel and the onslaught of low-fare carriers in many US Airways' markets, the hubs' weakness has become more apparent -- and may be a barrier to the airline's survival.

Among the six major hub airlines, US Airways is the only one without a hub at any of the 18 busiest airports. Philadelphia International is the 19th busiest, Charlotte/Douglas is the 20th and Pittsburgh International ranks 27th.

The hubs are not only small, but also close together. So while US Airways dominates its hubs, it can't rely on them to provide enough passengers to feed large domestic and international networks.

Charlotte and Pittsburgh offer "few of the benefits of a hub," said aviation consultant Mort Beyer. "They don't generate a lot of local traffic. Usually, what airlines do is control their hubs and then charge (higher) fares to their local passengers."

At a hub, dozens of planes arrive and depart during a window of about an hour and a half, when they exchange passengers. In the biggest hubs, many passengers also originate locally, arriving by car or mass transit. They often pay more than passengers from outlying airports, who tend to have a choice of one-stop flights on various carriers.

Most of the major hub airlines have operated their hubs for decades. Before a 1987 merger between Piedmont Airlines and USAir, Charlotte was a hub for Piedmont while Philadelphia and Pittsburgh were hubs for USAir.

In 2000, former US Airways Chairman Stephen Wolf sought to fix US Airways' problems of small hubs and a limited route network through a merger with United Airlines. That would have folded US Airways' small hubs into as global route system. Under the plan, Charlotte would have become the Southeast hub for the world's biggest airline; while still small, it would have been a transit point for even more traffic.

But the U.S. Department of Justice nixed the deal on anti-trust grounds, saying it would have limited the choices available to the flying public.

Cost compensation

US Airways acknowledges its hubs are small, but says it can compensate with lower operating costs.The airline cut costs by $1.3 billion, including $1 billion from employees, during an eight-month stay in bankruptcy that ended in March. Now it is trying to cut costs by another 25 percent, largely through more employee concessions.

"We think US Airways with a competitive cost structure can be very successful," Chris Chiames, senior vice president, said Wednesday.

He said the airline's models are carriers like AirTran and America West, whose low costs have enabled them to overcome the burden of relatively small hub operations. US Airways is betting it can offer more flying from key Northeast cities, bypassing its hubs, while also redefining its hub strategies.

The Charlotte hub can grow as Caribbean service increases. The Pittsburgh hub is shrinking dramatically, as regional jets take over most routes because there is too little traffic to fill bigger jets. And Philadelphia, because of Southwest's arrival, can become the test site for a hub airline that operates with the same fares and costs as low-cost competitors.

Pilots regret that US Airways hubs aren't larger and farther apart, so they could support more long-range and international flying, said Jack Stephan, spokesman for the US Airways chapter of the Air Line Pilots Association. "But we can't change the geography," Stephan said. "We have the cards we've been dealt."

However, US Airways should not rely so much on its hubs, he said. Instead, it should more fully utilize its presence at key airports in Boston, New York and Washington to fly more international and point-to-point flights, which don't rely on stops in hubs.

Advantages of bulk

Despite the hopes of success, some analysts are skeptical that US Airways' small hubs and limited network offer enough bulk. In recent weeks, airlines with bigger, more productive hubs have been touting their advantages and capitalizing on them.

Northwest Airlines, for instance, has hubs in Detroit and Minneapolis, both top 10 airports. At a Goldman Sachs transportation conference in New York last week, Northwest Chief Executive Richard Anderson emphasized to analysts that both are large markets with a lot of business fliers and that Northwest dominates them.

Anderson said Northwest's low-fare competitors have lower labor costs, but they also have far weaker hubs. "Our strength is our network is much stronger," he said.

American Airlines said last month that it will restructure its Miami hub, so that arrivals and takeoffs occur evenly throughout the day, rather than in the less-efficient sudden bursts that often typify hub operations. American has already restructured its hubs in Chicago and Dallas.

In most cases, US Airways doesn't have enough local passengers to do that, Chiames has said. Because its hubs provide so few passengers, planes must wait for all the arriving planes before they can depart.

Under-producing Philly

US Airways has a different set of problems in Philadelphia than in Charlotte and Pittsburgh.Although 61 percent of the Philadelphia airport's traffic is local, compared with only about 28 percent in Charlotte, US Airways has been unable to fully enjoy the benefit of operating in a major urban area.

Philadelphia's airport ranks 19th nationally in passengers, while the metropolitan area ranks seventh nationally in population, said a recent study by Unisys R2A aviation consulting group, a subsidiary of information technology firm Unisys.

Philadelphia "has a history of under-producing airline traffic relative to its population," the study said. That's because fares have historically been high and because area residents can drive to New York or Washington, the biggest local business markets.

It will get worse when Southwest invades. The effort to match Southwest's lower fares will chop $250 million annually off US Airways revenues, the study said. Revenues were $6.8 billion in 2003.

The effect of the Southwest onslaught in Philadelphia and the too-small hubs in Charlotte and Pittsburgh means the outlook for US Airways is not positive, said Dan Kasper, managing director of LECG consultants in Cambridge, Mass. Although the airline is reducing costs, its structure provides little opportunity to boost revenues, he said.

"Assume the best case, that they get concessions and traffic comes back robustly," he said. "That buys breathing room. But at the end of the day, what is their place?"

US Airways' Charlotte Hub

AIRLINE STATS

Total daily departures: 469

Non-stop destinations: 114

Non-stop Caribbean destinations: 18

Non-stop European destinations: London, Frankfurt

Passengers carried: over 90 percent

Employees: 5,782

AIRPORT STATS

Total airport traffic (2003): 23.1 million

Locally arriving and departing: 6.5 million

Average fare: $212, third highest in the United States

Note: Fare information is for fourth quarter, 2002. (While many passengers seek to avoid Charlotte/Douglas due to high fares, airport officials say many others choose the airport due to the high level of flights and destinations.)

SOURCES: US Airways, Charlotte/Douglas International Airport, U.S. Department of Transportation
 
Wow, I'm surprised that the clearest explanation of U's challenges and the main reason why U has a hard time paying it's employees as much as other majors, profitably, gets no comments.

Well, I guess it's a busy news day.
 
I guess if they would have had (or have) a managment team in place, they could have adapted to the environment and things would not be in such bad shape. But when the employee's are blackmailed to "snap-back" to Mesa's wage scale eveything will be OK. Boy am I glad the Judge OK'd those retention bonus's as I would hate to lose any of this valuable team. I suppose I don't see the "Big Picture". :huh:
 
This article says a lot. IT IS NOT THE EMPLOYEES.........but a poor route network. Who decides where to fly and how often?
 

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