MIAMI — Last week, United Airlines announced the addition of two more routes feeding its growing San Francisco (SFO) hub. Starting June 8 2017, United will launch service from SFO to both Detroit (DTW) and Cincinnati (CVG).
Leaders in both the Detroit and Cincinnati communities applauded the move. Thomas Naughton, aviation authority CEO in Detroit, says the San Francisco route had previously been the busiest without non-stop competition. He sees the new route as a “tribute to the rising strength of our economy.”
In Cincinnati, airport chief Candace McGraw trumpeted United’s growth at CVG over the past three years. She stated the new route will “offer tremendous value for consumers, including a great schedule to San Francisco as well as one-stop connections to 30 other destinations including Singapore, Sydney, Australia, Auckland, New Zealand, and many popular Asia destinations.”
What’s behind United’s most recent move, and what’s in store for its burgeoning San Francisco hub?
United Shifts Capacity Out of Houston Due to Oil-Related Pressures and Southwest Competition
On general terms, the new routes are just the latest example of United Airlines re-deploying capacity from its Houston hub in a way it believes will be more profitable.
The airline’s operation in Houston has been feeling the effects of a softening revenue environment, largely due to the slip in oil prices on which the local economy is so heavily tied. Data from Diio (from July 2016 and July 2015 schedules) shows that the number of flights from IAH (including all airlines) decreased by 6.9% YoY, while the number of available seats fell by a slightly more modest 5.8%. United itself has been even more aggressive, slashing flights by 8.2% and seats by 7.1% YoY. These numbers do not spell promising times in Houston.
United’s commitment to Houston has been in question ever since the merger with Continental back in 2010. The airline’s current struggles there only amplify the calls to de-hub the operation. Although United is unlikely to drastically pull out of Houston, like the abrupt way it vacated Cleveland, United’s management is certainly on the lookout for more attractive, revenue-friendly opportunities to deploy its aircraft.
Southwest has also been growing in Houston, albeit at Hobby Airport rather than Intercontinental. In fact, Southwest’s growth in Houston has been rampant, with available-seat-miles (ASM’s) up 32.1% and number of weekly flights up a jaw-dropping 49.1% YoY (using July 2015 and July 2016 schedule data).
Included in this aggressive growth is Southwest’s new international flights. The Dallas-based carrier launched a total of nine new international routes from Hobby between last October and last November from its new five-gate international terminal.
While not all Houston-area passengers may treat flying out of Intercontinental versus flying out of Hobby Airport equally, it’s probably safe to say that there is some spillage of United’s passengers to Southwest as a result of their expansion. Increased levels of competition only further incentivize United to deploy its aircraft elsewhere, on routes where they may be able to make more money.
In the midst of Houston cuts, the tale is quite different for United out west at its San Francisco hub. Traffic is on the upswing there, with flights increasing by 7.1% and available seats up by 10.1%. United’s own numbers (increases of 4.9% and 8.5%, respectively) are just short of the airport-wide trends, meaning it is probably looking for new ways to augment service and maintain market share.
The company has available aircraft that it needs to utilize productively, and United’s strategy in broad strokes seems to be to bulk up its presence in the Bay Area while de-emphasizing Houston. The recent announcement regarding Cincinnati and Detroit speaks well to that trend.
United Turns the Heat on Delta with Detroit, Cincinnati Flights
United’s most recent announcement unveiled flights from San Francisco to Detroit and Cincinnati. The airline will allot one daily frequency to each route, starting in June.
It is hard to ignore that both of the cities United is linking to San Francisco represent Delta hubs. In fact, United is stepping into direct competition with its Atlanta-based rival (in addition to Frontier at CVG). Although Delta has scaled back operations in Cincinnati, it still considers the airport a hub in its route network, and Detroit is one of the airline’s strongest stations behind its Atlanta fortress hub.
The Cincinnati flight departs at 19:00 for San Francisco, and returns at 10:40 to CVG. The Detroit flight leaves for SFO at 17:30, and returns at 08:30 to Detroit. United scheduled A319 aircraft along both routes, adding 128 seats per day to the markets.
More competition, as is usually the case, is likely to have a positive impact for consumers, through the form of lower fares and increased choice.
United Sacrifices Connectivity to East Asia from San Francisco with Flight Timings
From United’s perspective, what is the real advantage of entering these two markets with non-stop competition? And is there any long-term strategic value it may be seeking?
Clearly, United is not aiming to shove Delta out of the market with such limited capacity growth (nor would it probably succeed if it tried). The airline must believe, as far as short-term value goes, that these particular routes carry additional opportunity from the current level of service and that it can fill its planes simply off untapped existing demand.
This was the case made to United by the Cincinnati’s airport board. According to CVG officials, the Cincinnati-San Francisco route runs about an 85-percent load factor, with spillage to nearby airports of about fifty people bound for SFO per day. These were probably important factors in convincing United that the local demand could support another daily flight.
Nonetheless, even if United can in fact fill its planes exclusively with local traffic, it also should not ignore the potential for connecting traffic at one of its biggest hubs. The timings United chose for these routes seem questionable, since they allow for little domestic or international connectivity.
CVG official Candace McGraw pointed out the potential for flow to East Asia, as noted previously. However, the arrival times of both the Cincinnati and Detroit flights to San Francisco miss the connecting window for any passengers traveling to the Far East.
United has been aggressively building up its East Asian connections from San Francisco, unveiling a number of new routes from the airport. It has done an impressive job capitalizing on the economic selling points of the Dreamliner to start up multiple “long-and-thin” routes to East Asia, made financially possible by greater fuel efficiency. Connectivity to East Asia has become a primary asset for United in San Francisco – so it seems peculiar that it would box itself out of this potential from Detroit or Cincinnati.
Perhaps neither Detroit nor Cincinnati has exactly vibrant demand to travel abroad. In reality, a small number of passengers on either of these new flights would be bound for international destinations anyway. But United may be missing some strategic potential to continuing staking a long-term claim on traffic to Asia.
This is especially true considering Delta’s de-prioritization of its Tokyo-Narita hub, leaving some passengers to look for a new airline to travel abroad. It is the perfect chance for United to strengthen its hold on the East Asian region (among the domestic carriers anyway), becoming what would probably be the most convenient option for customers in two more cities.
Of course, there is often a tradeoff in flight timings between what is most optimal for local passengers and what is most optimal for connecting flow. Late evening departures and mid-morning return flights may suit Cincinnati and Detroit-based customers best, assuming their final destination is San Francisco. Nonetheless, United is leaving some long-term value in these routes on the table, as a result of the flight schedule it laid out.
My guess is that there is a more optimal time that would have facilitated connectivity without overly sacrificing local, point-to-point demand. Assuming it were logistically possible, United would be better served operating morning flights out to San Francisco (to facilitate connectivity to mid-day East Asian departures), and then a mid-day return flight, putting passengers in Cincinnati by the evening. Such timings would have also maximized domestic connectivity along the west coast.
United Further Spreads its Tentacles in the Midwest
United’s additions in these two cities will collectively integrate the Midwest more heavily within its broader route network. Cincinnati and Detroit are not what anyone would consider flashy names or extremely bold moves. Nonetheless, sometimes airline route planners have to make the seemingly lackluster calls for the benefit of the network.
Customers in Cincinnati and Detroit will certainly be happy. More competition is on the way. They will soon have the option to “fly the friendly skies” with United headed out west.