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Cleveland Responds to United’s Service Reductions

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Cleveland Responds to United’s Service Reductions

Cleveland Responds to United’s Service Reductions
February 03
15:24 2014

MIAMI — Earlier today, Cleveland’s Mayor, Frank Jackson, and Cleveland Hopkins Airport Director, Ricky Smith, addressed the city of Cleveland about United’s substantial service reductions. While the major service reduction is bad news for air travelers, businesses in Cleveland; airport employees, airport and city officials believe there is an open door with new opportunities.

Mr. Jackson said he was notified of United’s upcoming cuts late last week. He took the weekend to compile notes and work with his staff to review options, the potential impact and the next steps. He expressed that he is very disappointed with United’s decision.

He was quick to remind the city that they have worked tirelessly to encourage the growth of Continental before and after they merged with United through the Greater Cleveland Partnership’s CLE Task Force. Mr. Jackson also explained that they have spent “many man hours of attempting to come up with solutions to support the hub and fill seats.” Plus, “many people have paid extra money to fly United to support the hub.”

However, Mr. Jackson’s tone seemed to shift. He explained that many strategic investments have been made to Hopkins over the years. They have added new concessions, provided updates to the terminal, built Concourse D, and are currently in the middle of building a new control tower. Plus, the airport receives high marks from travelers and is known for being on-time.

“United’s de-hubbing Cleveland is not the end. We are now free to redirect resources and operations that will support growth of other airlines and opportunities they see. And now the airport can work on building on success with other airlines in recent years” explained Mr. Jackson.

The Director of Cleveland Hopkins International Airport, Ricky Smith, also addressed the situation.

He said, “we are not done, but we are disappointed. United reported to us and their employees on Sunday that they would reduce their departures by 64 percent…the theme here is that the reductions are associated with connecting traffic. This is related to pass through traffic–most people who would never see the outside of the airport.”

Next, Mr. Smith explained that United’s service reductions will occur in three equal stages during April, May and June:

  • In April, United will eliminate service to Burlington, Hartford, Madison, Manchester, Montreal, Oklahoma City, Philadelphia, Providence, and Raleigh from Cleveland.
  • In May, United will eliminate service to Charlotte, Louisville, Minneapolis, and Nashville from Cleveland.
  • In June, United will finish their service reductions. The last cities to be cut are: Atlanta, Austin, Bradford, Buffalo, Columbus, Dayton, Flint, Grand Rapids, Indianapolis, Jamestown, Kansas City, Pittsburgh, Richmond, Syracuse, and Toronto.
  • Additionally, United’s Cleveland workforce (ramp staff, ticket agents, customer service staff) would be reduced by 430 position by June. Also, 40 catering positions will be reduced as well.

However, Smith was quick to remind everybody that other carriers already serve seven of the cities United will cut from Hopkins. While the cuts seem like a lot, Smith says “United is eliminating connecting services…the whole concept of a hub is like building a church for Easter service. You build a lot of capacity that you don’t use all the time because it comes in peaks. The hub was a very costly structure. On top of that ours was a regional jet hub. Regional jets are very expensive to operate. Ten years ago, regional jets were the wave of the future. The thinking was that the skies were going to be littered with these jets until it became clear that they were very costly to operate.”

Smith seemed to be very optimistic. He explained, “the idea of a Cleveland hub is behind us. The state of the industry is focused on international travel and hubs are used as a launching pad for international travel. Cleveland is not the first mid-sized market to lose a hub. We are one of two last such markets to have a hub. We will bounce back. We’ll be fine. We’re going to get through his. We’re very strong and have a positive outlook to attract other carriers.”

He also explained that Cleveland is in a good position. “Rising cost is something all airports experience. We’ve done it effectively. We’ve introduced new revenues that are not the result of airline operations…since 2011, Our non-airline revenues as a percentage of the total, has gone from 57 to 49 and we have more plans that will increase that percentage over the next couple years…our cash balance allows us to operate for 780 days without new revenues coming in. That means that whenever we go out for credit or bond issuance’s for capital projects, we can get that at a lower rate because of our balance sheet. That is an intentional deliberate effort to manage our cash. Our cost per en-planement (cost of every passenger who gets on an airplane), the cost is $13.92. That is the second best in the country.”

Despite the loss of United, Mr. Smith seems very optimistic. Eight years ago, Hopkins did not have an active marketing development program, but now they have one and have met with 58 airline prospects.

“It’s very difficult for an airline to penetrate a market operated by a hub…it’s ironic that the day United reported they would draw down the hub, we got a message from one tenant carrier that they were going to revert all of their regional jets to mainline aircraft, in response to local demand for air service” explained, Mr. Smith.

Before a brief Q&A session, Mr. Smith outlined the positives from benefits to good things coming. From greater competition to lower air fare, it would seem like things will be OK for Cleveland if the airport structures their resources correctly. Also, they must “live a local approach to life.” Lastly, he said they will also “work with remaining tenants to talk about expansion of services…we also will reach out to those prospects that expressed interest in service here.”

Since United’s announcement, there have been a lot of unknown answers. A few of them were addressed during the brief Q&A session.

How surprised were you by the news?


“We knew that in the efforts with the task force there was always the conversation about the loss of revenue. We might not have agreed with their assessment of how much. The airline industry is very competitive and they have a capitalistic approach to life. We knew that one hiccup would cause some things to happen. United says such a hiccup accelerated their decision. We always prepared for the loss of this hub and others. And we made strategic investments and some back up plans to address it. Surprised? No. Disappointed? Yes. Just the cost of fuel going up a few dollars causes them to go out of whack. We wanted to be nimble and fluid enough to adjust.”

How Concerned are you that United might have Violated the Agreement?


“I don’t know. I’m doing it as a prudent thing to do. Lawyers say check this out, we are in the fourth year of a five year agreement.”

Did they say how much they’ve lost?


“In a ten year period they say they’ve lost millions.”

What is the Economic Impact for Cleveland?


“No, we have not done that yet. There are several things we look at — what is their economic impact. 500 jobs this way or that way won’t make or break us as a region. But it will break an individual’s family and that’s what we’re concerned about.”

On Concourse D, What about those Jobs?


“This decision was brought to our attention not long ago. Determining our impact on Concourse D. Most of the services that are being reduced were from Concourse D. …. Concourse D was developed for regional jet operations. So it would require some reconstruction to accommodate mainline aircraft. We have capacity to accommodate new service. Answers around the future of concourse D, we will get back to you.”

What about the Debt the City Took on to Pay for Concourse D — before the Continental/United merger?


“Concourse D is part of a facilities lease that expires in 2027. united is obligated to pay debt associated with that until then. Most of United’s gates are subject to a special facilities lease that expires in 2027. They should have a significant level of service here at least until 2027. They will have obligations in terms of debt and rent associated with those until 2027. We are well protected with respect to their obligation to pay that debt and they have said they have no plans of trying to remove themselves form those obligations.”

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