Hubs and links




Top 10 US air markets Originally uploaded by Payton Chung

I’d read before that NYC-CHI was the nation’s busiest air route, but here’s some proof in that pudding courtesy BTS. What always depresses me about flying this route (and I account for 0.0003% of that bar) is that there’s no adequate ground alternative. The only direct Amtrak service pulls into Penn Station around 7 PM, necessitating an extra night’s stay in NYC (over and above the night spent aboard the train). Not very effective, especially when average hotel rates in Manhattan are over $300/night.

Even more depressing? Back in 1938, trains made the NYC-CHI run in 16 hours, not the 21 hours it takes today. That’s right, it takes 31% more time to travel in the 21st century than it did during the Great Depression. (Oh, and the trains then? “[S]plendiferous… a speak-easy style midsection with side-seat nooks… like an intimate cocktail room.”) That “intimate cocktail room” (the Pennsy’s Broadway Limited) arrived at the old Penn Station at a much more reasonable hour: 8:30 AM. My, how our nation has declined, although I suppose we have more gizmos now.

The other thing this graph illuminates is the business logic underlying recent gossip about a merger between United and Delta. Currently, three of these top 10 routes connect two UA hubs: IAD-ORD, LAX-ORD, and DEN-ORD. Just ATL-JFK connects two DL hubs; ATL-MCO runs between a hub and a focus city. The respective carriers dominate 40-60% of the market on those routes, since they have strong local customer bases at both ends and high frequencies between.

However, three more connect UA and DL hubs: JFK-ORD, ATL-IAD, and IAD-JFK. That gives a combined carrier load-balanced, hub-to-hub frequencies on eight of the ten busiest air routes in the country, with the other two (NYC-FLL and CHI-LAS, both leisure routes rife with discounters) at least originating in one of the hubs. Even Pan Am (whose international route network, minus the Latin American routes that United tossed away, would be rejoined) never had this kind of a domestic network.

The strengths that Delta brings domestically are its Atlanta fortress, JFK gateway, and focus cities in competitive Boston and Orlando. If this merger takes place, Delta’s hubs at Salt Lake City and Cincinnati will go: Denver serves twice the population and 2.5X the passengers as SLC, and CVG accounts for just 4% of DL’s mainline boardings, just 29% of which is local traffic. JFK and IAD can work side by side: UA enplanes nearly twice as many mainline passengers at IAD as DL does at JFK, and IAD has growth potential which “intensely dungeonlike” JFK lacks.

Of course, all this dances around the real business logic behind putting UAL on the auction block, as described in the Motley Fool:

Upon a change of control in the airline, however, United’s latest proxy statement says that [UA’s CEO Glenn] Tilton’s stock options would immediately vest, entitling Tilton to $24 million in compensation. If he was forced out of the executive suite within two years of the merger’s completion, he’d also receive an additional $12 million.

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