Cranky Flier argues that United has abandoned its Los Angeles hub in a piece entitled Should United De-Hub Los Angeles? It Already Has. The article is worth a read and presents some fascinating stats, but Cranky ultimately gets his analysis wrong: a more strategic and profitable flight schedule does not prove that United has de-hubbed Los Angeles.
Cranky starts with a flawed assumption, “Whether United wants to call Los Angeles a hub or not is irrelevant,” and then continues, “The reality is that over the last 10 years, United has dramatically shrunk its operation there and shed a lot of flights which were more attractive to connecting passengers.”
He then compares July 2006 traffic versus July 2016 traffic, presenting his primary evidence that United flew 45.7% fewer flights and 26.2% fewer seats than a decade ago and that United has eliminated 22 nonstop destinations from LAX while adding only 11.
Sounds convincing, doesn’t it?
But when you dig deeper you discover that the story is not as simple as United abandoning its Los Angeles hub.
During the Smisek era there was an effort to scale back Los Angeles. Los Angeles is a much more competitive market than San Francisco, with lower yields on many routes, and so the notion to cut less profitable routes and focus on the more high yield longhauls made sense in theory…but not always in practice. Think of LAX like a gas station. The lion-share of profits are made in the convenience store: the margin on fuel is very tight. But what happens if a gas station no longer sells gas? Will people still buy from the convenience store? Even Smisek figured this out.
Instead, a number of things happened that help to explain why we have seen a drop in United traffic at LAX that does not support the thesis that LAX has been de-hubbed.
Intra-California Traffic Lost Due to Aircraft Retirement
First, United shed many of its intra-California routes not as a basis of a decision to abandon them, but because it had no choice — Skywest, the regional subsidiary operating those flights on behalf of United, retired its fleet of 30-seat EMB-120 propeller powered aircraft, the heart of its fleet. With the retirement of the EMB-120, operating to tiny California cities went from being viable to not viable and service was cut swiftly and during a time of profitability.
Further, Skywest cut a number United codeshare routes due to a changing business model that guided the company away from doing “at risk” flying. While most United Express flights were operated with United bearing all the risk, Skywest had a handful of “at risk” routes in which it assumed responsibility for variable costs like fuel, helped to set tickets prices, still operated under the banner of United, but in return got to keep a greater share of revenue from the flights.
Finally, United (via Skywest) lost some Essential Air Service (EAS) routes (government subsidies to encourage air service to small communities) out of Los Angeles (with oddball carriers like Mokulele Airlines and SeaPort underbidding for the routes) that were nice lines on the route map but never represented a viable route absent subsidies.
United Airlines International Expansion at LAX
But while United has shrunk its domestic operations from LAX, internationally it has expanded, including a unique route that does not operate from any other hub.
Shanghai has been added, Melbourne has been added, and soon London will go from one flight per day to two. Tokyo and Sydney remain and no longhauls have been cut (LA to Frankfurt appeared briefly in 2007 but was redundant with two daily Lufthansa flights)
Look at the route map–
Flights from all over the country continue to feed into Los Angeles and examples can always be cherry-picked. Cranky cites the limited onward connections available after the arrival of the Tokyo Narita flight to argue that United is not treating LAX as a connection point, a fundamental component of a hub in a hub-and-spoke system.
But what about Melbourne and Sydney? I checked today’s flight schedule and the following flights are timed to connect with the Melbourne or Sydney flights:
- Honolulu – HNL
- Washington – IAD
- Newark – EWR
- Orlando – MCO
- Phoenix – PHX
- Fresno – FAT
- Cleveland – CLE
- Houston – IAH
- Denver – DEN
- Cancun – CUN
- Las Vegas – LAS
- Chicago – ORD
- San Francisco – SFO
- Sacramento – SMF
- Reno – RNO
- Seattle – SEA
- Maui – OGG
- Boston – BOS
- San Diego – SAN
- Kona – KOA
If you want to nit-pick, remove the three Hawaiian flights and you still have 17 flights timed to connect to Australia. That sounds like a hub to me…
Merger, Codeshares, and Alliance Partnerships
Cranky points to a drastic reduction in flights to Latin America as proof that LAX is no longer a hub. That’s wrong for two reasons.
Between 2006 and 2016 two big events occurred: a merger with Continental Airlines and Avianca-TACA joining Star Alliance. Continental had a strong existing Latin American route network from Houston and Avianca-TACA shared many of the same Latin America routes from LAX.
The reduction in connecting traffic to Latin America via Los Angeles is more attributable to codeshare agreements with TACA than abandoning LAX as a hub. You can still fly non-stop to Guatemala City, San Salvidor, and now San José from LAX on a UA flight number — it is just operated by TACA.
New United-operated nonstops from LAX to Puerto Vallarta and Cabo and a greater frequency to Cancun offer passengers more options than in 2006.
Houston remains a powerhouse for United Latin America flights and thus cutbacks due a better-placed hub also make sense.
United Airlines $573MN Investment at LAX
United is spending over $500MN to renovate its terminals at LAX. From the check-in lobby, to lounges, from gate areas to baggage claim, United is showing that it LA is not being abandoned.
Just last week United announced it would be converting its former Global First Lounge at LAX into a new Polaris Lounge, highlighting a long-term investment in international service from Los Angeles.
Los Angeles is certainly populous, but not large enough to support only local traffic. United’s investments demonstrate its commitment to LAX as a hub.
> Read More: Sketches of New United Airlines Terminal and Club at LAX
Self-Identification Matters
Finally, self-identification does matter and United chooses to label LAX a hub. Cranky argues, “Whether United wants to call Los Angeles a hub or not is irrelevant,” but here is why it is relevant — United’s conscious decision to label UA a hub reflects all that I have written above: that it is determined, even with fierce competitive pressure, to keep LAX as a hub airport.
Ultimately, Cranky writes, “There’s a lot of angst about me suggesting LAX is no longer a hub, but this is a game of semantics. If you consider something a hub because it has a fair number of flights, then fine, call LAX a hub. That’s not how I’d define a hub. A hub is something that’s built to handle connections.”
LAX is built to handle connections with a convenient immigration facility in T6, gate space consolidated into two terminals instead of three, and a remodel that will make United easier to navigate than ever before for connecting passengers.
I’ll stipulate this — LAX is certainly a “focus city” for United. But it is a hub as well, by all definitions. It may not be the connecting powerhouse it was in 2006, but blame that on Skywest and not United. Even with the reduction in intra-California flights, LAX continues to offer a convenient connection point with sufficient domestic and international flights to warrant its hub title.
I’d be interested to see (since Cranky has access to stats I do not) a separation of mainline and regional flights. It would not surprise me if mainline seats are actually higher today than in 2006.
Glad to see you taking this topic on, and I’m happy to respond since we obviously have different viewpoints on this.
Ultimately you’ve given a lot of the reasons for flights having been pulled down at LAX, but I will argue that doesn’t matter. The point is that the flights have been pulled down. I could go through each one bit by bit and respond, but I don’t know that it’s all that productive to do so. I’m not arguing why United has done what it’s done. I’m just showing what it has done.
But let’s talk about that specific Melbourne example you give, because I think it says a lot. Melbourne is the one international destination from LAX that United doesn’t serve from any other airport. Since it’s timed almost exactly at the same time as the Sydney flight, that should probably be the most important connecting bank at LAX for United. But the bank is actually quite weak. Let’s look, still using my 3 hour rule that I applied to the Narita flights.
First, yes, there are flights from the hubs that connect as you’d expect would happen. There are flights from the hubs all day long and that’s going to allow connections to any other flight at LAX just because of the frequency involved. Looking beyond the hubs, your list is mostly right but Fresno doesn’t connect in while both Leon and Salt Lake do. On the return from Australia, however, only 7 of those 12 cities have legal connections within 3 hours of arrival. Further, there are another 6 that connect only in that direction (Austin, Bozeman, Colorado Springs, Minneapolis, Monterey, and Prescott if you want to count that one). There are a couple others that would connect, but since the Australia flights arrive at the Bradley Terminal due to the early hour (not exactly a compact and easy connecting experience), a long connecting time is required.
Why is this scheduled so oddly? It’s because from my vantage point, I see flights that are scheduled for the local market, in most cases (excluding San Diego, for example). These are flights that operate at the times that locals want them. Sometimes they connect internationally, sometimes they don’t. I have no doubt that the Melbourne flight relies heavily on connections, but I’d bet most of it comes from other United hubs and maybe Vegas. I wish I had that data in front of me.
The last point I want to touch on is about investment in the LAX facility. That’s what an airline should be doing if it wants to cater to the local market. United is trying to create a facility that will woo the locals. Connecting passengers? The lounge will help on those long LAX layovers, but that’s not why United is doing this. It’s focusing on Los Angeles while connecting opportunities seem increasingly accidental.
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Oh, lastly, I don’t have the breakdown between mainline and Express, but I do have it by destination. The problem is that I bet there are several markets that were mainline back then but are Express today. So I’m not sure how to break that out perfectly, but I took BOS, BWI, CLE, CUN, DEN, EWR, GUA, HNL, IAD, IAH, ITO, JFK, KOA, LAS, LHR, LIH, MCO, MEL, MEX, MSY, NRT, OGG, ORD, PHL, PVG, PVR, SAL, SFO, SJD, SYD, ZIH. Flights were down 20% with seats down 16% on those routes alone.
A point on United’s investment in LAX – United is investing ~$575 million in LAX upfront but they’re going to get back at least $530 million in that in rental credits from LAWA. The airport operator explains it as they don’t have the funds to make all the necessary improvements to the terminals that need to be done now, so by contracting the airline’s to front the upfront cost and returning it to them through credits gets work done faster.
I think United’s “investment” in LAX should be outside of this debate. I also agree with Brett that United is doing what it needs to do to attract locals and just brings its facilities up to contemporary standards.
First off I must say you and Cranky have very valid points. Second off why is United keeping some of the routes in the first place I mean what is the point of having 1 ABQ flight a day when American has 2 some days 3 non stops in both directions and Southwest has 2 nonstops (On the days I looked) in both Directions. I have to agree with Cranky on whats the point of that route. However I do have to agree with you and that UA is doing well to time connections for the International routes.
You make good points and whether LAX is a UA hub or not, it has another key difference AA and DL don’t.
A full fortress hub in SFO.
They would love to have something like that, but are forced to play in lower yielding LAX.
UA has more luxury to ebb and flow LAX.
Interesting positions taken by the author of the article. The author correctly posits that certain traffic flows (i.e., Hawaii, Oceania) that easily lend to and rely on connectivity due to geography. However, I believe a bit of context is missing relative to specific facets of airline operations, as well as past events – often now forgotten – that lend credence to the C.F. position that UA has de-emphasized LAX for connections.
“LAX is built to handle connections with a convenient immigration facility in T6, gate space consolidated into two terminals instead of three, and a remodel that will make United easier to navigate than ever before for connecting passengers.”
Typically, at airports where connections are emphasized, the hubbing carrier will maximize the gate portfolio in its possession. That carrier will be reluctant to relinquish gates since the flight schedule is optimized for connections. Witness the ongoing competitive land grab between AA & DL at LAX as the airport has gained importance within those respective networks.
In the not-so-distant past, UA operated from four LAX terminals. UA could have remodeled the former United Express – now American Eagle – satellite terminal for regional jets had it chosen to do so. In Terminal 6, UA’s original gate portfolio consisted of six gates. That number winnowed to four with the CO merger. UA then subsequently surplussed those gates and subleased them to competitor AA. Further, UA made that move despite having a pending terminal remodel (referenced herein) that ultimately resulted in three Terminal 7 gates being closed for an extended period of time.
With regard to the terminal remodel, aside the aesthetic improvements to be encountered, the only element that will somewhat benefit connecting passengers is the Red Carpet Club portion of the project. In fact, the bulk of the funds being expended on the project will benefit O & D (origin/destination) passengers as those passengers make transitions between non-secure and secure portions of the terminal: Consolidated security screening checkpoint, expanded inline baggage screening system, reoriented arrival baggage claim area.
“I’ll stipulate this — LAX is certainly a “focus city” for United. But it is a hub as well, by all definitions. It may not be the connecting powerhouse it was in 2006, but blame that on Skywest and not United.”
Very interesting assertion here. How is Skywest culpable? Is it due to route decisions, or not replacing the now-retired Brasilia turboprop fleet?
Earlier in the article, the author demonstrates a basic understanding of United-Skywest business relationship. But an important detail is omitted. With fee-for-departure contracts, the larger (UA) carriers’ marketing and route planners dictate where the regional (Skywest) will fly. Until 2013-2014, the bulk of UA-branded Skywest flying conducted at LAX (& SFO) was this type.
With regard to the fleet, a trickier situation arose resulting from marketing and regulatory impositions that drastically changed the economics of turboprops in scheduled commuter/regional operations. The regulatory changes were made in the name of safety – a sacrosanct, unquestionable airline industry prerogative.
1997 – Scheduled commuter (regional) operations are reclassified by the FAA whereby regional carriers had to absorb and assume greater administrative and operational burdens and costs.
circa 2000 – The wholesale transition to regional jets. More costly to operate, yet an important marketing & competitive tool with legacy (UA, AA, DL, etc) carriers. The big guys also wielded the leverage in the increasingly complex world of domestic codeshare partnerships.
Post 9/11 security mandates decimated much of the short haul flying that had previously been geared toward regional short-haul flying.
Finally, in 2003, another now somewhat overlooked FAA mandated safety change – new aircraft weight-balance calculus stemming from an increase in average weight assigned per passenger. This change was particularly damaging to the economics of turboprop (SAAB 340, EMB120) operators due to these limited capacity (30 seats) planes being further artificially constrained (to a maximum 27/28 passengers per flight), thus denting full revenue potential.
In sum, these events conspired to change the economics of regional flying so drastically that the small turboprop platform was effectively killed. We have yet to witness a successor to either the SAAB 340 or EMB120 simply because the market in which those aircraft types were best deployed is now gone.
One more observation with regard to the author’s view on Skywest United-branded flying: Focusing on actions taken at LAX is myopic. If you look some 350 miles north to SFO, UA/Skywest has done quite a bit to retain the SFO Skywest network despite disappearance of the Brasilia:
http://www.unitedcargo.com/ShowFiles?filePath=/homelinkpdfs/UAX_Schedule-August_2016.pdf
pages 146-151. Some of the former Brasilia cities were subsequently dropped, but look at the number of routes retained. Some have reduced frequency. Some flights are operated by costly (for that particular route segment) regional jets. Some routes that had more business/travel affinity with the Los Angeles market were transitioned to SFO.
There were a couple of other assertions that border on pedantic to refute. Let’s be clear here – there were several actions that UA could’ve taken to maintain the network connectivity it once scheduled via LAX. The days of the UA-LAX ‘hub’ are behind us now.
Looked up UA mainline stats comparing 8/2006 with 8/2016. UA operated lights are down from 3,486 to 2,984. Seats are down from 564,117 to 527,950, a decline of 6.4%. ASM’s are up from 1,008,903,166 to 1,080,303,305. Average passenger stage length has grown from 1,788 miles to 2,046 miles. Source is Diio based off of DOT stats. Having worked in network strategy for a rival, I think the best way to look at the hub vs focus city argument for UA at LAX is what share of passengers departing a city are connecting vs local origin. A hub has a higher percentage of connecting. I used the first quarter of 2006 vs 2016 in comparing T-100 data (all passengers on a flight) versus DB1B DOT data which is local passengers originating as this is the most recent available. In 2006, United passengers through LAX were 43% local versus 57% connecting, where in 2016 the percentage has only shifted to 46% local versus 54% connecting. This largely reflects the loss of local UAX prop service and some flights going to codeshare partners offset by some new international flying in my estimation. Overall it looks like UA at LAX is still very much a hub based on the share of connecting traffic remaining high, LAX is just a 17% smaller hub in 2016 versus 2006. Comparing connecting opportunities is a weak measure of a hub as the connections generated through LAX largely depend on volume in the connecting market versus any nonstop competition in that market. HNL-LAX-SYD is a stretch to include as only .7 passengers a day go on such a circuitous routing when there are many nonstop offerings on HA and QF. OGG and KOA only had .1 pax a day, or maybe 30 passengers a year connecting through LAx.
@RHYS: Fascinating! Thank you.
I filtered out connections in other hubs originating at LAX (such as LAX-IAH-MIA). United’s LAX connecting percentage (DEN-LAX-SYD) is 30% in Q1 of 2016 compared to Delta at 33% and AA at only 24%. United in 2006 Q1 connected 41% of paxs at LAX. United at LAX seems to have plenty of hub connectivity left and has not restricted to a locally targeted schedule. Part of this may be due to AA and DL having better shedule for locals. UA may just have kept short and medium haul flights that best feed longer haul.
Not sure if my second post was approved or I forgot to submit it. I updated the connection stat to correct one error. UA LAX connections (DEN-LAX-SYD) have dropped from 41% in 2006’s 1st quarter to 30% in 2016. Local nonstop originating pax (LAX-DEN) rose from 43% to 46% for UA from 2006 to 2016. LAX originating connections (LAX-DEN-OMA) surged from 16% to 23% as they had fewer nonstop options. I left out multiple connections (PER-SYD-LAX-ORD) as this is probably only 1%. UA’s LAX connections of 30% compared to 33% for DL and 24% for AA. UA’s share of connections doesn’t vary much from those other carriers. Didn’t bother to look at Southwest.