A piece ran in the Denver Post yesterday speculating on the future hub status of Denver, implying that United is ready to axe it. I see no cause for concern just yet.
The rumors stem from internal UA documents that were released after a mini-shareholder revolt earlier this year. Shareholders (and to be clear, I am no longer one, having made not nearly as much money as I could have…) are understandably much more concerned about profit than for the 80K+ employees that make up United-Continental. An internal UA document released during the scuffle revealed plans on the table to cut Denver departures by 19%, a total of 37 daily departures.
A 19% cut would be huge, but with only a hypothetical plan on the table lacking any sort of specifics, I think it is premature for United gate workers and flight crews based in Denver to be fretting about having to move to Houston or find a new job.
“I don’t know if I will have to move. Moving? Over my dead body,” one United flight attendant said about the possibility that the Denver employee base would be moved to Houston, the home of Continental. She did not want to be identified out of fear for her job.
Why even speculate about this? At least for now, Denver still serves as a valuable hub for Midwest and Rocky Mountain operations and although Houston is not too far away, it is about the same distance to Chicago, Los Angeles, and San Francisco. With no hubs within 850 miles, plenty of space, relatively cheaper landing fees, an ideal location to reach smaller United Express cities, and the presence of a huge United maintenance base and Pilot Training Center, I am of the opinion that Denver will maintain its hub-status for years to come, even as DEN’s schedule, facing heavy competition from Southwest/Frontier and a market that cannot command the high fares UA was once able to get away with, will be trimmed perhaps by more than 19%.
Admittedly, it only fuels speculation when you get comments like this from the UA press office:
“We don’t comment on rumors or speculation,” United spokesman Mike Trevino said. “Not everything has been decided and implemented. Integrating the two airlines is certainly a complex process, and it will take some time to do.”
Yeah, that’s going to soothe things over, especially when taken with Trevino’s other statement that “we are focused on agreements that are fair to employees and the company.”
While Trevino’s statements do not help, for the reasons I outlined above I look forward to continue to connect in Denver on my mileage runs and flights between Philadelphia and Southern California.
This story may explain the attitude of my gate agent last night in DEN.
If one takes a careful look at the Denver operation today and historically, the answer becomes pretty evident.
In 1995 when DIA opened, UA was the entrenched carrier having recently pushed out Continental who decided to abandon the DEN hub when the move from Stapleton occurred. At the same time, the tech boom happened moving a number of high-revenue people to DEN, helping UA grow and sustain it’s operation. The high margins at DEN were very atypical of most airports due to the lack of an international operation, which DEN still lacks.
Since then, competition has grown drastically at DEN and overall airfares are down substantially from their late 90s/early 2000s highs. Any attempts at an international operation at Denver have also failed, most recently the London flights. More and more of the flying out of Denver has become regional further reducing it’s significance in route network.
Honestly, a 19% reduction is only the start. I’m sure Denver will throw some subsidies to keep some operations, but I wouldn’t be surprised if we see a 40-60% reduction within a 18-36 month window. In the current environment, UA can’t keep flying unprofitably and Denver will likely become a regional hub.
If you want someone to blame, blame Southwest. 😉
@Fozz: Great analysis.
I don’t think UA will abandon DEN, but I’m certain they will continually make adjustments to align capacity & service where the money flows. CLE is another hub under scrutiny and it will all come down to yield, PRASM, etc. I enjoy flying through DEN, especially in recent months where United’s routing rules allow(ed) connections through CLE when originating on the West coast. It’s also a fun “people watching” terminal with a lot of connection traffic from very small communities.
@Fozz: I agree with Darren–great analysis. Do you think DEN might go the way of LAS or CLE (or neither)?
Even with your spot-on analysis, I think UA and CO’s roots in Denver might delay what you are talking about for at least three years. DIA has extended no landing fee offers to airlines before and I have to agree with you that Denver authorities will make every effort to keep DIA a UA hub.
With F9 having lost so much money in the first quarter ($55 million), I have to wonder if that will be good for UA. http://www.denverpost.com/ci_18263927
I do have a feeling that WN may try to capitalize on this, but it would be nice to see if UA could try to profit from F9.
What we are talking about is becoming a focus city. I can see them keeping the smaller flights around the mountain areas to service colorado, montana, utah, wyoming, etc. And all mainline would be to the hubs such as SFO, ORD, EWR, IAD, etc would be kept. Something like BOS-DEN or TPA-DEN would be what gets killed. Just pure speculation on my part, no basis for the conjecture.
Cheers.
@Matthew: Honestly, I suspect DEN will become a lot more like LAX with service to key cities around the country and a number of “regional” flights. In the case of LAX, think of cities like Carlsbad, Santa Maria, San Luis Obispo, Imperial, etc. This is exactly what CLE has become, so DEN could very well be the next Cleveland.
Even with an offer of no landing fees, it makes more sense to connect people through IAH or ORD where there is a lot more O&D traffic because it makes the overall system be more efficient. Let’s also not forget that while UA historically has been generous with surplus inventory, CO is not and this is slowly trickling in.
PS is a great example, United reduced capacity and blocked the lower fare buckets to drive the fares up. The result? Those flights are so full (so much so that I got an opup the other night to First on a reward ticket). Even though you can find sub $300 fares published on JFK-LAX/SFO, you can rarely find inventory now.
United is getting smart, they would rather trim capacity and push away the bottom feeders then to support the bottom feeders. As much as mileage runners will hate that, it’s the right thing to do as a business.
In a sense, isn’t Denver already like Cleveland, with no international service (not counting Mexico and Canada) and a more regional focus?
Yes, DEN is regionally focused, but it serves the role of getting the smaller cities in the western US into the United system. There are not enough slots at LAX or SFO to handle any large regional operation, so they have sourced that role to DEN.
@Matthew: DEN still does a lot of cross country connecting, while CLE does not. Also, DEN still gets to see real widebodies, while a 757 is considered a widebody in CLE. Sure there is a heavy regional focus, but that’s true for all of their hubs.
Is the 19% from the same section of that report that was for “dire straits” cuts if fuel spiked, the economy tanked and everything stayed bad for a while? Or is it a more reasonable expectation.
That same report was used to signal the demise of CLE and neither seems particularly likely unless fuel prices stay very high for a while, at which point more than just those two will see cuts.
@Wandering Aramean: I spent a lot of time looking for that report and could not find it–your point is well taken. A close exmination of that report is required for a truly comprehensive analysis.