Tuesday, September 13, 2005

Delta in Cincinnati

Ben Mutzabaugh of USA Today speculates as to the impact of Delta's recent announcement of reduced service from its Cincinnati hub on the possibility of competition by a discount carrier:

Will Delta's Cincy cuts invite low-cost competition? Delta's announcement this week that it would cut flights at its Cincinnati hub by 26% may have been a necessity for the financially strapped airline, but experts say the move comes with a big risk. Delta currently dominates the Cincinnati market, meaning the carrier can typically set fares there without fear of being undercut by rivals. Delta's Cincinnati dominance also has helped scare off low-cost carriers from that market, but the cuts could leave an opening that may make Cincinnati too tempting a target for a low-cost carrier to avoid. "I hope (Delta) thought this through very carefully – downsizing a hub is a very delicate proposition," Aaron Gellman, an economics professor at Northwestern University, tells The Cincinnati Post. "I wouldn't be surprised to see a
low-cost carrier come in." And if low-cost carriers do arrive, Delta would likely be forced to cut its Cincinnati fares to match that of its new rivals.
Presumably, the cuts will come in the least essential parts of Delta's service, and in such a way that best protects its market share in Cincinnati. Another report had this to say:
Delta's hub operations accounted for about 92 percent of the nearly 22 million passengers who went through the Cincinnati airport last year, airport spokesman Ted Bushelman said.

Delta and the Delta Connection operate 599 flights a day, out of about 660 by all carriers. Delta will reduce its 128 flights Cincinnati flights to 94, and Delta Connection flights will be cut from 471 to 348, he said.

Travelers will lose nine destinations served by Delta Connection carriers, Bushelman said. The nonstop flights being eliminated are to Moline, Ill.; Mobile and Montgomery, Ala.; Islip, L.I.; Baton Rouge, La.; and Fort Walton Beach, Pensacola, Tallahassee and Daytona Beach, Fla.

The reduction from 660 to 503 flights represents a 24% reduction for the airport as a whole, but before any additional carriers come in, these reductions still leave Delta 88% (442/503) of the flights--barely down from its current 91% share. If the reductions are concentrated in the cities listed, then they appear not to open up any major markets. But I suspect that the airport authorities will be eager to not have a reduction in activity, and so they may be inclined to seek out new carriers to get back the missing quarter of their current traffic.


Anonymous said...

Hubs may be less common in the future. Point to Point

Fat Man said...

I live in Columbus. I can't tell you how many times I have gotten on a flight and sat next to a person from cincinatti who drove to columbus (~90 mi) to save a fortune on airfare.

Anonymous said...

"Will Delta's Cincy cuts invite low-cost competition?"

Something sounds fishy about this. It could be re-framed as "Will Delta's financial difficulties finally end Delta's wherewithal to block competition?"

What is the definition of a "low-cost" carrier?

Anonymous said...

Part of this may be framing. Low cost airlines may simply be "efficient" airlines.

It would be nice to know the % of cost savings that come from each source of cost advantage for "low cost" airlines. Also, are some of these cost advantages interactive (eg, can planes at gates be turned faster when less amenities are provided to passengers)

How much money is saved by avoiding hubs?

Anonymous said...

buy 100 shares in Southwest. You might look back and be glad.

Anonymous said...