ITRADE
Veteran
Maybe the goal to the maxed hubbing is to ensure as much grief for new entrant carriers as possible.BoeingBoy said:
Something - headachewise - happened to a LCC at SFO a couple years back.
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Pit Fears Mda Slipping Away
- Thread starter BoeingBoy
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Something - headachewise - happened to a LCC at SFO a couple years back.
OP
BoeingBoy
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Clue & funguy,
You both touched on something that I've been amused by for a good while - and I don't mean this as disagreeing with what either of you said.
How many time have we seen someone say that PIT is a poor hub because of low O&D traffic? Too numerous to count, I guess. I find this amusing because being a hub is separate from having lots of O&D traffic.
Why, you ask? Let me answer with a question - what is the definition of a hub? Isn't it an airport where an airline's passengers are fed in from the "spoke" cities to make connections to their final destination? Where in that definition is any mention of O&D traffic?
One organization that's in the business of analyzing the transportation industry, Unisys, defines a hub as "an airlines operation at an airport where more than 20% of the traffic is connecting". More than 20% could mean anything up to 100% - in theory a hub could be established in western Kansas far from any sizable city as long as the amount of connecting traffic generated a profit.
High O&D traffic does not make a hub. If it did, LGA, with more O&D traffic than PHL, would be considered a hub - how many times have you seen it refered to as such. BOS has more O&D than PHL, but is not considered a hub airport. MIA, pre-AMR's hub, had more O&D traffic than PHL but was not refered to as a hub airport at that time. On a smaller scale, RDU has more O&D traffic than CLT, yet it is no longer a hub while CLT is.
Where hub O&D traffic comes into play is yield. No hub city in the country could support the amount of non-stop service the hub provides with O&D traffic alone. But in exchange for having that extra non-stop service, the O&D traveler at the hub pays a premium. The passengers from the "spoke" cities generally have a choice of carriers to make their connecting flight on while the hub O&D passenger generally has little choice if they want a non-stop flight.
The yield premium allows the hub to produce, on average, more revenue per passenger than a non-hub city. And therein lies the developing problem with PHL. As Southwest, and the other LCC's to a lesser degree, add service to PHL the yield premium will start to evaporate. Once that happens, the higher cost of flight operations at PHL will begin to take it's toll.
Jim
You both touched on something that I've been amused by for a good while - and I don't mean this as disagreeing with what either of you said.
How many time have we seen someone say that PIT is a poor hub because of low O&D traffic? Too numerous to count, I guess. I find this amusing because being a hub is separate from having lots of O&D traffic.
Why, you ask? Let me answer with a question - what is the definition of a hub? Isn't it an airport where an airline's passengers are fed in from the "spoke" cities to make connections to their final destination? Where in that definition is any mention of O&D traffic?
One organization that's in the business of analyzing the transportation industry, Unisys, defines a hub as "an airlines operation at an airport where more than 20% of the traffic is connecting". More than 20% could mean anything up to 100% - in theory a hub could be established in western Kansas far from any sizable city as long as the amount of connecting traffic generated a profit.
High O&D traffic does not make a hub. If it did, LGA, with more O&D traffic than PHL, would be considered a hub - how many times have you seen it refered to as such. BOS has more O&D than PHL, but is not considered a hub airport. MIA, pre-AMR's hub, had more O&D traffic than PHL but was not refered to as a hub airport at that time. On a smaller scale, RDU has more O&D traffic than CLT, yet it is no longer a hub while CLT is.
Where hub O&D traffic comes into play is yield. No hub city in the country could support the amount of non-stop service the hub provides with O&D traffic alone. But in exchange for having that extra non-stop service, the O&D traveler at the hub pays a premium. The passengers from the "spoke" cities generally have a choice of carriers to make their connecting flight on while the hub O&D passenger generally has little choice if they want a non-stop flight.
The yield premium allows the hub to produce, on average, more revenue per passenger than a non-hub city. And therein lies the developing problem with PHL. As Southwest, and the other LCC's to a lesser degree, add service to PHL the yield premium will start to evaporate. Once that happens, the higher cost of flight operations at PHL will begin to take it's toll.
Jim
pitexpressramp
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- Jan 8, 2004
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Couldn't have said it better myself boeingboy...I really don't see Southwest or any other LLC taking a bite out of U traffic at PIT inthe near future so why don't the "geniuses" in CCY concentrate on rebuilding the PIT hub to it's once glorious status and I'm pretty sure they will see the eror in their ways of building up PHL with all their problems.
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BoeingBoy
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ITRADE,
" Maybe the goal to the maxed hubbing is to ensure as much grief for new entrant carriers as possible."
You may very well be right - whether by design or not!! I'm just not sure we're in the financial position to be shooting ourselves in the foot in hope of hitting the competition.
Jim
" Maybe the goal to the maxed hubbing is to ensure as much grief for new entrant carriers as possible."
You may very well be right - whether by design or not!! I'm just not sure we're in the financial position to be shooting ourselves in the foot in hope of hitting the competition.
Jim
Boeing Boy:
You make excellent comments that often get glossed over. So here is the deal.
Connecting traffic is inherrently less profitable than nonstop traffic. The $99 transcon trip with a connection anywhere is more costly to produce than the $99 transcon nonstop. However, the amount of traffic from most places on the east coast cannot justify a nonstop flight by any one airline. Thus, the hub and spoke system was born.
The low amount of O&D traffic, as you noted, puts pressure on yield. This is because, since connecting passengers are by their very nature lower revenue (because nonstop service is considered a "premium" product to connecting service, and more competition as you noted), and higher cost. Therefore the local traffic (i.e. PIT to LAX) gets a premium service (multiple nonstops to choose from), and should be charged accordingly (higher fares).
The problem with PIT is that with such a small total O&D traffic base, the amount of "high-fare" local traffic is extremely limited. So you have two choices... Get more people to pay high fares or raise the fares. Since PIT as a city has been shrinking in the past few decades, getting more pax to pay high fares for the premium service has not happend. Thus the fares at PIT have risen.
The next problem is that when the fares get too high, folks begin looking for low-fare options. Folks on the fringes of the area served by PIT start to find other airports to use (i.e. CAK, CMH). Low-fare carriers enter the market (i.e. Vanguard, AirTran, America West, ATA) because they can undercut, offering an inferior product (i.e. connecting service) at a lower cost to the consumer. This has a two-fold effect, it lowers the yield the hub carrier can choose and it reduces the O&D market size. When this happens, the hub carrier can either lose money competing or raise fares.
So, as flights are added to a Low O&D hub, the amount of connecting traffic as a percentage of total traffic increases. This measn that the revenue per passenger on average declines, because the Low O&D hub local cannot support a fifth frequency to LAX when it can barely support 4 (for example).
Now you take a situaiton like PIT, where the average revenue per pax (both local and connect) is declining because there are more connecting passengers, and cost per passenger is increasing, and you end up with a loss-making hub.
Consider this. Back in the early '80's, some of aviations forward thinkers began to consider the economics of a hub in a corn-field in Iowa. The idea was to build special airports in the middle of no-where which were designed as transfer only points. Costs would be reduced because there would be no ticketing, no baggage claim. Only Connecting Passengers. Only runways and concourses. The problem with this was that it created a hub with all low-fare, high cost connecting traffic. So while it would make sense from a lower costs by not building/staffing the landside areas, it did not make sense from an operating standpoint (cost per passenger for the operation).
Now back to PIT... The US Air PIT hub, from what I have heard, is around 80% connecting. That is extremely high. I have heard that about 40% of Southwest's system traffic is connecting. Combine that with the fact that the cost per passenger at PIT is very high compared to other airports, and you see US Airways’ PIT problem.
You are right... There is an impending problem at PHL. I believe the PIT hub is currently larger than what the local passenger premium pays for. In other words, PIT's losses are because the hub is too large. CLT works because it is a low-cost airport. If you are going to have a hub with 70-80% of your passengers connecting, you need it to be as low-cost as possible. This is why CLT works and PIT does not. However, if the CLT hub becomes larger than the O&D traffic can support, the same thing will happen there.
So when I refer PIT not having enough O&D traffic, this is what I am referring to.
You make excellent comments that often get glossed over. So here is the deal.
Connecting traffic is inherrently less profitable than nonstop traffic. The $99 transcon trip with a connection anywhere is more costly to produce than the $99 transcon nonstop. However, the amount of traffic from most places on the east coast cannot justify a nonstop flight by any one airline. Thus, the hub and spoke system was born.
The low amount of O&D traffic, as you noted, puts pressure on yield. This is because, since connecting passengers are by their very nature lower revenue (because nonstop service is considered a "premium" product to connecting service, and more competition as you noted), and higher cost. Therefore the local traffic (i.e. PIT to LAX) gets a premium service (multiple nonstops to choose from), and should be charged accordingly (higher fares).
The problem with PIT is that with such a small total O&D traffic base, the amount of "high-fare" local traffic is extremely limited. So you have two choices... Get more people to pay high fares or raise the fares. Since PIT as a city has been shrinking in the past few decades, getting more pax to pay high fares for the premium service has not happend. Thus the fares at PIT have risen.
The next problem is that when the fares get too high, folks begin looking for low-fare options. Folks on the fringes of the area served by PIT start to find other airports to use (i.e. CAK, CMH). Low-fare carriers enter the market (i.e. Vanguard, AirTran, America West, ATA) because they can undercut, offering an inferior product (i.e. connecting service) at a lower cost to the consumer. This has a two-fold effect, it lowers the yield the hub carrier can choose and it reduces the O&D market size. When this happens, the hub carrier can either lose money competing or raise fares.
So, as flights are added to a Low O&D hub, the amount of connecting traffic as a percentage of total traffic increases. This measn that the revenue per passenger on average declines, because the Low O&D hub local cannot support a fifth frequency to LAX when it can barely support 4 (for example).
Now you take a situaiton like PIT, where the average revenue per pax (both local and connect) is declining because there are more connecting passengers, and cost per passenger is increasing, and you end up with a loss-making hub.
Consider this. Back in the early '80's, some of aviations forward thinkers began to consider the economics of a hub in a corn-field in Iowa. The idea was to build special airports in the middle of no-where which were designed as transfer only points. Costs would be reduced because there would be no ticketing, no baggage claim. Only Connecting Passengers. Only runways and concourses. The problem with this was that it created a hub with all low-fare, high cost connecting traffic. So while it would make sense from a lower costs by not building/staffing the landside areas, it did not make sense from an operating standpoint (cost per passenger for the operation).
Now back to PIT... The US Air PIT hub, from what I have heard, is around 80% connecting. That is extremely high. I have heard that about 40% of Southwest's system traffic is connecting. Combine that with the fact that the cost per passenger at PIT is very high compared to other airports, and you see US Airways’ PIT problem.
You are right... There is an impending problem at PHL. I believe the PIT hub is currently larger than what the local passenger premium pays for. In other words, PIT's losses are because the hub is too large. CLT works because it is a low-cost airport. If you are going to have a hub with 70-80% of your passengers connecting, you need it to be as low-cost as possible. This is why CLT works and PIT does not. However, if the CLT hub becomes larger than the O&D traffic can support, the same thing will happen there.
So when I refer PIT not having enough O&D traffic, this is what I am referring to.
ClueByFour
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PHL, when operating on the 9s/17s, has a maximum IFR arrival rate of around 48/hr. In visual conditions and if you bring 35 into play, you can get over 50/hr. If the soup gets really thick and they drop to the 27s only, the arrival rate drops to 26-28/hr.ITRADE said:
PIT, when operating on the 28s or the 10s (and, bear in mind that you can shoot simultaneous Cat II/III ILS to both 10s, due to the seperation) can handle 65/hr in IFR conditons, and 80/hr in visual conditions. If you bring 32 into play (since I believe the 14 end can only be used for props, and I've never seen it happen), you can get the arrival rate over 80/hour. Worse case at PIT (what they refer to as the snow/fog config), you drop to 35-38 arrivals per hour.
You also have the tight ramp/termal spaces at PHL.
The way I see it, you would have to "smooth" things to the tune of 10 less flights/hour (at least) during peak times to make things work at PHL. And that assumes that all airport users play ball.
PHL is not, nor will it be, a airfield suited for a hub (without massive capital investment in another runway).
Funguy, and ClueByFour,funguy2 said:
I think you are missing something. USAir320pilot is not saying U will create a NEW hub somewhere "westward." I think what he is suggesting, though not quite saying, is that U will somehow "take over" a UAL hub like DEN or ORD or SFO or LAX when his merger / UCT / whatever fantasy becomes a reality.
(Or maybe MSP or MEM with the new NW kick he is on.)
EyeInTheSky
Veteran
The only plan on the table right now is to keep the airline alive. Basically, we're on the operating table with only one thing in mind: staying a live another day, week, month, year....don't think they can plan too much beyond given the circumstances.
Tell ya what. I bet that once PHL is established, PIT comes soon after. I'd be very surprised to find that there isn't significant demand in the PHL-PIT corridor (enough for at least a few full 737s) that is currently driving because of the $600 R/T fares.pitexpressramp said:
Granted, WN won't move into PIT unless they can have at least a dozen flights a day. Think there's enough to WN's other "hubs" (how 'bout BWI and MDW as two examples) to round out a beachhead for them?
ClueByFour
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- Aug 20, 2002
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I understand that, but I discount it as the dreams of one poster.Bear96 said:
Further, LAX and DEN have huge LCC presences "on site" and SFO suffers from having OAK and SJC in close proximity. ORD suffers from MDW.
So, even if the tooth fairy comes out and somehow deeds any of the UA hubs to US, US is in no position to be able to compete effectively with the LCC presense, nevermind the fact that U lacks the equipment to replace the large international presence that UA has at ORD/SFO.
TheWatcher
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- Aug 26, 2002
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Tell me something. Are the cost in PIT inflated because UAIR dramatically reduced the number of daily flights, therefore the cost of operations had to be spread out over a smaller number of flights? Which in turn drove up the operating cost in PIT.
Do you not think the cost in CLT would be higher if the same thing happened there with dramatic flight reductions?
Also, so many times it has been stated the UAIR has too many hubs too close to each other. Last i counted, there were only 3. I think the 3 are well positioned given they are all located in the most densly populated area of the USA. Only way i can see that having these 3 hubs as being a problem business wise is if the people that are running the business have no interest in immediate or future growth. If you are planning on a minor operation, then 3 hubs maybe even 2 hubs would be a problem.
Just my observation
Do you not think the cost in CLT would be higher if the same thing happened there with dramatic flight reductions?
Also, so many times it has been stated the UAIR has too many hubs too close to each other. Last i counted, there were only 3. I think the 3 are well positioned given they are all located in the most densly populated area of the USA. Only way i can see that having these 3 hubs as being a problem business wise is if the people that are running the business have no interest in immediate or future growth. If you are planning on a minor operation, then 3 hubs maybe even 2 hubs would be a problem.
Just my observation
usfliboi
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- Aug 20, 2002
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I dont think usairways goal is to shrink to profitablity, i think its to sell itself or buy another or to prevent happening what happened before in the last merge attempt with ual. On another note, why is it that clt hasnt had the problems pit has had, other than our per pax cost to fly in and out are alot lower. Charlotte spends a lot of money energy and time getting usairways to move people and things here for the most part sucessfully. My opinion is PIT is gone as a hub once and for all. The writing has been on the wall esp since wolf and g took over. Looks like a lot of people will be moving once again , some even to the south . I hate it but hopefully thats a choice and not the alternative of "no alternative"
Bear96: I don't think I missed it. I understand the airplanes go when the UTC occurs in USA320Pilot's mind. The reality is, this will not happen in any meaningful timeframe, if at all. That is the nature of my comment: No where to move the assets to.
TheWatcher: I think the cost problem at PIT began when the new terminal building was approved/constructed. I recall hearing that PIT was at a cost disadvantage back then. But I believe you are probably right... The cost per passenger will certainly increase with less passengers, further erroding the viability of the hub. The fixed costs of the hub will need to be spread over less passengers. That said, UAIR has made moves to make some of the fixed costs more variable (i.e. 30-day gate leases on most gates).
usfliboi: The reason why US Airways hasn't threatened to leave CLT, in my opinion, is exactly that... lower cost per passenger to operate there. The guy going from SYR to MCO doesn't really care where he connects. The airline should send him through the most cost-effective hub they can.
I think part of CLT's success in keeping airport costs low was to build modularly. For example, Concourses B, C, and D were all expanded from their original design. Concourse E is an add-on. Conourses B and D appear to have enough room nearby for easy expansion again, if needed. Expanding as needed is much more efficient and requires much less debt than building a massive and complete new structure from the ground up, as PIT did. (BTW, I don't ever recall Concourses C or D at PIT being utilized very completely).
PIT also has a more costly design, with the people mover system. More costly to build initially, and more costly to operate on an ongoing basis.
mweiss: You may be right. Southwest may be the one carrier US Airways will not be able to remove from PIT-PHL, as they did with AirTran and Nations Air. And Southwest seems to like picking on US Airways. I guess we'll wait and see. I never thought LUV would be in PHL, so I am a bit reserved in making predictions on what they will do next... They have become less predictable than in the past.
TheWatcher: I think the cost problem at PIT began when the new terminal building was approved/constructed. I recall hearing that PIT was at a cost disadvantage back then. But I believe you are probably right... The cost per passenger will certainly increase with less passengers, further erroding the viability of the hub. The fixed costs of the hub will need to be spread over less passengers. That said, UAIR has made moves to make some of the fixed costs more variable (i.e. 30-day gate leases on most gates).
usfliboi: The reason why US Airways hasn't threatened to leave CLT, in my opinion, is exactly that... lower cost per passenger to operate there. The guy going from SYR to MCO doesn't really care where he connects. The airline should send him through the most cost-effective hub they can.
I think part of CLT's success in keeping airport costs low was to build modularly. For example, Concourses B, C, and D were all expanded from their original design. Concourse E is an add-on. Conourses B and D appear to have enough room nearby for easy expansion again, if needed. Expanding as needed is much more efficient and requires much less debt than building a massive and complete new structure from the ground up, as PIT did. (BTW, I don't ever recall Concourses C or D at PIT being utilized very completely).
PIT also has a more costly design, with the people mover system. More costly to build initially, and more costly to operate on an ongoing basis.
mweiss: You may be right. Southwest may be the one carrier US Airways will not be able to remove from PIT-PHL, as they did with AirTran and Nations Air. And Southwest seems to like picking on US Airways. I guess we'll wait and see. I never thought LUV would be in PHL, so I am a bit reserved in making predictions on what they will do next... They have become less predictable than in the past.
Just Plane Crazy
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- Feb 24, 2004
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PAX don't care where they connect if they have to connect. They'd rather take a non-stop.
