Coping With Reduced Airlift

What consolidation and flight cuts mean to key meeting destinations

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When an expected 50,000 delegates descend on Cleveland this July for the Republican National Convention, they will experience an airlift situation that has drastically changed in recent years. Once you could jet nonstop to the city from places like London or San Diego, but carrier consolidation ended all that. United Airlines alone had served 58 destinations nonstop from its Ohio hub; now that's down to 15. If loyal customers of one of the country's largest airlines want to get to Cleveland for the GOP confab, many will need to change planes at least once in places like Newark or Chicago.

On the outbound side, Cleveland Hopkins International Airport has lost more than a third of its flight departures since United Airlines merged in 2010 with Continental and eliminated the latter's hub-and-spoke operation out of the facility.

There's an inevitable Washington angle here, too: It was the federal government that approved the United-Continental union and a slew of other mergers that transformed the airline landscape. A group of travel-related associations earlier this year banded together to lobby Congress to create a commission to study airline competition, or the lack thereof, particularly in cities such as Cleveland; Memphis, Tenn.; and St. Louis, all of which lost their hub status following a big merger and have major convention centers and hotels dependent on the airlines.

In addition, the Department of Justice is investigating whether the county's four biggest airlines colluded to slash service at some of these midsize gateways in order to drive up prices. Those carriers -- American, Delta, Southwest and United -- deny they've done anything illegal.

"Airlift is absolutely critical to a city's ability to attract meetings and conventions," notes Erik Hansen, senior director of domestic policy for the U.S. Travel Association. "What we have seen after this wave of airline consolidation is that it can be difficult to reach some of the hardest-hit areas from different parts of the country."

But cities that have lost out as a result of the airlines' merger mania aren't necessarily content with playing the role of Exhibit A in any legislative or legal battles. Instead, they're fighting back, courting new carriers to come in to pick up the slack. And they're also touting the benefits of loosening the stranglehold that a dominant airline can exert over a city.



Cities vs. shrinking airlift
"We don't get as many direct flights as we used to," says Mike Burns, senior vice president of convention services and sales for Destination Cleveland, the city's tourism bureau. "But new low-fare airlines are coming in. Fares have dropped significantly, and that's a huge advantage. You now have options that you didn't have a few years ago."  

At first glance, the numbers do show a dramatic decline in the city's airline service, from 110,000 annual departures at Hopkins 10 years ago to around 49,000 today. But Burns points out that the number of passengers has not dropped by such a dramatic percentage. The reason: Most of the newcomers are flying full-size jets like Boeing 737s, which carry more people than the smaller commuter planes that United and its regional partners operated on many routes. And upstarts like Spirit and Frontier are adding more frequencies. In fact, Cleveland's passenger count showed a slight uptick in 2015 from the year before, to nearly 8 million (although that's a drop from the 10.5 million who flew in 2006).   

"We've gone from having one flight a day to Las Vegas, under United, to four flights a day now," Burns says. "We still have plenty of robust service compared with cities our size," he adds, noting that Cleveland, in part due to its convention center, is drawing major meetings like Content Marketing World and the American Bus Association.

When air service does becomes a sticking point, Burns says, it's usually because the meeting involves a large number of international delegates who generally prefer to fly to a city with a first-tier airport, such as San Francisco and Chicago, which draw lots of nonstop flights from abroad, thus avoiding having to make a connection.

To counter this issue, Burns talks up the ease of ground connections once passengers land in Cleveland. "If we look at the time it takes to go from the airport baggage carousel to checking into your hotel room, we come out quite favorably," he says, compared to other cities notorious for their local traffic gridlock, such as New York City and Los Angeles.

U.S. Travel's Hansen agrees. "Local transportation is just as important as intercity connections," he says, citing a study the association did a few years ago showing that cities with rapid transit from airports to downtown are "much more competitive for meetings."

 

 


Planners join the fray
Still, the loss of a significant airline hub can be a problem for a city's broader economy. Several Fortune 500 companies have relocated their headquarters in recent years due to inadequate air service. Cincinnati, where dominant carrier Delta downsized its hub after its 2008 merger with Northwest and cut 60 percent of its flights there, subsequently earned the dubious distinction of having the highest airfares in the country. That had a serious impact on the local economy and helped to drive out hometown companies such as Chiquita Brands, now based in Fort Lauderdale.

 

April 30, 2015:
JetBlue begins service
in Cleveland.
April 30, 2015: JetBlue begins service in Cleveland.

Meetings, too, are an economic engine, contributing more than $115 billion to the nation's GDP, according to the Convention Industry Council, and also generating $88 billion in federal, state and local taxes. And in Cleveland, where officials have had high hopes for their convention center, which opened three years ago, any uptick in convention bookings will have a significant ripple effect. City officials recently projected that total meetings reserved through the end of 2019 will produce a total of $577 million in economic impact, based on the standard multiplier of $1,200 in spending per visitor. In contrast, the economic impact of all events held in Cleveland's convention center in 2014 was $111 million.

As for meeting planners, who might be under pressure to fill convention halls and hotels, a city's airline service generally comes into play early in the deliberations.

"Easy access to location definitely increases attendance," says Katey Pease, vice president of business development at the Lexington, Ky.-based National Tour Association, which holds a number of major meetings annually. "One of the first things we look at is transportation to the location and possible flight partners," she notes, adding that the lack of convenient airline service can be a deal-breaker for a location.  

The NTA earlier this year held its annual Travel Exchange in Atlanta, one destination where flight availability is definitely not a problem. The city's Hartsfield-Jackson is the busiest airport in the world by some measures, topping 100 million passengers in 2015.  The Travel Exchange drew more than 1,600 delegates, and "the number of nonstop flights that they have there was a plus," says Pease.

But bigness can have a downside, too. "Atlanta's airport is so huge, it's not conducive to giving that 'great big welcome' delegates expect," Pease says, noting that the airport put restrictions on the size of signage the group could display for arriving conferees.


Case study: Memphis
In some cities, the conversation over air service can get very personal -- and heated. Take Memphis, which arguably is the city most impacted by a single airline's decision to downsize. Local citizens were concerned when Delta took control of Northwest's Tennessee hub, post-merger -- after all, its fortress hub in Atlanta is a few hundred miles away. Their fears were realized when, despite Delta's promises to the contrary, the airline's flights dropped from 240 daily departures to fewer than 40, following the carrier's decision to "de-hub" there in late 2013. And the city lost some key routes that connected it to the rest of the country and the world, including a nonstop to Amsterdam, Netherlands.

Civic leaders weren't shy about venting their outrage; one local lawyer even created a Facebook page entitled "Delta Does Memphis" to collect complaints about the resulting fare hikes and inconvenient service. Memphis' air traffic remains significantly below pre-merger levels, from 2008's 5.24 million passengers to 2.6 million in 2015.

Local travel industry officials said Delta's decisions have had serious ramifications for their business. "It can make it difficult to attract conventions and to lure new corporations," says Vicki Rush, CEO of A&I Travel, a travel management company in Memphis.

However, as in Cleveland, efforts to encourage competition in Memphis are on the verge of paying off. "Our airport authority has been successful in getting new airline services in," notes Patrick Aversa, national sales manager for the Memphis Convention and Visitors Bureau. "The average rate has come down, and we are no longer one of the highest airfare markets in the country."

Among the airlines moving to fill the void in Memphis are Southwest, Frontier and Allegiant, plus a new regional line, Southern Airways. Aversa says that with gas prices so low, driving increasingly is an attractive alternative to flying in markets less than 500 miles away, but airline service remains an important indicator -- of civic pride if nothing else. "It's important for convention-goers and for the companies that do business here on a regular basis. It's crucial that they can feel confident in their ability to get people in and out."

And for that, they still look to Delta. The airline is listed on the CVB's website as "our travel partner." The irony is that for all the changes that airline consolidation has wrought, the remaining Big Three airlines -- American, Delta and United -- are so huge that even the cities they've snubbed still depend on them. In fact, Delta remains the top carrier in Memphis, with 28 percent of the market. Southwest is a distant second with 16.6 percent of the business. And for meeting planners, Delta's ability to arrange discount fares for convention attendees and connections from all over the country, if not the world, can in part compensate for the paucity of nonstop service to a city like Memphis.  

"Airline competition is one of many considerations during the site-selection process," says William Reed, FASAE, CMP, senior director of meetings and community engagement, American Society of Hematology, and the 2016 chair of the Professional Convention Management Association. "You also need to look at where attendees are coming from, and if they can reasonably travel to the destination."

 

William Reed,
American Society of Hematology
William Reed, American Society of Hematology

And that depends on the makeup of the group, Reed says. Some attendees "may have a different definition of what is acceptable" in terms of nonstop, one or even two connections. International travelers, he notes, "love when our meetings are in gateway cities. They prefer that once they land on U.S. soil, they're done. International attendees might be OK with a short connecting flight from the gateway city, but often that's the end of their definition of acceptable."

Delta, for its part, insists that reducing flights in places like Memphis is just part of the overall strategy that every airline has to undertake to stay afloat. "As a business, we have to find the right combination of service and flights," says Anthony Black, a carrier spokesperson. Airlines are no longer flying to places just to show the flag or to hold onto market share, he notes. "The goal is to make each flight profitable, and for some of those flights [out of Memphis], the demand just wasn't there." The Northwest merger happened right at the time that fuel prices began to skyrocket, Black adds, and the carrier's annual fuel tab shot up by $4 billion a year as a result, forcing the airline to make tough decisions to hold down costs.

Conditions are quite different today, with airlines spending a lot less on jet fuel and posting record profits. Their planes are fuller than ever -- the average flight in the U.S. takes off with more than 85 percent of seats occupied. So will these newly flush carriers reconsider the service cuts they made when fuel prices were at record highs?  

Likely not, says U.S. Travel's Erik Hansen, and that gets back to why airline service is a hot topic in the nation's capital these days. "It's a huge issue, because undoubtedly there's been a reduction in competition. In 2005, we had 11 large carriers, and now we are down to four," he says, adding that challenging the resulting oligopoly is not easy. But governments and local municipalities can help level the playing field. In particular, he says, cities can work with airlines to provide marketing support, and airports can adjust the fees they charge. And niche airlines like JetBlue can use this to their advantage (see "JetBlue's Warm Welcome").

JetBlue's warm welcome
While JetBlue had been eyeing Cleveland for several years, it didn't launch service there until United shut down its hub. Beginning last year, JetBlue has run daily flights from the city to Boston and Fort Lauderdale, and Cleveland officials are optimistic that the service will expand.  

JetBlue executives are heartened by the warm welcome the carrier got in the city. "The average fares at Cleveland were just obscene," says David Clark, the airline's vice president of network planning. "United was charging more to fly from Cleveland to Boston than we were charging to fly coast to coast. What drew us to Cleveland was the classic situation: We could enter a market and charge a lot less than the incumbent." And what happened was the "classic effect," according to Clark. The average fare fell by half, and passengers doubled in the markets JetBlue is serving.

In addition, "we had so much support from the community," notes Clark, which suggests that cities that are proactive can do a lot to boost air service. As Clark puts it, "I've never seen a city more eager to embrace new service as Cleveland."


What's next? 
While JetBlue is growing faster than the Big Three, which have held the line on growth to preserve profit margins, there's a limit to how fast it and other independents can add flights. And it too has reduced flights in a market it had entered with great fanfare -- notably Pittsburgh, which also has struggled to maintain adequate air service after a dominant airline, in this case, US Airways, made drastic service cuts.

Which is why all eyes are on American as it completes its merger with none other than US Airways. The move  was at first opposed by the Justice Department, and American had to make concessions, such as giving up landing slots at key airports, to get the marriage blessed by Uncle Sam. The airline also pledged not to abandon US Airways' hubs like Philadelphia or Phoenix.  

The jury's still out on whether those hubs will get the "Delta Does Memphis" treatment. But they might look to St. Louis for a cautionary tale. Formerly a TWA stronghold, St. Louis lost a significant percentage of its service after American took over the bankrupt carrier in 2001. American, too, had pledged to maintain a strong presence, but it changed course and shifted assets to major hubs like Dallas/Fort Worth.

Yet NTA's Katey Pease says that despite the loss of nonstop flights, the group decided to hold its biggest conference in St. Louis next year: "The air-service question didn't come up. It's mid-America, and you know it's likely going to be one connection from anywhere." And these days, that might qualify as good news. For some of NTA's members, getting to West Coast gateways requires two connections, Pease notes, which is a serious disincentive to potential delegates.

One bright spot is that Southwest is now the dominant carrier at St. Louis, with about 60 percent of the total traffic there. The carrier recently added nonstops to a number of destinations, and local tourism officials say they're optimistic they've turned the corner.