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Is The Worst Over For Medium And Small Hub Airports?

Is The Worst Over For Medium And Small Hub Airports?

August 14, 2013 – We saw this article today and thought it was worth reposting here. Synthesis:

  • Fuel price escalation and volatility forever changed airline economics and planning
  • Capacity cuts post-2007 were necessary to align capacity with profitable demand
  • “Second-tier” cities were disproportionately affected because they had the most duplicate capacity, either on O&D routes, or “flow” routes competing with other hubs of the same airline
  • Absent another shock, the airline capacity cutting is substantially complete

We pass this along and recommend it to our readers. We also want to corroborate the last bullet, but with a caveat:

Corroboration – A seasoned airline network planner (who shall remain anonymous here) recently told us that capacity cuts since 2007 have largely done their job, and that absent another shock, this airline believes it has reached a stable capacity base from which to grow profitably. So, while it’s always possible that MIT’s Swelbar and we have the same source, it seems more likely that the industry sentiment is at or approaching consensus on this issue.

Caveat – Swelbar is, we think, speaking at the system level; and we agree with him and our anonymous airline planner; but an airline’s capacity can be like a skyscraper. Viewed from the outside, it seems static. Inside, however, people and elevators are moving constantly. So it is with an airline’s network: the overall capacity outlook might be stable, but there is still the possibility of flexing capacity up or down in individual markets as needs or demand inform airline decisions.

What does this mean? If your airport is in what we call Quadrant III, the worst may well be over, but cuts could still occur. Until the industry achieves sufficient and sustained profitability to be able to grow without making capacity trade-offs – and we don’t think it has yet – medium hub and small hub airports will still be at disproportionate risk of service cuts when airlines come across an opportunity elsewhere that they just cannot pass up. Airports still need to compete to provide value to customers – both passengers and airlines – to maximize control over their futures.

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