The Big Opportunity for a New Airline

Did you notice, the last time you went to your local airport, that the signs outside the front of the terminal are getting emptier and emptier.

It used to be there’d be signs above each door into the terminal, listing the airlines that had check-in counters closest to each door.  But now, instead of three or four names per sign, you’ll only see one or two, and sometimes you’ll see totally blank signs with no names at all.  The only growth in airline diversity seems to be at the international part of any airport, not the domestic part.

As you surely know, we’ve seen continued reductions in the number of airlines in the US, and are now at the astonishing point that no-one predicted when the airlines were deregulated in 1978 of having only half the major airlines that were flying then (even though there are vastly more people flying, more times each year).

Today there are only four major airlines with extensive national networks – American, Delta, Southwest and United.  There’s a huge gap in size and scale between these four carriers and the second tier of carriers – airlines that are primarily regional, such as Alaska Airlines or Hawaiian Airlines, or airlines that are simply small and struggling, like Virgin America or Jetblue, or airlines that are ‘different’ and non-mainstream such as Spirit and Allegiant.

We’re told that this implosion in airlines is good for us, and gives us better service, better schedules, and better competition.  There’s precious little evidence of any of those things, with fewer airlines flying fewer flights to fewer destinations, and at the highest fare levels of any time in the last umpteen years.  If proof is needed of any part of this rebuttal, look around you on your next flight – do you see the same number of empty seats as used to invariably be the case?  Nope.  And how about the fare – and fees – you paid?  How does that compare to a few years ago?  While you’d think that with many more passengers per flight, and more fuel-efficient planes, and more cut-throat labor policies, the airlines would be able to ease off on their fares and fees, the reality is starkly different.  Fares have been steadily increasing for the last few years, as have fees, and as an obvious result, so too have profits.

So, in a business arena that is switching from being chronically unprofitable to robustly profitable, what would you normally expect to happen?  Think about most other products – when the product gets accepted, don’t you usually see additional companies and brands appear to compete for slices of the pie?

So shouldn’t we be excitedly anticipating the launch of a new national airline to compete against the dinosaurs currently operating?  Or, alternatively, why isn’t one of the second tier airlines expanding – either one of the regionals taking a growth spurt to go/grow nationally, or one of the thin national carriers moving up to the next level of size and operation?

There are a number of possible answers to that question, most of which are polite ways of saying ‘because they are too scared of being squashed and destroyed by the dinosaurs if they dare overstep the line of what they are allowed to do’.

The interesting thing is that the infrastructure is already in place to allow an airline to suddenly grow.  Although, when airlines merge, they never trumpet plans to close down duplicate hubs, the reality is they invariably do, and as a result, there are a number of large airports that formerly were major airline hubs and which now sit empty, with concourses full of empty gates and hundreds of daily take-off and landing time slots for an airline to utilize.  Airports such as Pittsburgh that used to see 500 flights a day from US Air/US Airways, and which now sees 19 daily departures, many of which are not actually operated by US Airways but by third-party airlines under contract, have enormous capacity to spare.

Here’s an interesting article that lists seven such airports.  We’ve plotted their locations on the map shown at the top of this article.  They are (in alphabetical order) :

• Cincinnati, OH (CVG) – formerly a hub for Delta
• Cleveland, OH (CLE) – formerly a hub for Continental and United (separately rather than as a result of the merger)
• Columbus, OH (CMH) – formerly a hub for TWA, America West and Skybus
• Kansas City, MO (MCI) – formerly a hub for TWA
• Memphis, TN (MEM) – formerly a hub for Southern Airlines, Republic Airlines, and Northwest Airlines
• Pittsburgh, PA (PIT) – formerly a hub for US Airways
• St Louis, MO (STL) – formerly a hub for TWA

An airline looking for a tactical advantage over its competitors when building a national hubbed network would be well advised to negotiate a bargain with one of these essentially moribund airports.  While some of the seven are in better condition and in better locations than others, they all have a past history of successfully supporting an airline’s route network, and we’ll wager that at least one of them could be persuaded to come up with an amazing incentive package that would pretty much see the airline take over the facilities for free for some period of time, and save the airline easily $5 and maybe as much as $10 per passenger it flies through there.  When you consider that airlines seldom/never make as much as $10 per passenger in net profit, the significance of this financial advantage become clear.

There are plenty of other benefits, too.  The new hubbing airline would enjoy enormous operational freedom to schedule its services at any times it wishes.  These operational benefits also flow through to times when there are potential problems that would tie other airports up in knots.  At an under-utilized and uncongested airport with plenty of ‘surge’ capacity, the airline is less likely to suffer delays (and their associated costs) when trying to have its planes land on time and take-off on time, even when weather and other issues are messing up competing hub airports around the country.  To put it another way, if weather restricts an airport to only one runway in operation, that’s a great problem if it normally is relying on two runways, both of which are close to maximum capacity, but it is no problem at all if the airport only needs one runway and isn’t using that at capacity, anyway.

Currently, airlines are operating planes with greater passenger loads than ever before, and more profitably than ever before.  If ever there has been a perfect time to start a new airline, or to grow a current airline, surely it is now.  We’re told that all the airline mergers to date are to create a more competitive market – so where’s the competition?

Fifteen new airlines are slated to open in China in the next twelve months.  Is it too much to hope for one new airline in the US?