"High airfares: Cincinnati is now No. 1"

Friday, August 29, 2003

High airfares: We're now No. 1
By Alexander Coolidge
The Cincinnati (OH) Post


Travelers flying out of Cincinnati/Northern Kentucky International Airport
are paying the highest average fares in the country, even as low-cost air
carriers steal market share from the major airlines that are slashing fares
elsewhere.

The average one-way fare to depart from here is $228, the highest among
airports studied by the U.S. Department of Transportation. Passengers pay
more than those flying out of No. 2 Charlotte, N.C. ($219), San Francisco
($212), Minneapolis ($209), and Washington, D.C. ($203).

Nearby airports are much cheaper. The average fare out of Dayton is $134;
it's $130 out of Louisville, $133 in Columbus and $144 out of Indianapolis.
Round-trip fares would be double that figure.

The new analysis by the Department of Transportation is for the third
quarter of 2002, the latest available. The numbers show what frequent
travelers have experienced for some time: It's very expensive to fly out of
Cincinnati.

While Cincinnati has ranked in the top five since the DOT started compiling
figures on average fares in 1995, this is the first time since 1998 that the
Queen City was in the top slot. Charlotte, now No. 2, was No. 1.

Travel experts blame the high fares on Cincinnati's status as a hub -- a
connecting point between hundreds of destinations for a major airline -- and
a lack of competition for pushing fares skyward. Delta Air Lines operates
its second-largest hub here and controls 92 percent of the flights out of
Cincinnati.

"It's hard to explain to someone who only travels once or twice a year,"
said Sheila O'Connor, manager at Talgood Travel downtown. "There's just not
a lot of competition out of here, so prices are higher. We have a lot of
Delta flights out of Dayton that connect in Cincinnati that are cheaper than
flying directly out of here."

A traveler flying in or out of Cincinnati is paying a 56 percent premium
above the average rate for trips of similar distance and occupancy -- simply
for the privilege of a rendezvous with the airport, the DOT said.

The disconnect between a hub and cheap fares is not unique to Cincinnati.
There are more than half a dozen dominated hubs -- where one major airline
controls 65 percent or more market share -- sprinkled across the country,
the DOT said. Cincinnati is one of these dominated hubs, sometimes called
"fortress hubs," along with airports in Charlotte, Minneapolis and
Pittsburgh.

Delta officials defend their pricing at Cincinnati.

"Delta Air Lines prices fares based on supply, demand and competition," said
spokesman John Kennedy. Flying out of a hub is generally more expensive
because it offers a wider choice of destinations, he said. Still, he
conceded, competition, or the lack of it, played a role, which is why
Delta's Atlanta hub isn't so expensive. The average fare out of Atlanta,
according to the DOT, is $153.

High prices have for years prompted travelers to drive to airports in
Dayton, Louisville and Indianapolis to get a cheaper plane ticket. There is
little incentive, though, for financially struggling Delta to cut prices.
The airline, which lost $1.3 billion in 2002 and $282 million so far this
year, banks 41 percent more money per seat mile -- an airline measure of
profitability -- out of Cincinnati than from trips out of its home base in
Atlanta.

The fact that Delta is getting a premium from tickets out of Cincinnati,
however, guarantees the airline will keep the hub, says Pete Pappas,
principal at BBK Ltd., a consulting firm to financially distressed
companies. He said an airline looking to cut hub costs would reduce
operations at marginal hubs where it has the least market share.

Cincinnati's pricey status comes at a time when the very hub-and-spoke
structure of the airline industry is under siege by increased competition
and possibly the toughest economic environment in aviation's history.

Delta chief executive Leo Mullin has said the nation might see hubs
disappear as the industry cuts back. On top of a sluggish economy and
terrorism concerns, increased competition might force big airlines to cut
airports, he writes in the August issue of Delta's "Sky" magazine.

No one believes the hub-and-spoke system -- so named because a map of a
major airline's routes show flights fanning out in a circle from a few
central connecting points -- is doomed.

"There may not be as many hubs in the future as we have now," said John
Heimlich, the managing director of economics at the Air Transport
Association.

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