"O'Hare soon to be last dual hub for major carriers"

Wednesday, January 19, 2005

O'Hare soon to be last dual hub for major carriers


CHICAGO (Reuters) - Chicago's O'Hare International Airport next month will
become the last U.S. airport serving as a hub for more than one major
airline, reflecting the fading popularity of the traditional hub-and-spoke
model.

O'Hare, the second busiest U.S. airport, will hold that distinction in
February after Delta Air Lines completes a 90% flight reduction from its hub
at Dallas/Fort Worth International Airport. The retreat will leave AMR's
American Airlines as the only so-called legacy carrier with a hub there.

Legacy carriers are the five largest airlines, plus No. 7 U.S. airline US
Airways, which base their routes on a small network of hub airports around
the United States. Struggling No. 3 carrier Delta is withdrawing from
Dallas/Fort Worth, while it restructures into a leaner operation.

When the withdrawal is complete, Dallas will join Denver, Minneapolis and
Detroit on a list of cities that used to be home to airports with hubs for
multiple legacy carriers.

"It simply confirms my belief that there is only room for one hub at any
given airport," said Unisys R2A transportation management consultant Michael
Roach, who has published studies on the hub-and-spoke model.

O'Hare is a hub for American, the world's largest carrier, and United
Airlines, a unit of UAL.

Roach said O'Hare's dual-hub status is protected by government regulation of
air traffic flows. O'Hare bases its flow on a "slot" system, which gives
airlines permission to land and take off. Each airline has a set number of
slots.

Slot controls were lifted last year, but when traffic congestion became a
problem at O'Hare, the government asked the carriers that land there to
negotiate a system of voluntary restraint. That system is based on the old
slot regime.

Under this system, United, which has the highest number of slots, has a
slight edge over American but not enough to overwhelm its larger rival.

That means that as long as the slot system persists, there will be room for
two major carriers to maintain hubs at O'Hare without crushing one another
in competition, Roach said.

Hubs under fire

Some analysts, however, believe the elimination of Dallas/Fort Worth as a
dual hub for legacy carriers underscores a broader trend in an industry in
which lower-cost carriers such as No. 6 Southwest Airlines are slowly
overtaking legacy carriers by offering more direct flights and fewer plane
changes.

Low-cost carriers often specialize in keeping their operations simpler and
more efficient than legacy carriers. With the older hub-and-spoke model,
travelers often have to change planes at a hub airport before flying to
their final destination.

"The big problem with hubs is that they come at higher costs than
point-to-point operations," said Joe Schwieterman, a transportation expert
at DePaul University.

He said airlines with hub-and-spoke models burden themselves with added
expenses that come from handling passengers twice and parking planes during
layovers.

"The model works great when there's no opportunity for nonstop service,"
Schwieterman said.

At least for now, O'Hare's dual hub status is likely to remain intact partly
because of its location on the map. Chicago is a convenient midway point on
flights between the East and West coasts.

Furthermore, Chicago's large population makes O'Hare prime real estate for
major carriers that specialize in business travel.

So as long as competition between United and American remains locked up by
slot controls, there is plenty of traffic to support two hubs at O'Hare,
analysts said. And for now, both legacy carriers appear planted for the long
term.

"Unless United were to drastically scale back its domestic network, that
wouldn't change," said Robert Mann, an airline industry analyst. He added
that he can't see a situation in which American would abandon its O'Hare
hub.


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