Delta’s Half-Empty Threat to Shrink Atlanta

My posts have definitely been traveling around the world this week, so let’s bring it back home. Let’s talk Delta. The airline is having a spat with its largest airport, Atlanta, over new construction that will Delta Atlanta Fightinevitably raise the cost of operating at the airport. Delta is so unhappy that they’re threatening to move traffic to other airports that are more cost effective. So should you Atlantans worry that you’re going to lose a ton of flights to other airports? No. Might you lose some flights? Sure. That’s why I consider this a “half-empty” threat.

A Delta spokesperson was quoted as saying, “Over time, if the cost per passenger doubles at [Atlanta], it’s Delta’s responsibility to consider the advantage of routing some of the two-thirds of passengers connecting here to hubs where the costs are lower.” Yeah, sure. Too bad that economics don’t agree.

It’s a basic rule of hub operations that you need to have a local traffic base. You can’t just create a hub in the middle of nowhere and send all your passengers there to connect. That idea has been floated before (Mid America Airport WAY outside St Louis), but it’s never drawn any serious attention. Instead, we’ve seen smaller local population bases receive hubs that were overbuilt and they’ve now been scaled back. (Pittsburgh? St Louis?) Connecting traffic isn’t profitable enough to base your entire operation on it. So when Delta says it’s going to move a bunch of its connecting traffic to places like Memphis, that seems to be a threat that has no teeth.

Memphis may have local traffic, but its hub is already more than serving that local traffic. Atlanta is the best market in all of the southeastern US, and Delta would be insane to move flights away from that population base solely to connect people over Memphis. But don’t think that means this threat is completely empty. While I can’t imagine a massive shift of flights to Memphis (neither can Memphis, apparently), I think it’s highly likely that some flights in Atlanta will disappear as costs rise.

This one is basic math. If your costs rise, then you need to make more money for each flight to be profitable. If a flight is relatively marginal now, it will be a money loser under the new structure and that flight will disappear. That doesn’t mean that the flight will move to Memphis. It just means it will go away.

So, the Atlanta airport has some serious thinking to do here. Do they really need that massive new international terminal for $1.6 billion? If so, then they have to be willing to face the consequences of raising their costs to airlines. That will most likely mean fewer flights, but it probably won’t be nearly as dire as Delta is making it sound. So, don’t get excited if you live in Memphis. You’re not going to see any huge growth simply because your airport is cheaper.

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