When Southwest bought AirTran way back in 2010, all eyes were on Atlanta to see what the airline would do there at AirTran’s homebase and biggest hub. What followed was months of shrinking, but now Southwest has moved on to phase two. It is de-hubbing Atlanta. That sounds radical, but, uh, what does it really mean? Let’s take a look.
The new de-hubbed schedule goes into effect in November, so I looked at a Monday in December and compared it to a similar day in December 2009, before the merger, to show what’s happening.
When Southwest took over AirTran, there was hope that this meant the combined airline was going to be able to use the AirTran 717s to serve smaller markets. Instead, Southwest shipped those off to Delta for cheap and shrunk the AirTran system dramatically. You can clearly see the results of that first phase in this chart:
I included one summer date in there just for comparison purposes. AirTran was always a highly seasonal airline, so I thought it was interesting to show. But if we look at the December before Southwest took over, AirTran was running 199 daily flights to 51 destinations from Atlanta. By this December, Southwest will have shrunk Atlanta departures by more than 20 percent, dropping the hub to only 156 daily departures.
At the same time, it has shed a net of 7 cities. But that destination count isn’t exactly telling the whole story. Most smaller cities in the US have been dropped while some growth has occurred in the existing Southwest network and to the Caribbean.
I thought the shrinking work was done, but I was wrong. In this new schedule, Southwest decided to end service to another three smaller cities from Atlanta: Buffalo, Pensacola, and very interestingly, Memphis. (They’ll still be in the Southwest network, just not from Atlanta.) Instead, Southwest has added nonstops to Hartford and Oklahoma City.
I was surprised to see Memphis lose that flight. It’s not so easy to compete against Delta when that airline’s costs have dropped while Southwest’s have risen. But that’s not the point here. The point is to talk about what this whole de-hubbing thing means. Let’s take a look at a cross-section of a day in Atlanta:
As you can see, the distribution of flights has changed dramatically. Previously, AirTran was set up to be able to fill more flights by flowing more people through Atlanta. That’s why nothing left before 8a; there needed to be time to get people from other cities into Atlanta to fill the flights out. (During the summer, there were earlier flights.)
You can see the big banks were in the morning and late at night. Southwest has changed that around. Now mornings are still busy, but you see a more even distribution through the day. However, that late night hub has basically been dismantled. AirTran used to have 24 flights departing after 930p. Now there will be 4.
That probably means reduced aircraft utilization, and that means costs will rise. Delta must love that. But it also means that Southwest is scheduling flights to be at times that are more attractive to travelers in Atlanta itself. And Delta doesn’t like that.
Keep in mind, this doesn’t mean Southwest is abandoning connecting traffic. When Southwest bought AirTran, 60 percent of Atlanta traffic was connecting. Southwest expects to see Atlanta connections drop to 40 percent of the total traffic in Atlanta, similar to what’s in Chicago and Baltimore. So Southwest is still going to take a huge amount of connecting traffic – it’s just not scheduling for it anymore.
It seems like that should make sense – local traffic has long been more lucrative than connections. Connecting traffic has become more valuable, however, thanks to consolidation and rising fares. But the valuable connecting traffic is coming from smaller cities for the most part. And those are the cities that Southwest abandoned when it bought AirTran.
So Southwest is focusing on local traffic and flight times in local market will generally get better. There are now early morning flights to places like Washington/National and New York/LaGuardia; that makes day trips for business easier to accomplish. In theory, it should mean business travelers in Atlanta will now be more likely to use Southwest if they like Southwest’s product offering, oh, and if they don’t need to fly to smaller cities that have now been abandoned.
Looking at the big picture, this whole “de-hubbing” means that Southwest took what AirTran had built in Atlanta and then dismantled it. It then rebuilt Atlanta to look like every other focus city in the Southwest network. So why did it need AirTran in the first place? Well, it’s a lot easier to build an operation with only one big competitor in town instead of two. It’s the same exact thing we would have seen in Denver if Southwest had succeeded in buying Frontier.
In Atlanta, Southwest saw opportunity, but it couldn’t make it work with a much lower cost carrier in the market. So it decided to buy it and effectively shut it down, making way for its own operation.
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Whileb this all seems to be fitting in nicely with Southwest’s model; it also seems to be great for smaller airlines come in and compete. I wonder if Virgin America or jetblue can come in to Atlanta. Basically they would have to be concerned with Delta.
Why would this be great for smaller airlines. Delta and Southwest will still have the major cities covered. When did airline like JetBlue and VA become interested in the smaller markets dropped by Southwest?
Don – While Southwest will be stronger in major cities as Juan says, it also has much higher costs than AirTran did. This should create a lot of opportunity for an airline like Spirit or Frontier.
There is a sour taste in the mouth of a lot of Atlanta business travelers where Southwest is concerned. Many business travelers loved Airtran because the business class product. It was very easy to get a business class seat if you fly regularly. It will be interesting to see if Southwest attracts the business market in Atlanta.
Also, for what it’s worth: Although there’s 20% fewer departures from Atlanta, there really might not be 20% fewer seats, given that you’re probably moving to a lot of 143 seat 737-700′s instead of 117 seat 717′s – a 22% increase in seat count. Doing THAT math, and with Southwest expecting less connecting traffic, they’re actually planning on having MORE people flying to/from Atlanta (as an origin/destination) than AirTran had.
That’s a great point. Would love to see a comparo based on capacity instead of departures.
There is a comparison. If you have the time to listen to the hour long Southwest quarterly conference call, they candidly go over all of the stats concerning Atlanta and the changes that will happen in November.
Tim – You are definitely right that capacity won’t be down nearly as much as departures simply because they have bigger airplanes with more seats, but in this case, I don’t think capacity is the proper way to view it. If we’re talking about utility of an airline to people in a city, then the number of departures and destinations is much more important than capacity. Capacity is very important when looking at what fares might do, but it doesn’t capture the fact that there are a lot of cities that can no longer be reached. (While there are also some new cities that can be reached.)
Another post that provides great insights. Nothing better than five minutes at Cranky Air Travel University early Monday morning.
One thing about WN is with their many connecting points/forcus cities/hubs (whatever they are considered) there is more connecting options which can please more travelers.
Also in Atlanta while DL is the big guy in town not everyone may like dealing with DL. The bigger they are, the more problems-crowds-unfriendly workers-etc the traveling public must deal with. People might be willing to switch to WN even with connections if the overall travel experience is better for them.
David – If you’re a high-value frequent flier on Delta and you get upgrades, then I imagine you’ll be pretty hesitant to switch to Southwest. In fact, the opposite will probably happen when AirTran people can no longer get upgrades anymore. Southwest will have better flight times than AirTran for locals, but I don’t think there will be many if any markets where flights times on Southwest are better than they are on Delta.
Curious, how many regular readers here expected WN to do something else but efectively dismantle AirTran after buying them? It was really the only way that WN could gain entry into the fortrace that is the ATL.
SEAN – I was holding out hope that they’d do something differently. The first blow to that notion was when they announced that they would not keep any of AirTran’s product attributes at all – it would be converted into Southwest completely. The second blow was when they got rid of the 717s.
WN also seems to be shifting connecting traffic around to other focus cities. For example, ATL has lost Pensacola on WN, but WN just announced new service to BNA (Nashville) from PNS. This shows us that PNS remains a viable market, but WN just wants those passengers running through lower-cost BNA than high-cost, long-delay ATL. BNA is also more logically located in the WN network to connect those Florida travellers to wherever they are going, except maybe the northeast, which is not WN’s forte anyway.
Never underestimate Southwest.
Len – Atlanta is not that expensive compared to other similar airports and it’s not delay-prone. Remember, Delta has been the best performing on time airline as of late. It may very well be that Southwest thinks Pensacola fits better into the network via Nashville than via Atlanta, but if that’s the case, then I assume it’s mostly because there is no competition in Nashville and Southwest thinks there’s enough local demand to support it.
Agree with Sean. a hub and spoke is not WN’s business model and any hope to the contrary…. Also, Cranky’s got a telling stat in the commentary: 60% of Airtran’s business in ATL was connection/thus 40% O/D. That should also tell you something. Hubs make money when the ratio is the reverse. Airtran was losing $$ with that split. No way WN was going to perpetrate that, even if it was inclined to modify its business model….which it is not. Same with the 717′s: WN will not add a/c complexity. They bought out a potential competitor, got the airport facilities and FAA room to operate (“slots” etc) and moved in to a long-desired market.
As I recall Southwest’s leadership was actually very interested in adding the 717 and having a smaller aircraft in which to serve smaller cities. But I guess Southwest’s culture/pigheadishness killed that idea.
Gary – AirTran was not losing money at all. In fact, AirTran was profitable for 8 out of the last 9 years it existed. (The one bad year was in 2008 when everyone bled.) In 2010, it turned a profit of just shy of $40 million. But AirTran also had much lower costs. So things would have been uglier under Southwest’s cost structure by far.
@Gary: profit or leaving money on the table?
@Nick–somehow we all knew WN was just speaking hot air to get the acquisition done (they wouldn’t keep Frontier’s airbuses)…It’s sad because it could have been more growth and a sizeable enough fleet to not get burned on a lot of costs (and really, a 717 has got to be better than some WN 737-300s). However, Jetblue has admitted they would have been better off with 1 fleet type, so perhaps WN is heeding the advice and sticking to what works for them fleet-wise. The future is biggger, not smaller. WN has so many markets where the frequencies are not needed and a -800 or -900 would save on cost without losing Pax. Ultimately, the 717 is too close in capacity to the 737, I think, to open many unserved markets, while suffering from a CASM + synergy disadvantage which negates any smaller benefits from using it on existing lighter load routes.
I don’t remember WN bleeding in 2008. But I cannot recollect if that was their 37th or 38th consecutive year of profitability.
Arubaman – That’s right, because they lucked into a bunch of hedges at very low fuel prices. (I say “lucked” into it because nobody knows what fuel will do. If you guess right, you’re lucky.) It saved Southwest from losing money at the time, but it also prevented the airline from making changes to help it fix longer term structural problems. And then when fuel prices tanked, those hedges caused huge financial hits.
Mr. Cranky…Let’s see, the U.S. was about to invade Iraq at that time. What COULD the price of oil do…go down? Admit it, Brett, Southwest management read the writing on the wall and had the resources to make a $3 BILLION play. No one else either had the brains or the bucks to pull that trigger. And THAT is why WN management is the best: they plan in the good times to survive the bad times. Never a pay cut. Never a furlough………..You are correct that the fuel hedges flipped at the back end. But still, $2 BILLION on the plus side. To the contrary of your assertion that those profits hindered necessary changes at WN; in fact, that $2 billion FINANCED Southwest’s reversal from a short-haul, high-frequency carrier to a long-haul player. As I have written previously, Southwest has never used bankruptcy to get its employees to finance its operations OR used bogus baggage fees to get its Customers to finance a bankruptcy exit. That ALONE sets WN apart from the Big 3. LUV is the ONLY investment-grade airline stock even AFTER all the legacy bankruptcies and “do-overs.” Cold, hard fact.
Arubaman – The US invaded Iraq in 2003 and oil started to climb, but that wasn’t the problem. The problem was the cost shock that came from the dramatic spike in the second half of 2007 that collapsed after peaking in mid 2008. Are you suggesting that Southwest management knew there was going to be a speculation-fueled spike in the price of oil in 2007? I don’t think so. It’s even more difficult to believe since they started hedging years in advance.
In the 2007 annual report, Southwest noted that it even had 15 percent of its fuel needs hedged for 2012, 5 years away. Nobody knew what it would look like in 2012. The reality is that they created a hedging program, it saved a bunch of money, and then they stuck with it, even though times have changed. Hedging costs have become more expensive – some airlines have stopped entirely and they’ve paid less for fuel in many cases. But Southwest continues on the way it always has.
This sounds very familiar.
I was one of those really disappointed to see Southwest buy out AirTran. I liked the AirTran product and destinations as well as their low fare pressure on Delta. As we have seen WN is no longer a low cost carrier, so there really is no low fare competitor in the ATL market. I dislike the WN ‘cattle call’ boarding process and some of their other policies, so I won’t fly them unless absolutely no other choice – which leaves me with Delta and the smaller operations of AA, UA, and US. I would love to see Jet Blue try again…
It would seme at first glance that JetBlue should reenter Atlanta to compete with Delta & southwest as there’s a lot of demand to & from the northeast. But how much capasity could JetBlue add since there is nearly hourly flights to NYC, Washington & Boston by Delta & Southwest was having issues with pushback by US Airways in Philadelphia. Perhaps dynamics have recently changed?
As the old cliche goes, “if it ain’t broke, don’t fix it.” This is just Southwest being Southwest.
DesertGhost – But who says it ain’t broke? Southwest has lagged in its results for quite some time now.
Not only that, but what truly sets SWA apart these days in a positive way?
Unassigned seating? Since they essentially abandoned their LCC fare structure, this is actually a negative. Why pay legacy fares to be loaded in like cattle?
No meals? Again, it’s one thing to have no food when you are paying $59 one way, but flying across country at their current rate structure and only being served peanuts and pretzels? Please….
Unique, fun, ‘cowboy’ culture? Nope, that left with Herb Kelliher…
I suppose their Rapid Rewards program is good, and their on-time rates are decent, but other than that, I mystified as to why this airline still has plans. Again, for me, I have to fly them, but am thrilled to be able to fly JetBlue to Boston next week instead of SWA.
Meant “fans”, not plans
Southwest has been consistently profitable over a long period of time and in various economic climates (including this one). That’s why it ain’t broke. But that doesn’t mean Southwest can’t use a tune-up. But what would it be?
To me, it comes down to this (and I could be wrong). part of Southwest’s consistent success, even in spite of higher costs recently, is that it’s different. Put differently: Why become a shrunken version of Delta in Atlanta … or United in Denver … or American in Dallas … or US Airways in Phoenix?
America West (and now, US Airways) and Southwest have coexisted so long in Phoenix because each served a somewhat different customer. I think both airlines have learned from that competition. America West management learned the art of capacity discipline and knowing when to go head to head with the competition and when to get out of the way or do something different.
In-n-Out and McDonald’s both thrive, but they have very different product offerings. I really wonder if Southwest could survive if it becomes nothing more than a “Legacy Light” airline.
Southwest follows Aristotle’s advice: “Know thyself.” I hope Southwest will evolve (even if that ultimately involves some bag fees or code shares) but keep true to its basic business model.
I’m optimistic that the four new mega carriers’ more consistent profitability will enable them to consistently invest in their offerings and differentiate themselves from each other. I really don’t want to see the airlines become nothing more than “AmericanDeltaUnitedSouthwest Airlines” (i.e., “Amair”).
Just me two cents worth.
DesertGhost – I agree with you that they shouldn’t be a clone of the other carriers, but I think there’s still a very important problem here that needs to be addressed. A key part of Southwest’s strategy for years involved offering low fares. With other airlines cutting costs dramatically and Southwest seeing big jumps in costs, the playing field is leveled. (Not to mention the fact that there are now much lower cost carriers that are growing quickly.)
So with the cost landscape changing so much, the revenue landscape should as well. Instead, Southwest has stuck to its bundled fare policy and that means fares have to be even higher to make up for the lack of fee revenue. That doesn’t seem right to me.
So Southwest should be doing more to find ways to raise revenue outside of fares so that it can keep its fares lower. The best way other airlines do that is with bag fees, change fees, and seat buy-ups. They have dug themselves into a hole with the no bag fee and, to a lesser extent, no change fee branding. But seat fees are one place where there should be a lot of opportunity. (Though I still think they could get away with a 2nd bag fee and a small $25 change fee. I just don’t think their tech can handle it.)
None of which was necessary when costs (and fares) were low, but probably makes sense now.
Again, I get a first-hand view of SWA since they essentially have a hub here at BWI. It can’t be denied that their planes are full and that there is a loyal ridership, but it just seems that they don’t really know who they are anymore. Look at Frontier’s recent “blanketing” moves for a reminder of what SWA used to be about…it was classic ‘old’ SWA.
We agree. Southwest does need to find more ways of generating revenue. But what I was getting at was the structure of its network. In reading my responses, I didn’t make that clear enough (I didn’t make it clear at all).
I really don’t see Southwest using regional carriers. But, who knows?
One would hope that the AirTran merger is giving Southwest the incentive to bring its IT systems into the 21st century, which will allow it to create the ancillary revenue opportunities you refer to.
I guess that’s why LUV is up 40% this year.
Arubaman – Short term gain does not necessarily suggest long term success. Besides, there are a lot of different ways to look at the stock price. Take a look at the last 5 years, while we’re at it. LUV (Southwest) is up 7%. LCC (US Airways) is up 150%. Delta is up 134%.
If there’s one thing Southwest can’t claim, it’s long-term success. Right, Mr. Cranky?
Arubaman — History might be informative here. Back when I was young, the company that held the record for consistent, unbroken corporate dividends was – the Pennsylvania Railroad. If memory serves, the Pennsy had consistently paid a dividend for a hundred years or so.
Where’s the Pennsylvania Railroad today? Gone. More accurately, it merged with the New York Central and became part of what was the largest corporate bankruptcy in U.S. history at that time, the PennCentral. Most of what was the Pennsylvania Railroad is now part of Norfolk Southern.
Why did the Pennsy disappear? Simple. It failed to adapt. That’s what Cranky’s getting at.
Cranky,
Did you see on airlineroute.net AirTran ir replacing southwest on some routes, such as hou to mci? What gives? Could southwest be testing bag fees? Or business class? Also, southwest is joining AirTran on some routes and vice versa. Why doesn’t southwest just replace airtran service with it’s own service?
I think it has more to do with keeping the utilization up on the AirTran 717s. You can’t just keep pulling down routes, cities, and frequencies when you have 717 crews sitting around getting paid for nothing. Might as well throw them on something where they can add more capacity at a cheaper cost than WN crews. There’s no testing going on with these routes. They’re probably just trying to get something out of their planes and crews while it’s still “cheap”
Finally some more capacity for that underserved local ATL market:-P I’d bet a dollar this ends up looking like WN in PHL in no time.
It already DOES look like PHL, Trent880. I think Southwest learned from their Philly debacle to NOT blanket an international fortress hub. Smarter to nibble at the edges and take what they want to feed their network, as a previous poster indicated. But keep this in mind: WN has almost 30 gates in ATL. I would not expect them to be under-utilized forever. What Mr. Cranky did not mention in his ATL analysis is that WN’s point-to-point replacement of hub-and-spoke operation in ATL will generate huge productivity gains, particularly in ground employees. In fact, 300 fewer ground employees will be reqired in the point-to-point model than the hub-and-spoke operation. That is a significant and long-term benefit to WN.
I wonder if a statistician would look at this and agree the flights are more evenly distributed now. i wonder what the standard deviation is, for the number of flights per hour. if you put the flights into 2-hour buckets instead of 1-hour buckets, maybe it’ll be more obviously even.
The only potential “silver lining” on the WN changes in service since the purchase of AIR TRANS is that cuting back and spreading out flights could improve the delays in and out of ATL during bad weather. I have missed many a connection due to summer/winter bad weather, which is why I still avoid ATL, if possible. Not worth the gamble.
My first time posting, so go easy on me! CF: if Southwests’ costs are higher, keeping it from playing the roll as a low fare airline, and now that we keep seeing routes dropped (I keep hearing RIC is next, when I’m in the airport), couldn’t that bring interest from Virgin or Jetblue? Plus, ATL is about to do their next long term plan. If they want to stay at the top of “World’s busiest”, wouldn’t they want more routes, too?
B Flo – Neither Virgin or JetBlue are particularly low cost airlines, so I don’t know that what Southwest has done really creates much opportunity for them. They also focus on serving bigger cities and they have more of a product focus than cost focus. By pulling out of smaller cities from Atlanta, you’d think it would create opportunity for those who serve small cities (Allegiant is a stretch, but maybe Frontier) or those who serve big cities but have really low costs (Spirit). So that’s where I’d think we might see something happen. Then again, I wouldn’t be surprised to see JetBlue serving its focus cities from Atlanta.