Pretty much everyone has a theory on how United should fix its problems, and many of those include a capacity reduction of some sort. But Imperial Capital analyst Bob McAdoo created a stir last week when he suggested shutting down the Washington/Dulles hub entirely. I don’t view this as shutting down Dulles entirely. Rather, this would be a way to serve only those markets that are important to the locals in the DC area. The more I think about it, the more it makes sense.
But first, let’s start with a brief history. For years, National Airport was the main airport serving Washington. But the area was growing and in 1962, Dulles Airport opened way out west in the Virginia suburbs.
Back then, Dulles was in the sticks, and nobody wanted to fly there. But it had two things going for it. First, National’s runways were short and weren’t capable of handling the coming wave of jets to fly internationally. But even if it could, a perimeter rule was put into place to restrict flights at National from going beyond a certain distance. That rule has been expanded over the years to the point where it’s now a 1,250 mile radius with a couple dozen exemptions that can go further.
The point is this: while National was preferred by nearly everyone, Dulles was forced into becoming the international airport of the area. (Baltimore has long quietly existed to the northeast of town but it to this day has limited international flying compared to Dulles. It is, however, absolutely owned domestically by Southwest.)
In the mid-1980s, United decided to shut its hub in Cleveland (hilarious, right?) and open a new one at Dulles. At the time, the area around Dulles was still pretty sleepy, but United pushed ahead based on the strength of Washington. A new “temporary” midfield concourse was built to house United’s operation, and that was that.
Today, United maintains its hub in that very same “temporary” terminal which looks something like this.
The hub has survived on both government business as well as the explosive growth out in that part of Virginia. Over the years, people have often said that the Dulles hub should have been shut down, but often those calls were without any actual data about performance. It did well. Over the last few years, however, the situation in Washington and with United has changed a lot. And that means that it’s worth revisiting the idea.
What’s changed? Two really big things. First, United merged with Continental. Second, US Airways left United as a partner when it merged with American.
The United Merger with Continental
Before United and Continental merged, Dulles was United’s only hub even close to the northeast US. It was the primary Transatlantic gateway and it was a way to feed people north and south within the US. In the merger, however, Continental brought Newark, the only true single-airport hub serving New York City. Newark may be congested and delay-prone, but it is undeniable that the local market it serves is enormous. It is an important Transatlantic gateway, and it connects people north and south, just as Dulles did before.
With Newark in the network, it makes Dulles as a hub unnecessary. Excluding some of the small Essential Air Service towns served from Dulles that United probably doesn’t care about anyway, there are 10 cities with no service to Newark that do have service from Dulles: Colorado Springs, Charleston (WV), Charlottesville (VA), Columbia (SC), Harrisburg, Huntsville, Philly, Roanoke, Sacramento, and State College (PA). I can’t imagine many of those even pull their own weight today, but if there is strategic importance, they can be given a flight to Newark to keep them well-connected.
All this talk doesn’t mean Dulles shouldn’t be a hub, but it means that United doesn’t need it to be one. The airline can serve all those people who would need to connect over Dulles over Newark instead. There’s even a side benefit here.
Today, you have, for example, 5 flights a day from Richmond to Newark and 3 flights a day from Richmond to Dulles, all on 50 seat regional jets. If you ditch the Dulles hub, then you can probably keep your existing schedule in Newark (without increasing congestion there) but upgauge to larger 70 and 76 seat airplanes. That lowers your unit costs and still serves nearly as many seats for those who need to connect. Naturally, Richmond isn’t alone here. Pretty much everything could work that way within 1,000 miles of Dulles and significantly improve profitability.
On the international front, every single city United serves from Dulles it also serves from Newark with two exceptions: Dubai and Kuwait. Those two naturally have more government-oriented traffic so they make more sense from Dulles. So United would either have to decide that it could make those work from Dulles solely on government traffic (which may be possible, even without a hub) or it would have to give them up.
So realizing that in terms of United’s network, Dulles brings very little that can’t be served via Newark. We have to turn to local demand, and this is where the US Airways move makes a huge difference.
US Airways Leaves United for American
As you probably know by now, US Airways dominates at close-in Washington/National airport. It has the lion’s share of traffic at that airport and serves every small town that any senator has ever asked for. US Airways is the default choice when those in Washington choose their loyalty.
Before, this was great for United. It meant that someone could be elite with United or US Airways and get reciprocal benefits. So if someone was a US Airways loyalist, they would still be able to earn their elite miles by flying United out of Dulles for international travel. It worked pretty well. But now, American and US Airways are merging, so United and US Airways have cut all ties.
That means American will now be the default choice for those who live in DC and fly domestically. Sure, United still gain loyalty for those who exclusively fly internationally, but it’s more common for people to do a mix of both. And American should be looking at this as an opportunity to fill in the gaps where needed. I wouldn’t be surprised to see more flights start internationally for American at Dulles if a corporate account really needed it. The airline has the ability to do that now.
For United, this means it will have trouble building up its short haul network from Dulles because most people will still prefer to fly US Airways/American from National. It needs to rely on connecting traffic to really fill up these airplanes, and there’s no reason for that now that Newark exists as an option.
So what should United do? If it wants to really make a run at Washington, it should pony up some dough. Finally build a real concourse at Dulles, expand its schedule, and try to dominate. But that’s going to cost a lot of money, and I’m not convinced it’ll really work. Alternatively, it could walk away.
Walking away from the hub doesn’t mean abandoning its presence. But it has a lot of joint venture partners over the Atlantic and Pacific that can serve many destinations at Dulles already. It can continue to serve the big domestic markets, especially those that can’t be reached from National, and create an operation that really caters to the local travelers. The trick, of course, is not to cut so much than another airline could come in. But I keep wondering if there is enough that could be cut to really help the airline on a number of levels. I’m not 100% convinced, but it sounds better and better every time I think about it.
[Original abandoned graffiti tunnel via Shutterstock]
