I’m not done with Scott Kirby just yet. In the same media gathering where I asked about yesterday’s topic, scope relief, someone else asked about the future of the Washington/Dulles hub. I’ll just paste Scott’s answer here, and then we can discuss it below.
Actually we don’t talk about it much, but if you look at the data, we’ve grown Dulles pretty aggressively this year. And it’s done really well. Dulles is a fantastic international gateway and it’s always done very well. Historically we did not do as well domestically. As we’ve grown Dulles and grown connectivity, it’s gotten much better. So, more to come on what we ultimately do with Dulles. But the team is actually evaluating. Today we have a four-bank structure in Dulles and we’re kind of full in some of those banks. And so the team is evaluating a six-bank structure in Dulles which would create opportunity to add more frequency in markets we serve today.
Well isn’t that interesting? Dulles has always been an odd hub for United in more ways than one. People have long presumed that it was a hub waiting to be killed, one that under-performed but needed to exist because United has nothing better on the East Coast. That last point was certainly true, but Dulles wasn’t the poor performer that some figured.
Scott explains it right here. The international operation has been great over the years, and for obvious reasons. There is a huge amount of government travel in the DC area, and since National Airport can’t handle international flights, Dulles is the default airport for the capital (sorry, BWI). United has done well on international flying thanks not only to that government traffic but also the private sector traffic that has come up in its orbit. Think about corporations and lobbying organizations that need to have a presence in the home of the US government. They need to travel a lot, and United has long benefited.
Even better for United, much of this government traffic is protected in the sense that travel needs to be booked on US-based airlines. There are some dirty tricks here — JetBlue sells the Emirates flight to Washington/Dulles so that government officials can easily take it — but it’s still very good business for United.
Domestic… well, that’s a different issue. Domestic travelers have long preferred to fly from National Airport right across the Potomac from DC. Sure, there has been a lot of growth out by Dulles, but the customer base for international travel is much greater than United can pull for domestic. United has tried many things over the years to make domestic work, but it’s never done as well as you’d hope.
I’ll admit that I thought the end of the US Airways codeshare/membership in Star Alliance could have been the death of United’s hub at Dulles. Before then, it could be all things to people in Washington by having that big partner with the largest operation at National Airport for domestic travel. After that ended and US Airways merged with American, American became much more influential. But United has held strong, and now it wants to grow more. In fact, United wants its heavily-constrained Newark hub to push out connecting traffic in favor of local traffic. All those connections would go down to Washington, and that is what is fueling this potential growth.
It sounds good on paper, but this growth plan could be a grave mistake. It feels like the kind of thing you do at the top of the economic cycle. Oh wait. It IS what you do at the top of the economic cycle. Just ask American how this plan worked back in early 2001 when it bought TWA. Back then, O’Hare was bursting at the seams, so American wanted to make O’Hare primarily for the local market and then it would use its newly-acquired St Louis hub to serve connections. That was a disaster, and the St Louis hub is now long gone.
When the economy inevitably turns down again, Newark will see less local demand, and United is going to want to fill those airplanes with connections. That will pull away from Washington, and the additional flights that go into Washington will wither on the vine. That’s not to say that the outcome for St Louis is what will happen here. Washington and Northern Virginia is a bigger, richer local market where a hub should exist. But should a six-bank hub exist?
I suppose there isn’t huge risk here. After all, if things get ugly during the next downturn, then United can easily just move airplanes out and scale back the number of banks. There is no major upfront investment required to make this happen, after all. I asked Scott about that specifically, noting that the “Temporary Midfield Concourse” which United uses at Dulles is, well, take a look for yourself:
While I’m sure Scott would love a new facility, he has to be realistic.
There’s nothing in the hopper to change [the use of the Temporary Midfield Concourse]. One of the important things about making a hub like Dulles successful is the cost base. And having the cost base go up would be really damaging to the growth prospects.
And Dulles has not been very good at keeping costs down. Only after receiving grant money from Virginia and transferring money from National was Dulles able to get its cost per enplanement back below $20. It is expected to go back up again above $20 in the next few years. That doesn’t matter much for expensive international flights, but when you’re trying to make short-haul domestic flights work, it’s a hit. Scott doesn’t want to add to that burden by building a new facility, so travelers are stuck with that Temporary Midfield Concourse for the foreseeable future.
It’s nice to see Dulles getting some attention, but I’m not sure if adding banks is the right plan.