I’m taking a long weekend. It’s been a grueling few months, and I need a couple days to recharge. So, instead of going dark on the blog, I’m publishing two posts that I was working on back in March. Once the wheels fell off the industry almost overnight, these posts seemed, at best, out-of-date. But I still think the underlying information is interesting, so here’s the first one. I’ll have this one today, another Monday, and then I’ll be back Tuesday as normal.
Just remember, this was written before things fell apart.
Both American and United have made it clear that they see a lot of opportunity in small-city, high-fare service. If you’re looking for a great example of why that might be, just take a look at Flagstaff in Arizona.
Flagstaff is only about a 2-hour drive north of Phoenix and it’s less than 4 hours southeast of Las Vegas. It’s a college town (Northern Arizona University) with only about 140,000 people in the metro area. With an altitude of nearly 7,000 feet, Flagstaff doesn’t look like what you’d expect to find in Arizona.
Flagstaff is heavily-wooded with towering, green pines and abundant snow in the winter. It gets quite cold, and there is skiing nearby. During the summer, Flagstaff is a hiker’s paradise. As the gateway to the Grand Canyon (about an hour and a quarter north of town), Flagstaff sees a lot of tourists during the summer, but many are just passing through.
Its location on Interstate 40 combined with the short 2 hour drive down to Interstate 10 means that it’s well-suited as a transport hub. But its small size and proximity to Phoenix means it has rarely had much air service to speak of.
The mainstay of Flagstaff’s service has involved multiple daily flights to Phoenix on American and before the mergers, US Airways and America West. This wasn’t meant for local traffic since the drive is so short, but it did capture those looking to travel beyond the hub. Starting in 2018, airlines started to notice Flagstaff and they began testing the waters.
Summer of 2018 and 2019 saw weekly flights to LA, but those didn’t make much of an impact and aren’t in the schedule for this summer. In 2018, American also experimented with summer-seasonal weekly flights to Dallas/Fort Worth, and those did well. In fact, starting in April 2019, American upgraded the route to have double-daily, year-round flights. United, not to be outdone, entered Flagstaff the same month with double-daily flights of its own to Denver. That’s where we are today.
The market has responded quite nicely. Despite the large increase in passengers overall, average fare has remained relatively constant. What exactly is going on?
Well, let’s start with Phoenix. You would have thought that the Phoenix flight would have suffered with the introduction of Denver and Dallas/Fort Worth, but it hasn’t. Passenger and fare numbers have actually stayed mostly constant. But that doesn’t mean markets haven’t shifted. Here’s a look at DB1 data via Diio by Cirium. I took the markets that had more than 1,000 passengers per year and then highlighted those with swings of 10 percent or higher in 2019 versus the year prior.
As expected, Dallas/Fort Worth and Denver saw dramatic drops in the number of people connecting via Phoenix. Los Angeles saw a drop as well, but I can’t quite explain that one. What you do see, however, is a big increase in other markets. Most of these were West Coast markets, including a good increase in the local market which I found odd. But Philadelphia also did well here. I’m not sure how this gets categorized, but it could be aggregating connections that go beyond Philly into Europe as well.
Either way, Phoenix is doing well, and that makes you wonder what is filling those other flights. Did this really just stimulate the market?
According to Airport Director Barney Helmick, it’s mostly taking traffic back that was driving to Phoenix. The last study the airport did showed that 77 percent of Flagstaff travelers were going down to Phoenix with 2 percent going to Vegas. That left only 21 percent using the local airport. Though another study hasn’t been done since the service increase, he believes most of the trafic is coming from those Phoenix defectors.
Businesses with large local operations like W.L. Gore and Purina have apparently been thrilled with the new flights and are putting them to good use. It enables shorter trips with fewer nights away compared to having to do the drive down to Phoenix before catching a flight.
I went into the data and looked at the DFW flight. The biggest market on this flight is local between the two cities with about 10 people per flight, but that means there were plenty of others scattered around. Here are all the markets connecting over DFW with more than 200 people carried during the second and third quarters of 2019.
You’ll notice that these are all markets heading east from DFW, so it’s really not taking away from Phoenix. Outside of the hubs, JFK and Boston were two of the bigger markets that saw traffic route both via Phoenix and Dallas/Fort Worth, but Phoenix really didn’t suffer. This was just incremental traffic.
Then there are markets like New Orleans. Back in the year ending Q3 2018, American carried a total of 258 people between the two cities. In the next year, after DFW service had started, American carried 692.
The story in Denver with United was similar. It too carried about 10 people per flight to Denver, but many more fanned out beyond.
As you can tell, United also rallied around its hubs, but it went beyond that. It’s interesting to see that the fifth, sixth, seventh, and eighth largest destinations are all Delta hubs. Some of these overlap with American while others do not, but the story is clear that this just expanded the pie for everyone.
So where did all these people come from? I’ll just assume most of them came from Phoenix as Barney suggested. There are more than a dozen shuttles per day between Flagstaff and Phoenix alongside the countless cars that make the trip. In the past, if someone was going somewhere east, it wasn’t unreasonable to just drive to Phoenix, get a more convenient option, and probably get a cheaper fare too. Now, however, with flights heading to hubs with better connections to the east, it’s a harder decision for someone who previously would have just made the drive.
I’m sure there is some stimulation here as well. Maybe that weekend ski trip is now a lot easier. But I’ll still bet that most growth is pulling people back from Phoenix, and it’s mostly likely at a higher fare. Travelers get more convenient options, airlines make more money, and everyone is happy.