UA-NYC

...and other fascinating tidbits from Fortune this week (as DL had a highlight article, along with a couple others, for the World's Most Admired Companies issue)

http://money.cnn.com/2014/02/27/lead...une/index.html

Most interesting to me (all at end of the article):

Looking to the future, one of Anderson's biggest goals is to strengthen Delta's already powerful hubs. That's where the big money is, now and in the future. Delta's portfolio of hubs -- chiefly Atlanta, Detroit, LaGuardia, and Minneapolis -- form the most lucrative collection of any airline, according to data assembled by Vaughn Cordle of Ionosphere Capital, an investment advisory firm focused on airlines

Goes against the prevailing viewpoint of some that UA has the most unbeatable / valuable hubs.


Until a couple of years ago Delta faced a big disadvantage: an undersize position in New York City. For Anderson it was essential to make New York a big domestic hub as well as an international gateway so that Delta could offer its full package to corporate clients. Since his arrival the CEO has lavished almost all of Delta's non-aircraft investment on expanding at J.F.K. and LaGuardia.

The move is paying off: Delta now handles 40% of the passengers coming and going from LaGuardia. And its share of the corporate market in New York has jumped from 28% to 37% in three years. In the past Delta did little business with the financial services giants that dominate business travel in New York. Today it's No. 1 or No. 2 with almost all the big banks and brokerages, including Citigroup, J.P. Morgan Chase, and Morgan Stanley.

Hmmm...I wonder where that sourcing has come from?

Definitely worth a read.

sinoflyer

UA still has the best route structure, imo, but you can't dismiss the fact that DL faces little competition at its biggest hubs -- ATL, DTW, and MSP -- and that's where I think the "lucrative" comes from.

AFAIK DL has not been able to make LGA/JFK profitable. I do not have solid facts to back that up, but at least they are making huge investments at JFK. Still, the fact that DL's NYC strategy includes in part transferring traffic between LGA and JFK makes its route network less optimal than UA (again, imo), but that does not correlate with the airlines' overall profitability as we are currently witnessing.

Zappity

the PMNW hubs at DTW and MSP as well as SLC are a double edged sword - they are too small to support two hub airlines, so DL can charge monopoly prices in most markets, including many large and important business markets. Having a monopoly on a major business market is a license to print money. On the other hand they are now some of the smallest hub markets and no more profit can be pulled out of them and almost all expansion HAS to depend on connecting feed.

While UA can add a route like ORD-MTY or ORD-SNN and be confident that if priced right the local market is large enough to fill the plane, SLC-MTY or DTW-SNN would HAVE to depend on connecting flow in order to be viable.

bob_the_d

i used to fly US occasionally through LGA when it was part of *A, and over the years i was watching the slow but gradual takeover of DL in terminal C. it's still got a long ways to go in my opinion, but it's making noticeable improvements. their waiting area has ipads where you can order food from the gate, charging stations, a new sky club, and so on. US air put in a new club in there, but their footprint there is definitely shrinking (maybe something to do with the merger, i don't know).

meanwhile, i've seen UA do squat to make things better in the wasteland that is terminal B. i don't know about profitability and such, but you can definitely notice who's investing to make things better and who's not.

mahasamatman

I suspect a large part of that opinion is simply that LGA is actually in New York. No matter what the EWR fans want to think, it's still in New Jersey and loses much of its image because of that. EWR will always be a "wannabee" airport for that reason. It was, after all, the birthplace of People Express...

spin88

The corporate share 411 is very interesting, and a big change. My guess is that the NY Share came from UAL and AA, but mostly from UAL.

I found this interesting:

"Delta's share in Detroit is 79%, and in Minneapolis it's 77%. United's traffic concentration at its hubs is a little lower on average, and American's share is actually slightly higher.

But Delta does the best job of leveraging its hubs to attract more high-paying business passengers. The key to pricing power is for an airline to attract the largest possible share of traffic on each "city pair" -- the route between a hub airport and the destination. Delta has 80% of the seats from Atlanta to Minneapolis and 67% of traffic from Atlanta to New York's LaGuardia. "That explains why Delta gets the best 'revenue premiums,' the highest fares per mile flown, in the industry," explains Cordle. "

We have discussed this to death, how DAL or AA fly mainline, and UAL flies one or two RJs or nothing (see ORD-ATL, EWR-ATL, until recently SFO/LAX-ATL, ORD-MIA) or one Mainline, and the rest RJs on a route, while the OAL flies mainline (see e.g. ORD-DFW). United is offering only an inferior product on major markets, and just giving up the revenue from high-paying business passengers.

I don't think Anderson is looking at if a particular hub is immediately profitable, he is looking at how having coverage/network in an area attracts major corporate accounts, which in turn provides revenue on the rest of the network.

That Delta picked up 9% of the corporate market in NYC, also raises (due to the lock in effect of mileage programs and corporate deals) revenue in other markets as well. JFK/LGA, VS, SEA, LAX are all areas where Delta is building out its network, not assuming that they will be immediately profitable (they will not) but knowing that long term its where Delta needs to be. It is the exact opposite of the quarter by quarter slash and burn management style Jeff and Co. are using.

More generally though I think that Nate Silver's very good analysis:

http://fivethirtyeight.blogs.nytimes...-unfair-fares/

shows that when looking at the size of the airport along with its revenue premium due to "fortress hub" that Delta is probably in the weakest position. Unless they have fallen (and at EWR they may have with CO no longer being the only network carrier in NYC) pmCO had the strongest, by far, hubs. Atlanta does not have a major hub premium, and Detroit (Delta's second most important hub) only has a weak premium.

I just don't buy that Delta is doing well as its gouging its hubs. MSP gets a premium, but the traffic there is small. Delta gets completion ex-ATL from WN, ex-LAX from everyone, ex-JFK/LGA from everyone, and now is going into SEA where it will get competition from AS, and on its new pacific routes from foreign carriers AND UAL. IMHO Delta is doing well by providing better service, and better product than the other network carriers are. A little better than AA and a lot better than UAL.

Kacee

Not to mention that EWR is the worst major airport in the country.

mahasamatman

I think it's a dead heat with MIA.

unavaca

According to the article, evidently there are no lucrative hubs west of the Mississippi save MSP

Guess Texas and California aren't really worth flying to.

787fan

Despite all their efforts, DL is still P&L negative in New York (they only WISH they become profitable in 2014)

The only things I admire about DL are how new their MD80s are and how valuable SkyMiles are and how many nonstops to Asia out of NYC they have

spin88

Delta made $2.2B last year in actual profit, United made $570M. That with better assets, and the best macro environment possible, Jeff made 1/4 of what DAL did, and 1/3 of what AAL says it all...

bob_the_d

actually i'll take EWR terminal C over LGA's terminal B for facilities, operations and location aside. i seriously dread LGA-B for UA, all you really get is that stupid au bon pain and the cibo stand. the UA club is nice there and not too crowded which is good, but sometimes i've caught it on a busy day and gotten stuck at security since the stupid thing isn't plane side. i can't express how much that terminal annoys me. EWR-C is probably more crowded on the whole, but it's got a lot more stuff and i've never had any issues.

and actually, no, operations not aside. LGA's operations are a total crapshoot too. i feel like i'm delayed there just as often as i am at EWR. and when i'm delayed at LGA, oh look, there's absolutely nothing to do and if i want to go back to the club i have to re-clear security. it's really annoying.

and EWR's location i haven't had too much bad luck with either. i live in hell's kitchen and EWR is 16.4 miles away from me. JFK is 18.6 miles and LGA is 9.9. it's the second closest airport to me, and everyone knows the van wyck (especially that damn junction where the van wyck and the LIE intersect) is just as bad as the turnpike.

EWR's got it's million demerits to it, but MIA is awful, CLT looks like it was last vacuumed in the 1980's, and LGA, oh so many times. i can't stress how much i dislike LGA. if it wasn't for the fact that it's a mere 20 minutes away i would never use it. joe biden's rant against it rang oh so true to my heart.

UA-NYC

UA finally has Pre now, so those security back-ups have mostly disappeared ^

Central Terminal is a pit, but it's small & convenient, so I don't mind. Some good food places pre-security downstairs that are worth hitting, as is Five Guys

Source for that? If you're including the capex to build out JFK and LGA, well of course - but if they're gaining corp. traffic, they're doing well.

jsdc

I just wish that UA and the Washington Airports Authority would do something about the abomination that is the Dulles Midfield Concourse. I feel like I am in a time machine every time I am there. A lot of the other elements are in place (or almost in place, wrt the Metro Silver Line) for that to be a great hub airport.

LarkSFO

Hey spin: I'll take these guys over your pals at MotleyFool any day of the week!

"Ionosphere Capital provides investment research and analytical support for investors in the airline and related industries. We provide the analytics, forecasts, and valuations required to identify trends and formulate successful investment strategies.

Our service delivers research notes, presentations and conference calls that proactively analyze the key drivers of revenue, costs, earnings and growth. We identify structural changes and trends in the airline industry and quantify their impact on the airlines and their suppliers. For investors, we focus on those areas where we believe consensus expectations are currently wrong and then tie everything together in a way that allows for the most accurate and up-to-date assessment of key trends and airline valuations.

We employ unique methodologies and sophisticated modeling to perform robust airline city-pair, airport, fleet, and supply and demand analyses on large data sets. This capability allows us to produce detailed bottom-up expense and revenue estimates for each airline and the industry as a whole. We reconcile this approach with our top-down analysis that takes into account macroeconomic and industry fundamental variables that drive earnings and firm values within the context of the business cycle and shifting industry competition. These dual approaches enable us to deliver a robust set of scenarios and forecasts for investors and suppliers. "

http://ionospherecapital.com/vaughn-cordle-cfa/

"Founding Partner and Chief Analyst Vaughn Cordle, CFA has 25 years of experience in the airline industry at a major airline and 15 years as an equity analyst and consultant to various institutional investors, money management firms, suppliers, and labor groups. Vaughn founded AirlineForecasts, LLC and managed airline and transportation-related investment research for over 10 years. He has attended executive education programs at Kellogg, Wharton, and other business schools and is considered one of the leading experts in the airline industry. Vaughn is also an Airline Transport Pilot with the following ratings, licenses and awards: LRJET, CE500, A320, B727, B737, B747, B757, B767, and B777. Gold Seal Instructor, Flight Engineer, 31 World and National speed records. "