halls120

This. Just like I'm not going to fly from IAD to EWR to TATL, if I still lived in the LA area, I'm not connecting through SFO to go TPAC.

Exactly. UA used to be the airline I used 75-85% of the time. Last year I split 50-50 between AA and UA, and this year so far it's been 25% UA and 75% AA. Not because they abandoned MSY, but because AA has been more reliable in terms of operations (IME at least) and their on board product.

I am booking a TCON flight on UA later today, and a TATL later in the year - need to meet my RDM promotion targets.

EWR764

What's also changed are the fundamentals of the domestic industry, with the consolidation of DL/NW, US/AA, etc. The entire market was much more exposed to competition in that era, and as the market consolidated, a great deal of that competition went away, and pricing power increased in certain markets. At the same time, market dynamics turned other hubsites (LAX, SEA) into battlegrounds, eroding yields and increasing demand.

I don't disagree that United has gotten a lot of the fundamentals wrong post-merger, but projecting 2009 onto 2016 is a useless exercise.

No doubt passengers have, and will always have, certain hub preferences, but to suggest that a significant cohort of passengers will soon start booking away from SFO due to its weather issues (which have always been there), to such an extent that it will materially impact traffic, is wildly speculative to put it lightly. There's just no factual basis to back that supposition.

spin88

I appreciate your posting the other numbers, as it helps to illuminate the bigger picture, which is that United is no longer what it was for 40 years, which is the dominant Western Airline. It has instead basically retreated to SFO, which is not really a hub and spoke operation, but more of a gateway to Asia. The withdrawal (which accelerated dramatically under Jeff) is quite dramatic.

I want to highlight this, as it both says too much, and too little.

(1) You are right that Skywest is not included, but that actually masks to some extent UAL's fall being greater than it looks just looking at mainline. United was #1 ex-LAX throughout the 2000s because they also served a lot of destinations with CRJ700s (planes with FC and E+) or prop-jobs on Skywest, especially after the 737s were retired. In the 2012-2016 time frame, Skywest has increased its flying ex-LAX for DAL, and it has reduced its flying for UAL ex-LAX.

I believe the numbers I posted from LAX World Airports include RJ traffic in the airline for which is is flown (as of 2014 data, 2013 did not), so they provide a slightly better data set as of 2014.

(2) your 2011 numbers don't include CO with UA, and that was really the "market share" that Jeff started with, if we are discussing not UA BKR decision, but the more recent decisions.

Using the Data from LAX http://www.lawa.org/LAXMarketShare.aspx We get:

2011 UA+CO = 16.26% market share; AA = 14.18% share; DL 10.79% share. Skywest = 6.13% share. This is what Jeff was handled to make "changes you will like" to.

Jan-April 2016 AA = 20% share; DL 17.13% share; UA 14.63% share. What Oscar got handed after 4 years of Jeff's plan...

Since the vast bulk of Skywest traffic in 2011 was for UA (my best guess is that 5% of Skywest was UA, 1% was DAL) was by far the largest airline (although eagle has a 1.5% or so share, which is not in AA's numbers) as anyone from LA can tell you. Now, after a serious of decisions by former management, United has sharply fallen, and I believe as its network shrinks, will continue to fall. United started off with a clear advantage - best, biggest network in 2011 and squandered it. United is now retreating to SFO.

SFO Airport Authority periodically puts out press releases on market share where they combine the RJs. e.g. http://media.flysfo.com/2015%20Fact%20Sheet.pdf Using those, at SFO I get the following market share:

2015 UA - 44.4%, AA/US - 9.6%, VX - 8.4%, DL - 8.4%
2012 UA - 46%, VX - 9%, DL 8%, AA - 8% (and these figures appear to be rounded).

No one is getting chased out of SFO, and its not like UA's market share has gone up dramatically. United is getting about the same % of a larger pie at SFO.

I agree that the latest LAX cut is less in seats that IAH-LOS, but that route was pancaked by Nigeria basically falling apart, particularly in the oil traffic. It is created by external factors, while IMHO cuts like LAX-MSY are created by decisions made by UA over the last few years which are coming home to roost. Very different. There is (unlike to LOS) still a lot of very valuable traffic ex-LAX, United is just not winning it over.

I think if you ask anyone in the western United States, they will tell you connecting at SFO is not a good idea... Its sort of like EWR in that way.

DA201

Right. If there is a nonstop option on any airline from IAD/LAX, it is preferable to connecting in EWR/SFO. But, for destinations not served nonstop from IAD/LAX, connecting in EWR/SFO is often the fastest and best option.

cerealmarketer

What is the price to get that valuable traffic.

We know in NYC Delta accepted negative margin (losses) to build up its presence - and still operates at a margin well below its fortress hubs.

One can imagine AA is not enjoying healthy margins, if any, as it builds LAX traffic.

I think AA has conceded there's no place left to build a Pacific hub with the margins that SFO enjoys. So it has to try to make a go of it at LAX with lower margin, by offering extra amenities for the O&D and add marginally profitable destinations to keep the corporates happy while building the all-important international connecting feed.

Delta is trying Seattle for now. It may find there's not enough O&D for pacific (well, it's already run into that) so may shift further to LAX when it gets more gates in the next decade.

Alaska just handed UA a nice gift with the VS acquisition. No doubt they will be less focused on SFO, and spread the resources up and down the West Coast.

Denver is the next great metro - it may take a cycle or two - but can't think of a more interesting place for greenfield expansion in the US.

SJC most underrated (and not well served by UA) - SFO needs to be on watch for that as traffic continues to get worse and worse up and down the Peninsula.

fly18725

The dominance of United on the west coast (note: United could not be the dominant Western Airline when there was only one Western Airline) ended with the death of Shuttle. A broader network of regional flights - mostly operated at-risk by Skywest - continued until the retirement of the EMB-120s.

Yeah, there are a few less spokes out of LAX and no more point-to-point mainline flying out of SEA (aka ANC and NRT). Otherwise, mainline and CPA capacity isn't too different on the west coast from pre-merger.

cerealmarketer

And meanwhile UA just launched today SFO-TLV - its second U.S. city to this destination - the only nonstop within 2,500 miles - to a market AA decided it couldn't compete and retreated completely.

haddon90

of my entire time connecting via SFO...only been delayed once. i get more scared connecting via DFW/IAH in the summer.

channa

Not necessarily. There are plenty of disgruntled UA flyers in SFO who want to make the move to another comprehensive carrier. It is entirely possible that AS and its cobbled together network of partners will meet that need.


True, though the East Bay is a growth hotspot right now, and UA remains at a disadvantage by not serving OAK. DL, AA, WN, and AS all serve OAK, and an independent lounge is being built at OAK as well.

Pi7473000

I am not surprised! I used to only fly United Airlines out of LAX until the merger. I remember flying 757s to MSY out of LAX so it is sad to see the route go, but it is not surprising. Ever since the merger the new UA seems to think that the west coast is not worth the effort anymore besides SFO. PMUA was very strong out west and provided much better service before merging with CO. The new airline uses uncomfortable 2 class 787s to Asia and Australia and even 737s to Hawaii instead of more comfortable 767s and 747s used in the 2000s. I never would have thought UA would shrink this much in LAX as they always were a top tier airline here.

spin88

I don't know what price to get the valuable traffic. But I know that starting in 2012 UA retrenched, and Delta "spent" big time to get high value traffic ex-LAX/NYC. They lost money for a while with JFK expansion, now its profitable. They also have spent big time ex-SEA, and claim they are making money there too. I understand LAX is profitable, although I doubt the margins are what DTW or MSP generate. Its what we call "investment in your future."

I think the big difference though is that Delta (and now AA) are doing this because they don't rate the hubs for profitability, rather they have asked what they need to do to have the HVF traffic come to them. They believe that having a slightly less profitable operation ex-LAX/NYC makes them overall more profitable as they get fliers/accounts that then contribute over other hubs as well due to network.

And this view is not unique to Delta (and now AA) it was the basis upon which the UA+CO merger was sold. That by having a dominant presence in all of the major business markets United would be the go to airline. Maybe this was a lie when told in 2010-11, but I don't think so. Rather United has under performed, and since its under pressure (making 1/2 or less of what Delta does) has been cutting to make its number. Investments in maintaining network at competitive locations (LAX, SEA, now FL flights) have been shunted aside to try to keep the numbers from getting yet worse.

Put another way, while you defend these moves as it not being worth the price, Delta and AA beg to differ, and both are doing much better than is UA.

And as to LAX vs SFO vs. SEA. LAX is a MUCH bigger market, and it (1) has less weather issues, and (2) is closer to nearly every city that UA would pull traffic too. That said, flights to LAX are another 300 miles further to anyplace in Asia except Australia, so there is a slight CASM cost to using LAX vs. SFO. This said, for traffic going South (Mexico, and points south) LAX is better situated, and 300 miles closer. Given a choice, of a fully developed network ex-SFO or ex-LAX to Asia, I'm not sure which AA would take. Pros and Cons of each.

SEA though is a totally different animal. Since its 600 miles closer to Asia than is SFO, Delta's costs ex-SEA are going to be lower. SEA also has no weather issues (three good runways) and very good OT performance. Obviously its a smaller O/D pool (but then so is YVR which has a huge number of flights) but as a connecting hub it has a lot to recommend it. Time will tell how they do there. My guess is the bet will work out as they can undercut on price due to the lower fuel burn of the shorter flights.

halls120

It isn't just "hub preference" and it isn't just weather. From time to time I see people here advocate UA drawing down IAD in favor or EWR, and that's just insane. Why would I fly IAD-EWR-FRA when I can fly IAD-FRA direct and save 1 hour? Why would I choose LAX-SFO-HKG when I can fly LAX-HKG direct and arrive 2 hours earlier?

I recognize UA has to be strategic in how it deploys its assets, but trying to force everything through SFO on the west and EWR on the east only works if passengers don't have choices. Unfortunately for UA, we do.

Fanjet

Why on earth would AA not try to build a TPAC hub at LAX? As Los Angeles is the largest O&D market for U.S.-Asian traffic.Are you actually saying that AS will turn its focus away from SFO? I actually think that VX's operations at SFO was the main reason why they are making the acquisition. That, and preventing jetBlue from doing so themselves.

tuolumne

I disagree. We've seen SJC attempted two painful times by AMR. It's cursed.

Recall AA flying their SJC-NRT into OAK for a short fuel stop. The issue was that in the event departures are reversed to the south, a heavy Triple Seven to Asia will have trouble clearing the downtown buildings in the event of an engine out after V2. That's serious.

Or the fact that the fabled "tech money" prefers Y for their employees. And the executives the company's Global Express.

Or the fact it's SJC in general. San Jose, for all its wealth, is not a especially nice area v SF/Oakland/Berkeley. Thankfully it still has the wonderful SJSU university.

cerealmarketer

I remember that history. And the international expansion seems to die with every recession, only to crop up again.

Now we have for the first time 2 European flights (LH and BA).

Plus the 2 Asian flights (NH, Hainan).

Technology has created the 787 which enables the Asia flights without the weight restriction.

If you're at Facebook or Google, it's a lot easier to get to SJC than SFO.

Question is whether you're leaving from the office / living in Menlo/Palo Alto, or living in SF. As they get older, they tend to leave the city and come down the peninsula for the schools.

Traffic has long been a problem on the Peninsula as the booms come. And it fades away when they bust. But this one has eclipsed the past booms in broad income growth and traffic growth by a long shot.

This boom will ebb at some point, they all do, but set the stage for the next one to have even more flow out of SJC - the geographic constraint is inevitable like in NYC.

Will take decades, and one runway at SJC will not become an int'l hub, but it can start to eat away at SFO margins. The SF gov't has a long history of chasing good corporations out to the suburbs.

Incorrect. They talk about the margin of their individual hubs regularly on earnings calls. Of course they all rate their hubs for profitability. And they will back out on a hub in a flash if it turns into a blood bath.

Here's Bastian's comment last month:

http://news.delta.com/sites/default/...Transcript.pdf

"All of our domestic hubs improved margins in the quarter with the best performances in Salt Lake City, Atlanta and Minneapolis. Our investments in markets like New York and Seattle are continuing to pay off, as we drove margin expansion in excess of the domestic average in both of these cities. "

It gets back to the issue UA doesn't have the fortress connecting hubs with 60%+ share and no crosstown competition that DL has in ATL/MSP/DTW/SLC that subsidize JFK/SEA/LAX.

UA has IAH and marginally EWR (which is more like an ORD - only half the traffic is NJ based) and SFO (which has the OAK/SJC bleed). It's a failure that DEN never developed in the 90s and 2000s when Stapleton closed.


I personally think the strategy of dominating 'all the business markets' is flawed. You need the margin of fortress hubs to subsidize them given how fragmented the biggest 'business markets' are.

If I were building an airline I would want as many hubs where the market is big enough for O&D but not so big you have a lot of competition, and that are geographically favorable to connecting traffic.

Chicago is the #3 biz market and Delta's presence is miniscule yet AA and UA maintain hubs. There's a (profit) reason for that.

Delta and AA have to beg to differ because they don't have established Pacific hubs on the West Coast. UA has had one for 30 years at SFO.

They need it more badly than UA because they have no other growth vector in the Pacific. Seattle as you note is yet to be proven. DL and AA know SFO can support one int'l connecting hub airline - so LAX is the battleground.

Market share alone is a horrible statistic to run or gauge a business. And UA tried in the late 90s to build LAX to levels AA and DL have yet to even come close to approaching the share UA had then. It retrenched very quickly during the 2000s.


Take a look at history. Every West Coast based airline that was acquired got essentially erased (AirCal, PSA, Reno Air) because the acquisitions were really just to snuff out competition and take capacity out of the market.

I think Alaska wants some gates at LAX and SFO, slots at JFK and DCA for Pac NW transcons to the East (think more frequency out of SEA, PDX), and less competition up and down the coast.

Yes indeed Oakland is doing well again and becoming a go-to for people who have fled to the East Bay and don't want to deal with the traffic. Another reason hubs like SFO aren't the margin fortress that an MSP/ATL/DTW/SLC with no crosstown competition are.