United’s hub capacity dance

A lot of people have their eye on United Airline’s operations at its hubs at Chicago O’Hare, Denver and Houston Intercontinental.

The Chicago-based airline is in the midst of a network realignment that should build on the strengths of its 10 hubs while eliminating the weaknesses. Part of this is a 10% capacity cut at its largest hub in Houston by 2015 that, while officially in response to the local city council’s decision to allow Southwest Airlines to build a federal inspection services facility for international arrivals at the city’s Hobby airport, is widely seen as a big part of the rationalisation of the legacy Continental Airlines and legacy Untied networks.

Aruba, Asheville, Greensboro, Mazatlan, Paris Charles de Gaulle, Toluca, Tuxtla and Waco flights from Intercontinental are the first announced cuts with service to the cities ending completely from September. Further cuts involve shifting the Houston to Lagos run to a 219-seat Boeing 787-8 from a 275-seat 777-200 and reducing frequency on the route to five-times per week from six on 7 January 2013.

The eight discontinued routes represent about 1% of available departing capacity from Intercontinental on Chicago-based United, according to US Department of Transportation capacity data from September 2011, while the capacity reduction on the Lagos flight totals only about 2,400 fewer seats on average per month – 0.001% of total monthly capacity at the Texas airport last September. At this rate, the airline must make a comparable number of cuts at Intercontinental every four months for the next two years to reach its capacity goals by 2015.

United’s downsizing in Houston looks much more like a capacity shift than a capacity cut when seen broadly.

John Rainey, chief financial officer at the airline, said that United anticipates that its fleet count will stay flat through 2017 with capacity up slightly during the next few years due to new slimline seats and replacing smaller aircraft with larger ones, during an earnings call in July. For this to be the case, the capacity from Houston must go somewhere.

Chicago and Denver, where United can more efficiently route east-west connections than though the Texas city, are the most likely recipients of that capacity. While nothing official has been said, the airline could boost aircraft utilisation and reduce fuel costs by routing those connecting passengers through these hubs.

New crew bases, increased gate counts and lower airport rental fees in Chicago and Denver all suggest that this capacity shift is happening. First, United said that it will open a Boeing 737 base in Chicago and a Boeing 767 base in Denver with legacy Continental crews, and an Airbus base in Houston with legacy United crews in August. This allows it to bring the Continental 737 fleet, which is larger and younger than the Airbus A319 and A320 fleet, to O’Hare and more larger aircraft to Denver.

Second, United is adding 10 additional gates to Concourses B and C at O’Hare. The project is billed as one that allows more operational flexibility by increasing the number of regional jet flights from the facilities in Terminal 2 but it will also allow for increased operations at the airport.

And third, the carrier negotiated lower rents on its gates in Denver with the airport in May. The amended contract with the airport saves United about $22 million per year through 2025 as long as it maintains capacity of at least 22.8 billion available seat miles annually.

United has repeatedly declined to comment on its Houston cuts and where that capacity is going but, if the signs are anything to go by, one would guess a lot of that capacity is headed north.

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