Hobby decision prompts cuts at United’s Houston hub

Washington DC
Source:
This story is sourced from Pro
See more Pro news »

United Airlines will not launch its planned nonstop flight between Houston George Bush Intercontinental Airport and Auckland, New Zealand, in response to the local city council's approval of a new international terminal at Houston Hobby Airport that is championed by Southwest Airlines.

The Chicago-based airline had planned to launch the once daily Auckland service with a 219-seat Boeing 787-8 in late 2012, subject to delivery of the aircraft. It would have been the airline's second route on the aircraft after Intercontinental to Lagos, which was launched on a Boeing 777-200 in November 2011, is shifted to a 787 later this year.

United claimed the Intercontinental to Auckland route was only economically feasible with the 787.

The Houston city council approved the terminal project by a 16-1 margin yesterday, despite threats by United to cut capacity and jobs at Intercontinental. Dallas-based Southwest wants the facility so that it can launch new international service to the Caribbean, Mexico, and Central and South America from Hobby.

United carried 95% of the 5.6 million passengers between Houston and destinations in Latin America in 2011, according to statistics from the Houston Airport System, which operates Hobby and Intercontinental.

The Auckland route is the first official casualty of United's threatened 10% capacity reduction at Intercontinental. The cuts will begin in the airline's fall schedule this September and be complete by 2015, according to an employee bulletin. It will reallocate the capacity to other hubs from Houston.

The airline says additional details of the cuts will be available soon and would not comment on whether it plans to launch Auckland flights from another hub.

The cuts will include current and planned flights to Asia and Europe, according to testimony by United during hearings on the new terminal earlier this month.

"This will harm us and IAH [Intercontinental], but IAH will continue to be a strong hub for United," says Jeff Smisek, president and chief executive of the Chicago-based airline, in the bulletin. "Unfortunately, the city of Houston will suffer the consequences of this decision for decades to come."

United operates its largest hub at Intercontinental.

Whether the decision to make the cuts was solely the result of the council's decision or previously planned is up for debate. Robert Mann, an airline industry analyst at RW Mann & Company, says United's announcement is a "tit for tat" with the city council.

"There are only two possibilities here," he continues. "One, that this was planned already and they were looking for someone to blame or, two, this is shot across the bow [to the city council]."

United says that the cuts are tied directly to the Hobby decision.

The capacity reallocation could benefit United's other hubs. The most likely candidate is Denver, where the airline is not slot constrained and negotiated $22 million in annual lease savings earlier this month. The airport is well positioned to take some of the east-west connecting traffic that is currently routed through Houston and has the facilities to handle additional flights to Latin America.

Denver will also host the airline's second planned international service for its 787-8 aircraft following the decision to axe the Auckland service. United announced plans to launch Denver to Tokyo-Narita flights on 31 March 2013 earlier this month.

United would not comment on how the capacity will be reallocated.

The airline plans to cut capacity by 0.5% to 1.5% this year compared to 2011. Available seat miles decreased by 0.3% year-to-date at the end of April compared to the same period a year earlier.

Southwest will design, build and pay for the more than $100 million international facility that is slated to open in 2015. It backs estimates that the new terminal at Hobby will have a $1.6 billion positive economic impact on the city by consultants GRA and InterVistas.

"This is a big win for Houston and the travelling public," says Houston mayor Annise Parker in a statement on the city council's approval of the terminal at Hobby. "Competition will lead to jobs, lower fares and a positive economic impact for the city. My goal is a strong international presence at Hobby and a continued strong international presence at Bush [Intercontinental] airport."