The changed face of the US airline industry has meant major shifts in the way carriers use their hubs. As restructuring continues, not all airports may maintain their hub status

The hub-and-spoke system has been the bedrock of the US airline industry ever since the advent of deregulation in 1978. The hub has become a defining feature in the US industry landscape, carefully studied - if not always successfully replicated - elsewhere around the world. Now, in a period that has seen changes on a previously unimagined scale, every practice, no matter how longstanding, is subject to scrutiny. For the nation's hub airports, this means that radical changes and even closure are firmly on the table.

Although speculation about the possible demise of the hub system in total is alarmist, the future of individual hubs and their levels of operation is less assured. With carriers losing money and looking to cut costs and capacity, marginal hubs are being examined more seriously than ever before.

The most vulnerable are those in the middle of the country that facilitate east-west connections. While only Atlanta and Charlotte serve to flow passengers on the heavily travelled north-south routes, there are 14 connecting complexes for traffic between the two coasts. As such, these central facilities are subject to the most competitive pressure. A director with one US major says: "There are a multitude of Midwest hubs serving basically the same role, and most of them have relatively small - and shrinking - local markets."

At a minimum, many of these cities will be looking at losing capacity through fewer frequencies and smaller aircraft. The latter has been enabled by the relaxation of pilot scope clauses, allowing use of regional jet equipment on an unprecedented scale. Delta Air Lines, which was relatively scope unconstrained before the downturn, continues to lead in this area.

At its Dallas-Fort Worth mini-hub, Delta has dropped 30 mainline departures from its schedule, replacing them with 80 regional jet flights. At Cincinnati, the carrier's July schedule shows 559 daily departures, 408 of which are on small jets.

One planner says such equipment substitutions are an ideal way to make a smaller hub viable in the trough periods. "Regional jets are a great tool for matching the size of your hub to the local market," he says.

Expanding regionals

Many feel that the role equipment type plays in hub profitability is even greater than when regional jets first arrived on the scene. In addition to the fact that carriers are now contractually able to fly more of them, the equipment itself has improved in recent years, with larger and more economical types, as well as longer-range versions, rolling off production lines. This last attribute has allowed the carrier not only to maintain service in the face of falling traffic and fares, but also to expand the reach of the hub.

An example is Delta's use of 70-seat regional jets to connect Washington, DC, and Ontario, California, with a stop at its Dallas hub - a 3,820km (2,375 mile) flight that would not have even rated consideration as little as five years ago.

Delta is by no means alone. The annual study on the world's hubs produced by Brian Harris, airline analyst at Citigroup Smith Barney, says that carriers decreased mainline capacity from their hubs by 14% between October 2000 and October 2002, while increasing their regional capacity 12% over the same period.

Paradoxically, however, the new era also poses dangers for the supremacy of regional jet services at the hub. One network manager says that new pilot pay-scales introduced to the industry by bankruptcies and the threat of bankruptcy make the cost equation murkier than before. "Mainline pilots used to make so much that the profitability of regional jets - even though they have much higher unit costs than conventional wisdom suggests - shone by comparison. With the recent salary adjustment, it's a much tougher call whether to give away 70 seats," he says.

JP Morgan airline analyst Jamie Baker agrees, saying that a 30% reduction in pilot pay at Delta would restore unit cost parity between the carrier's mainline and regional arms.

Cities invariably complain if their airports are downgraded to receive only regional service. However, some of the Midwest hubs have reason to fear a much worse fate, with airline chief executives increasingly dropping hints of closure. Dismissed in the past as so much posturing, the threat is now lent credibility by the America West Airlines decision to close its hub in Columbus, Ohio.

And Columbus may not be the last. Continental Airlines chief executive Gordon Bethune warned Cleveland that the carrier would look long and hard at its hub operations there unless local traffic picked up. Speaking to a gathering of area executives, Bethune said: "We're not going to lose money providing services that people don't want. If you don't want it, fine. We won't give it to you."

New US Airways head David Siegel similarly has taken a hard line in negotiations with the airport authority in Pittsburgh, where it operates its principal east-west hub. The barely concealed threat is that the carrier will cease most of its flying there unless it receives a substantial break on charges.

Vulnerable locations

Siegel has also said that one way for the industry to alleviate its persistent overcapacity problem would be for each carrier to shut down its "uneconomic hub positions". In addition to his carrier's Pittsburgh base and Continental's Cleveland hub, Siegel uses this term to label the St Louis operations of American Airlines, Northwest's hub in Memphis and Delta's connecting complexes in Cincinnati, Dallas and Salt Lake City.

This is of course easier said than done. Planners who would perhaps relish cutting swathes of unprofitable flying out of their systems, say that - other than those with bankruptcy protection - carriers may not be able to make a hasty exit from their facility leases. One leader of a network planning department says: "It's tough to make a case for doing something that will leave you stuck with millions of dollars in obligations, but which will earn absolutely no revenue."

A less dire way in which the hub landscape has been altered is through the rolling hub concept, the most important example of which is provided by American Airlines. Recognising that scheduling departures and arrivals at its Chicago O'Hare hub in tightly packed banks was causing delays, American initiated a new scheduling system at the airport in April 2002.

By running on a constant-flow basis, aircraft spend less time waiting to take off at both hub and spoke airports, as they no longer need to be scheduled to hit bank times. This means fewer aircraft are needed to fly the same number of flights, as equipment spends more time in the air and less sitting idle. The system also requires fewer gates (and therefore fewer staff to man them), as approximately the same number of flights are spread out across the day, not jammed together to form a dense connecting wave. American was sufficiently pleased with the results in Chicago that it depeaked its flagship Dallas-Fort Worth hub seven months later.

While generally applauding any innovation aimed at improving the economics of the hub system, there is vigorous debate within the industry whether the rolling hub represents a workable model. Many admire the cost-saving element, but express concerns about a likely loss of revenue. "The longer connect times are a problem," says one planner. "Business traffic will not wait three hours."

A schedule manager at another carrier agrees, saying: "In the current environment, pursuing cost savings makes sense, because the revenue just isn't there. But when the economy recovers it won't look as good - revenue is the name of the game, and a big bank creates the connecting opportunities and smaller connect times that drive business revenue. If we were considering depeaking, I would argue against it."

Unbanked hubs

Others, such as Joel Antolini, vice-president with the network consultancy Airline Planning Group, believe that, in the right circumstances, an unbanked hub can work in any profit environment. Antolini, whose firm has analysed the economics of rolling hubs in consulting assignments, says: "The key to a depeaked hub concept is the size of the local market and the cost reduction associated with the depeaking. In cities with big local traffic components, such as Dallas, Chicago or Atlanta, a carrier that can adjust its schedule to provide good connections in the large, competitive origin-and-destination markets, while using freed resources to add frequency, can enjoy significant benefits."

American, not surprisingly, agrees. While it is pleased with the results achieved in Chicago and Dallas, it acknowledges that depeaking is not the answer for every airport. Specifically, the airline says that the benefits of such a move would be relatively small in St Louis, with its smaller local traffic base.

This analysis highlights the importance of the single biggest factor in a hub airport's success - the local base. In addition to being higher yielding than transfer traffic, passengers that originate at the hub bring the airline numerous other benefits. "Carriers are better able to maintain pricing power for local traffic, particularly in periods of general industry revenue weakness," notes Brian Harris at Citigroup, who is predicting the ultimate demise of several of the smaller hubs.

Local traffic is not everything, however, and airlines will continue to need well-located airports through which they can move passengers across the network. One manager warns that carriers neglecting medium-sized cities do so at their peril: "Most Americans," he says, "do not live in New York or Los Angeles."

Seat capacity shifts at Midwest hubs – 2002 vs 2000



Change in seat capacity

October total



America West

Las Vegas









Chicago O'Hare




Dallas-Fort Worth




St Louis


















Dallas-Fort Worth




Salt Lake City

















Chicago O'Hare













US Airways

Note: Analysis from Citigroup Smith Barney using OAG data for October 2000 vs October 2002



Source: Airline Business