Southwest, Houston help United to stop losing money


Believe it or not, this is the spin that United Airlines is trying to put on their decision to start cutting routes out of Houston in the face of Southwest‘s plans to start international flights from Hobby in 2015. United suggested that the City approving the plan would lead to direct and immediate route cuts and they’re holding to that plan, with several route cuts announced in recent weeks. Comments offered on one of the most recent announcements – the cessation of service on Houston – Paris in October – leads to some interesting conclusions.

Speaking with the Houston Chronicle about the most recently announced cuts, United spokeswoman Mary Clark indicated that the routes being cut are generally money-losing operations. By choosing to cut them now, in the face of potential competition in three years’ time, United plans to stem their losses.

Clark said United had continued to offer service to the unprofitable locations, hoping they would turn around as Bush Intercontinental grows, but was prompted to nix them after the Houston City Council’s approval of Southwest’s Hobby proposal.

As part of that deal, Southwest agreed to pay for a customs facility and five-gate expansion at Hobby so it could begin flying in 2015 to the Caribbean and Latin America.

Clark said the Paris route hadn’t been profitable for more than two years.

"With Hobby operating internationally, we don’t feel we have the same growth prospects at IAH we had in the past," she said. "So we don’t expect these flights to become profitable.

"Our most prudent path is to eliminate the unprofitable flying now rather than continue to lose money."

Apparently, had Hobby remained closed to international flights, the most prudent path would have been to continue operating the money-losing routes for two years just to see if things shifted in the market. At least that’s how I’m reading this quote. Never mind that the airline will still offer at least four daily flights to Paris on their own aircraft and that from North America they can also offer connectivity via partners Air Canada, Swiss and Lufthansa as part of the A++ anti-trust immune joint venture which allows for collusion on pricing and revenue/cost sharing on the route.

The massive route network which United now has, one of the factors it routinely cites as a key value differentiator for its customers, is impressive. It also means that it is possible for man customers to be better routed through other hubs than only via Houston. It might suck for the folks living in Houston or Paris and trying to get to the other city, but there are a lot more passengers than just the O/D crowd.The number of folks who are losing a single connect routing to Paris is surprisingly low. And the company has to consider all its customers.

Honestly, it is a shame that they’re using the Hobby decision as an excuse here. The cuts were almost certainly going to happen anyways. But now they’ve got someone to blame for the actions they were likely going to make either way.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, and LinkedIn.

8 Comments

  1. Losing IAH-CDG might have been cut either way, given that UA will still offer service via ORD, EWR and IAD, but there clearly is a network effect that will occur as a result of WN’s expansion. WN only has to siphon a few pax/day off any destination to make flights to that destination unprofitable. If UA cuts 1 or 2 departures to MEX because WN flies to MEX, that means UA has less connecting pax on other flights, which can render them unprofitable. This is kind of what DL has done at CVG and MEM.
    Long-haul flights can take years to become profitable, and they can have cycles where they are better and worse. So, yes, it is possible that UA might have held on to some marginal or unprofitable flights expecting future profitability, or a contribution to another connecting segment, and in light of the expected growth in HOU, is cutting some IAH service and expansion now.

    At the same time, higher fuel costs do make 50-seat RJ flying more marginal, as well as very long haul international. So I feel that changing industry dynamics certainly played a role, but so did the anticipation of more competition from WN.

  2. Continental, errr United, is being a big baby about this. They have been behaving like they should have a monopoly on the Houston international market.

  3. Air France has really been upping their in flight services game on TATL C; I don’t think CO planned to have to compete on a service level. I’m betting AF will bring back 77W service to IAH now that UA drops it.

  4. The local perception is that United is being retaliatory, even petty, and I think Houstonians will respond and move their business to competing airlines.

  5. United Airlines SUCKS. The death of Continental was unfortunate for us in Houston, as they were a pleasure to fly. UA has turned the flying experience to no more than being on a cattle carrier. They chose to move to Chicago and abandoned Houston with job losses already. So, let them flop. Go Southwest! At least you believe in Texas.

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