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CRAIN’S CLEVELAND BUSINESS
SPECIAL REPORT: UP IN THE AIR
Landing: Hub an asset to businesses continued from PAGE 21
“The Continental Cleveland hub needs all the passenger demand it can get,” said Mr. Zannoni in an exchange of e-mails sent during his travels earlier this month. “And I’m not a fan of Akron-Canton’s strategy of diverting passengers from Hopkins, so I can’t morally support it — it’s not really cheaper if it ends up costing the entire region the Continental/United hub.” Like many frequent business travelers, convenience is Mr. Zannoni’s top priority, not rock-bottom fares. So he is watching carefully to find out how air service will be delivered in Northeast Ohio as the industry transforms over the next few years. And that service certainly may be poised to change as the new United Continental Holdings Inc. merges its two airlines, and Southwest Airlines Inc. completes its merger with AirTran Holdings Inc., the dominant carrier in Akron.
‘Competitive advantage’ at stake Both Ricky Smith, director of port control for the City of Cleveland, and Richard McQueen, the director of the Akron-Canton Airport, say they are optimistic about their air service remaining intact as these mergers are completed. While both acknowledge that each merger could upset the status quo, they say the substantial increase in passenger traffic being forecast by the Federal Aviation Administration will allow for continued growth. Mr. Smith added that the opening of a casino and a new convention center and medical merchandise mart also will spur travel activity into and out of Northeast Ohio. Few in the airline industry expect the Southwest-AirTran deal to hurt the region’s air service, though some speculate that Cleveland Hopkins could benefit if flights are shifted from Akron-Canton to Cleveland, where Southwest already has a significant presence. On the other hand, to some industry observers, the Cleveland hub very well may be a goner. “Unfortunately, I don’t see too much good news for those people who enjoy so many nonstop flights from Cleveland Hopkins,” said Bijan Vasigh, a professor of economics and finance at Embry-Riddle Aero-
CONTINENTAL IN CLEVELAND ■ Cleveland became a Continental hub in 1987 after United Airlines severely cut back its service at Cleveland Hopkins during the years after air service was deregulated in 1978. In January 1987, Continental only had six daily flights out of Cleveland. By 1990, it had more than 150 flights on Continental and its regional affiliates. ■ Chicago O’Hare is the top daily destination in terms of the number of United or Continental flights from Cleveland, with 10 daily. ■ Houston is the top daily destination in terms of the number of United or Continental passengers traveling from Cleveland. (The company does not disclose market-specific nautical University in Daytona Beach, Fla., and a managing partner of the Aviation Consulting Group consultancy. “We should see a significant amount of reduction in traffic from Cleveland Hopkins, in favor of Chicago and (Washington Dulles International Airport). “The proximity (to those two United hubs) does not favor Cleveland to remain a viable hub,” he said, echoing the sentiments of a number of industry watchers. Mike Boyd of Boyd Group International, an aviation consulting firm in Evergreen, Colo., said if Cleveland Hopkins does lose its hub status, United and other airlines still will offer a reasonable level of service. “Cleveland will be well-served, but it will be served on the basis of what Cleveland can support,” he said. Even so, business leaders here still believe that maintaining Cleveland Hopkins as a hub is crucial for the region’s economic development. As a hub airport, Cleveland Hopkins has more direct flights to more cities since Continental brings passengers to Cleveland from smaller cities such as Albany, N.Y., or Flint, Mich., and sends them on from Cleveland to even more cities. The airport currently offers about 250 daily nonstop flights to 74 destinations; 52 locations over a one-year period are served exclusively by United or Continental. Tom Waltermire, CEO of Team NEO, the regional business attrac-
numbers.) ■ Number of United or Continental flights each day: 182 ■ Number of passengers departing on United or Continental flights daily: 7,397 (average for
12 months ended Oct. 30, 2010) ■ United or Continental destinations from Cleveland: 70 ■ Percentage of Hopkins flights that are United or Continental: 73% ■ Cities where only United or Continental offers direct flights from Cleveland: 52 locations over a one-year period (Some flights are
seasonal.) SOURCES: CONTINENTAL UNITED HOLDINGS INC., U.S. BUREAU OF TRANSPORTATION STATISTICS, CRAIN’S RESEARCH
tion nonprofit, said having a hub at Cleveland Hopkins is an asset when he talks to businesses considering a Northeast Ohio location. “It’s extremely important, because right now we enjoy a competitive advantage (over nearby cities that are not hubs),” he said. “It’s an attraction lever that we want to use.”
Not sitting back Joe Roman, president and CEO of the Greater Cleveland Partnership, said his organization has convened a task force of business leaders to marshal an effort aimed at convincing United to keep the hub here. The regional chamber of commerce group launched the task force with an organizational meeting on Feb. 14. GCP already has started surveying its members and intends to make a case to the new United-Continental management that the demand for air service here is growing, despite a recent dip in the number of passengers using Cleveland Hopkins. He said the survey, which is still under way, found that many expect their air travel needs to grow by 5% to 10% over the next one to two years. He also intends to argue that new projects like the convention center and medical merchandise mart and the growth of so-called medical tourism trips to the Cleveland Clinic and University Hospitals will add to the need for a continued high level of air service. The task force will be led by William Christopher, GCP’s chairman and a Cleveland-based executive vice president of Alcoa Inc. Rob Turk, executive vice president of Professional Travel Inc. of North Olmsted, believes that much of the flight schedule that might be
trimmed by United Continental would be made up by other airlines. He said his clients are not as concerned about the SouthwestAirTran merger as they are with changes in the service from the new United. The North Olmsted company manages the travel needs of 200 large and medium-sized companies. “They’re concerned about if the Cleveland hub is taken away or significantly reduced they’ll be forced to make a lot more connections,” he said. At least one company is working on its own to boost travel on United. William Conway, chairman of Chardon-based Fairmount Minerals Ltd., in December sent all the firm’s employees an e-mail urging them to book their travel on the new United whenever possible. “We urge that you select UnitedContinental Airline when flying in and/or out of Cleveland,” he wrote in a Dec. 21 e-mail. “The UnitedContinental hub is important to Fairmount Minerals and the community as a whole.”
Watching, waiting The yardstick United will use in regards to the service it offers at Cleveland will be the demand and opportunity for the growth of air service, said Jim Compton, executive vice president and chief revenue officer for United Continental Holdings in a recent interview with Crain’s Cleveland Business. Last September, Jeff Smisek, then-CEO of Continental and now CEO of the combined holding company, reached a written agreement with Richard Cordray, then Ohio attorney general, to maintain a hub in Cleveland for at least five years. That agreement only requires the combined airline to maintain 90% of its flights at Cleveland Hopkins for two years and allows for deeper cuts in years three, four and five if business falls off dramatically or the Cleveland Hopkins operation is significantly unprofitable. “(As an airline) you have to be aware of the demand that’s out there in the marketplace and to be smart about how you manage through that,” Mr. Compton said. “That’s how hubs become win-win with airlines and cities; you work together and manage that capacity and demand together. “In Cleveland, we’ll continue to work closely with the Cleveland business leaders and Ricky Smith, the airport director, to make sure we’re watching the challenges out there and ensuring the sustainable future for Cleveland.” ■ Sections editor Amy Ann Stoessel contributed to this story.
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United CEO: Hubs ‘need to earn their value’ daily Smisek says joint airline ‘committed to Cleveland’
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ince 1987, Cleveland Hopkins has been a Continental hub. That means local passengers can find more direct flights to cities such as New York and Chicago than Pittsburghers, and they can fly direct to cities such as Indianapolis and Rochester, N.Y. Pittsburgh passengers would have to change planes to get to those midsize cities because Pittsburgh International Airport is no airline’s hub. Cleveland was the smallest of the old Continental’s three domestic hubs, the only one in the Midwest. Now after the merger, it is the smallest of eight domestic United hubs. The talk in the industry is that the airline will choose to route flights through United’s hubs at Chicago’s O’Hare International Airport or Washington Dulles International Airport in the Virginia suburbs. For now, however, the airline is standing by its commitment to its Cleveland hub. Last September, shortly before their merger won government approval, United and Continental reached an agreement with thenOhio Attorney General Richard Cordray to maintain the hub at Cleveland Hopkins for at least five years. Failing to live up to that pledge could cost the airline up to $20 million in damages. However, days later, with Jeff Smisek — the Continental, and now United, CEO — on the stand, lawyers challenging the merger in a San Francisco lawsuit produced an internal ContiSmisek nental analysis that suggested the new airline would abandon the Cleveland hub. According to that document, Cleveland Hopkins would lose 178 of 211 daily flights once the two airlines are fully integrated, which could take five years. Mr. Smisek responded angrily, saying the airline was committed to Cleveland and that the document produced was only one of several post-merger scenarios the airline generated as it was negotiating with United. At a speech here last November, Mr. Smisek said emphatically that, “We are committed to Cleveland.” He challenged his audience of business and civic leaders to show their support of the airline, meaning their commitment to prefer his airline could make a difference in whether the hub remains. “Every hub needs to earn its value every day,” he said. “The key for Cleveland is to have a level of business travel so that we can have either consistent profitability or have that hub’s profitability in a clear line of sight (ahead).” — Jay Miller