United Airlines celebrated the 30th anniversary of its hub at Washington Dulles International airport today, even as the future of its operation there remains in question.
The Chicago-based carrier sought to capture north-south traffic along the US east coast and compete with competitors like American Airlines when the hub opened in May 1986, then United chief executive James Hartigan told The Washington Post that April.
Dulles became United’s main gateway to Europe in 1990, a position it maintained until the airline merged with Continental Airlines in 2010.
However, traffic at the suburban Virginia airport outside Washington DC has dropped as costs increased and some domestic traffic shifted to close-in Ronald Reagan Washington National airport in recent years.
Passenger traffic decreased 8.5% to 21.6 million from 2010 to 2014, data from Dulles operator the Metropolitan Washington Airports Authority (MWAA) shows.
United was part of this decline. Capstats data shows the carrier’s seat capacity at Dulles decreased nearly 19% during the same period as United rationalised its post-merger network and reduced overlap with the its new hub at Newark Liberty International airport.
In 2013, former United chief executive Jeff Smisek told Flightglobal that high debt service and operating costs made it difficult for the carrier to expand at the airport.
Dulles may be on the rebound. Passenger traffic is up 0.4% to 21.6 million during the year ending in February and United will operate more seats from the airport in May than it did in May 2014 or May 2015, MWAA and Capstats data shows.
The uptick comes as efforts by MWAA and the Commonwealth of Virginia to reduce costs are showing progress.
ROUTING COSTS
MWAA implemented a new airline agreement that allows it to use revenue generated at Washington National to cover debt service at Dulles in January 2015, and Virginia has budgeted $50 million to further reduce per passenger expenses in 2017 and 2018.
As a result, the cost per departing passenger at Dulles is $22.59 in MWAA’s 2016 budget, down more than 14% from 2014.
“We’re really appreciative of that partnership and those efforts,” says Jon Roitman, senior vice-president of airport operations at United, on the sidelines of an anniversary event at Dulles today. “There’s still some work to do, to be honest, to really balance our costs here, especially as it relates to our other hubs and locations. We’re actively working [on] that with the airport authority.”
While he declines to comment on what they are working on with MWAA, he says there is “momentum” that could allow United to invest in and expand its hub at Dulles.
“It’s stuff that, if we do get it accomplished in partnership with the airport authority, will put us in a position to grow and grow the hub like we want to grow the hub, in a world-class way,” says Roitman.
Asked whether investments could include replacing concourses C and D – probably the improvement most sought by passengers at Dulles – he simply says: “Maybe.”
The concourses date to 1986, when United opened concourse C as a “temporary” midfield facility. Continental and defunct Presidential Airways built concourse D around the same time and United acquired it in 1988.
While United is working on a larger agreement with MWAA, Roitman says it plans to add more widebody gates to concourse C in order to allow it to meet peak summer demand.
“When we hit our summer operation, that’s when this place really starts thumping,” he says. “You’ll see us really maximise all our gates here.”
ANALYST PRESSURE
United faces pressure from Wall Street analysts to provide a firm plan on how it will boost margins, and closing the Washington Dulles hub is one solution a few analysts have floated.
“Is there a scenario a couple years down the road, if you are not getting where you need to be, that we're talking about major surgery here to the network?” asked Hunter Keay, an analyst at Wolfe Research, during the airline’s first quarter earnings call in April.
Keay was not suggesting that United close its Dulles hub in his question, he clarifies in an interview. He wants the carrier’s management team to outline how they will increase margins or to acknowledge that, because of their network structure, their margins will be lower than other airlines but that they can compete in “different ways”.
“The market has concluded that there is a permanent structural margin gap,” he says. “United just has to get there too.”
United chief executive Oscar Munoz acknowledges analysts’ concerns.
“We need to be, in my mind, a bit more disruptive in the marketplace,” he said during the call in April. “I think we've been standing by a little bit too much. Exactly what that means and how we do it thoughtfully and from a shareowner, sort of value-creating perspective, is the work we're beginning to do.”
Munoz asked analysts for patience while he and the executive team put together a plan that he will present to them at a June investor meeting.
Whether that plan includes network cuts or other changes remains to be seen. At Dulles today, the airline threw a 30th birthday party for employees – bringing a Boeing 777-shaped barbeque pit in from Houston and using a Boeing 767-300ER as a backdrop for the festivities.
Roitman enthusiastically greeted the gathering, congratulating them on the “fantastic” operating results out of Dulles and saying they are “constantly looking for opportunities” from the airport.
Source: Cirium Dashboard
