In spite of talks of a more positive global economic outlook, US airlines continue to err on the side of caution over managing their capacity.
According to the latest report from Airports Council International (ACI), tight capacity discipline was the central contributing factor towards the country’s main airports experiencing negligible growth of 1.6% in 2013.
Capacity discipline became the watchword for carriers during the financial downturn of 2008-09 – compounded by high fuel prices – in which domestic carrier passenger numbers fell by 10.0%. The strategy was typified by reducing the number of seats on aircraft, as well as cutting routes deemed to be losing money.
As the goal of airlines shifted from share gains to sustaining profit margins, US airport operations were unduly hit. From 2007-12, it is estimated that 14.3% of annual scheduled flights were dropped from the US air transportation network, resulting from the actions of network carriers.
Smaller airports, in particular, have been affected by the cuts in service. As highlighted in the recent study ‘Modelling Changes in Connectivity at US Airports’, carried out by Massachusetts Institute of Technology (MIT), 21.3% of small hub airports lost their scheduled domestic flights in the 2007-12 period; in comparison, the 29 largest hubs in the country witnessed an 8.8% decline.
"Capacity discipline does indeed appear to have a strong correlation with airport connectivity – especially among small community airports," explains Michael Wittman, air transportation research assistant at MIT and co-author of the report.
"On the whole, smaller airports have struggled to gain back connectivity since airline capacity discipline began in earnest in 2011; some larger airports are also losing flights."
With globalisation continuing at a brisk pace, connectivity to the international air transportation network is vital for a host of socio-economic and demographic reasons. The ongoing debate surrounding plans for airport expansion in the UK is testament to the pivotal role airports now play in national economies. Even London’s smallest hub, London City Airport, is said to contribute £750 million a year to the UK economy, if airport officials are to be believed.
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But how does one actually go about measuring an airport’s connectivity, given the obvious logistical complexities and variables associated with today’s hubs? Moreover, what benefits can be derived for airport managers and policymakers in interpreting the effects and gains – or losses – in flights and seats or routes in and out of an airport?
There is currently no industry-standard metric to assess the integration of an airport. In response, Wittman, together with William Swelbar, a colleague at the MIT International Centre for Airport Transportation, has devised the Airport Connectivity Quality Index (ACQI), a model that computes connectivity through a set of criteria, including the number of destinations offered and the frequency of available flights to each.
Unlike previous connectivity concepts, the ACQI also takes into consideration the quality of connecting destinations served. For instance, a flight to a large city or major connecting hub is deemed more important than one to a smaller community with limited links to other destinations.
"Presently, most data concerns the number of completed flights only, which doesn’t really provide a full account of what’s happening at these airports," explains Wittman. "We created the ACQI as a way to measure not only the quantity of services but also the quality of them.
"In other words, you are not just able to say that there are ten destinations served by one particular airport, but you can see whether they are small or major hubs.
"This creates a richer picture of how airports have been connected by airline capacity decisions in recent years."
The concept was hashed out over a period of six months in which "there was a lot of back and forth with different people in the industry, cross-checking the metrics".
In total, 462 US airports were assessed and allocated ACQI scores for their performances from 2007-12. Data, collected for all domestic and international airlines, was sourced by the Diio Mi Market Intelligence Portal.
"While it might sound complicated, we decided to go with a pretty simple metric," says Wittman. "It’s robust too – even if you change the parameters in some way or another, it wouldn’t really result in a big change to the airport ratings within our model.
"We could have gone in a more complicated direction, but I think it does a good job capturing the connectivity and back-and-forth nature of the country’s airports."
The ACQI score overview reveals that, as of 2012, large hub airports were approximately three times more connected than medium hubs, and about six times more than smaller hubs. Each of the 25 most-connected airports in the US is presently a large hub, with Chicago’s O’Hare International Airport coming out on top.
While the average ACQI score dropped for each airport hub type during the study period, it was small hubs that suffered the most as a result of airline capacity discipline, experiencing a 12.8% drop. While many have sought to retain scheduled domestic services to larger international airports, this has come at the expense of point-to-point and direct services to more provincial destinations.
"There are a lot of reasons for the drop in connectivity in smaller hubs," says Wittman. "One of the biggest is that, within the small and medium hub category, there are a lot of secondary hubs – airports like Memphis and Cincinnati that used to play a prominent role for many network carriers. However, those carriers – Delta, for example – have started to close a lot of those smaller hubs, reducing a significant portion of flights."
Removing redundancy?
In fact, since the launch of the MIT study, Cincinnati has seen its flight connectivity plummet by approximately two thirds. Similarly, services have also been cut back in the likes of Memphis, Salt Lake City and Pittsburgh, impacting on smaller hubs and going a long way towards explaining the lopsided connectivity model the US currently faces.
However, while capacity discipline is a clear contributing factor towards the lower connectivity of many smaller airports, it is not the proximate cause across the entire sector. For each hub category, the percentage changes in connectivity were found to be much lower than the percentage changes in domestic seats and flights over the same period.
This would suggest that some service cuts did not have an adverse effect on connectivity but simply removed redundant journeys to secondary hubs instead. Besides, as Wittman explains, removing flights to secondary hubs from smaller airports would not drive down connectivity, so long as flights to other, larger hubs are still in place.
"Smaller airports still have a lot of options in terms of where they want to connect to," he says. "From now on, I think a lot of them will be aiming to connect to primary hubs, and from there they can connect to any other point in the world.
"In many ways, cutting flights only explains a small part of connectivity, too. There are other factors that can have a strong impact; for instance, you need to consider whether the airport is a hub or not, or whether it is served by a low-cost or major carrier."
However, future developments in the connectivity of US airports will mainly rest on whether the capacity discipline equilibrium remains as it is, or if a new management strategy paradigm takes hold across the airline industry.
The merger between American Airlines and US Airways, finalised in December, could place pressure on future connectivity if schedules and route redundancies are eliminated from the network of the world’s new biggest airline.
As always, it will be the bottom line that drives strategy in the US airline industry, and capacity discipline has allowed a number of domestic airlines to retain profitability after the financial crisis. Notably, despite being the country’s fastest-growing airline in 2013, Sprint Airlines, the ultra-low-cost carrier, only added two aircraft to its fleet in the first quarter of this year.
While a healthier macroeconomy and stable fuel prices could stimulate other airlines to make a break for it and bolster their market share, it seems likely that they will give up a strategy that continues to serve them well. This will continue to have knock-on effects, of varying degrees, on airport connectivity in the US – in the short term, at least.
