Fewer Spokes, Smaller Hubs

With passengers scarce, airlines are quickly cutting flights, especially to secondary markets. The industry may never be the same

When Washington lifted the ban on commercial air travel Sept. 13, the first U.S. Airways flight from Ithaca Tompkins Regional Airport in Upstate New York had one passenger on it. "So far, we've had one early morning flight to LaGuardia canceled on a semi-permanent basis," says Robert Nicholas, manager of the Upstate airport. He isn't sure how many more cuts are coming, but Tompkins is served by only one major airline -- financially troubled U.S. Airways. "Right now it's pretty empty here," says Nicholas.

Flying on a commercial jet changed dramatically with the terrorist attacks on Sept. 11. Suddenly, it has become a frightening experience for many travelers. Airport security is being overhauled -- leaving travelers apprehensive about flying until the changes are made -- and the airlines are preparing for a sharp falloff in business that could last indefinitely (see BW Online, 9/24/01, "From Road Warriors to Road Worriers"). Congress and President Bush agreed to a $15 billion emergency bailout for the airline industry on Sept. 21, which includes $5 billion in cash aid and $10 billion in loan guarantees.

Despite the bailout, airlines are being forced to make deep cuts that could end up being permanent. The cash portion of the bailout is aimed at offsetting the $5 billion carriers are expected to lose this year because of a drop in passengers. But the tragedies' effects could last for years. For one thing, the new time-consuming security checks will make it impossible for as many people to be processed at an airport on any given day as before Sept. 11. Both heightened fears and long delays for passengers due to the tighter security could last indefinitely.


  To conserve cash, many airlines have announced across-the-board service cuts of up to 20%. On Sept. 21, for instance, Northwest Airlines said it would cut back schedules by 20%, to 1,400 flights daily, grounding older aircraft and focusing on its main hubs in Minneapolis and Detroit. In some cases, specific routes are already being slashed.

On Sept. 17, Continental Airlines decided to completely discontinue service to 10 U.S. cities, including Atlantic City, N.J., Daytona Beach, Fla., as well as Dusseldorf, Germany. Said Chairman and CEO Gordon Bethune: "These painful steps are necessary for the long-term survival of Continental." Likewise, U.S. Airways says its wholly owned subsidiaries that fly to smaller cities -- carriers such as Allegheny Airlines, Piedmont Airlines, and Potomac Air -- all will announce cuts in service in the days ahead.

That's just a taste of things to come. Most companies haven't decided exactly which routes will be eliminated. Northwest expects to announce a fully revised schedule on Oct. 1, and it seems certain hundreds of marginally profitable destinations will be slashed. "People are spooked right now," says Mike Boyd, of Boyd Group/ASRC, an aviation consulting company. "The airlines need to conserve cash, and to do that, they'll be forced to rationalize service in a big way." Some carriers are even considering cutting meals for domestic economy-class passengers and offer only snacks.


  Smaller markets will probably be hit hardest. At best, routes to tiny cities may be downgraded from larger jets to turboprops or small jets. But many small airports with only a few flights a day could be dropped entirely. "Smaller markets are more at risk of losing all service than simply having it scaled back," says Standard & Poor's analyst Phil Baggaley. Even essential aircraft service, or "EAS" routes, which airlines operate on federal subsidies so that small communities have at least one carrier, could be limited or taken off the map.

"If the airlines don't come out of this in good shape, it doesn't matter whether we have an airport here or not -- because we won't have service," says Rick Atkinson, director of Yeager Airport in Charleston, W.V., which has had several daily flights canceled due to the shutdown of Reagan National Airport.

Indeed, service out of the nation's capital to such cities as Charleston and Ithaca, N.Y., is being hit especially hard. Debt-laden U.S. Airways is in perhaps the most tenuous position financially of the carriers, largely because its crucial Reagan National Airport hub remains closed for security reasons. The company says in a statement that a prompt reopening of the airport is vital to the industry's ability to remain stable.


  Less-profitable point-to-point routes flown several times a day from major hubs such as New York to middle-tier destinations such as Raleigh-Durham also could see cutbacks. That's partly because many business travelers are likely to rethink air travel to cities less than 400 miles from a departure airport. Phoenix travelers may opt for a rental car to Los Angeles (320 miles away), and more New Yorkers will likely choose Amtrak or a Greyhound to Boston (230 miles) if security measures cause an extra one- to two-hour wait at the airport.

Eventually, things will start to return to normal. Once the Federal Aviation Administration beefs up security at airports and aboard the planes to levels that make passengers feel safe, travelers will begin to warm up to the convenience of air travel again. But by the time they do, the U.S. air transportation system is likely to be vastly restructured.

David Shook in New York

Edited by Thane Peterson