Airport officials hope rivals will pick up US Airways’ flight cuts

By Richard N. Velotta

Friday, Nov. 6, 2009 | 3 a.m.

US Airways’ announcement last week that it would cut more capacity at McCarran International Airport next year was a surprising development to tourism and aviation analysts, but not a knock-out punch, they say.

The Tempe, Ariz.-based carrier, once the busiest airline at McCarran when it was known as America West Airlines, said it would chop its flight schedule from 64 daily round trips to 36 by the end of February, ending nonstop service to 13 destinations.

In addition, the airline announced it would close its crew bases in Las Vegas, but how that affects the employment of US Airways’ 880 locally based workers is an unknown.

McCarran officials are counting on other carriers adding capacity to pick up the slack over time, historically a good bet.

The announcement was part of broader cuts for US Airways systemwide which includes eliminating 1,000 jobs and ending service to five European destinations from the airline’s East Coast gateway at Philadelphia.

The airline is continuing to shore up its most profitable business. Las Vegas, primarily a leisure market, doesn’t offer the same profit margins as other business travel-driven markets.

McCarran officials haven’t determined yet how much they’ll lose in landing and rental fees or what the cuts mean for retail operators at Terminal 1 from which US Airways operates.

US Airways officials have noted that Las Vegas is an extremely competitive market for the company, the sixth-largest U.S. carrier and the smallest of the full-fare U.S. airlines.

“Las Vegas has always been a low-fare leisure market but now the fares are considerably lower because of falling demand, said Andrew Nocella, senior vice president of marketing and planning for US Airways in the company’s employee newsletter. “When you take that and combine it with high fuel prices, Las Vegas has become extremely unprofitable for US Airways and would remain unprofitable indefinitely at its current size.

“Reducing service at Las Vegas was a very difficult decision,” Nocella said, “but the right one to make in this environment. We need to do all we can to return US Airways to profitability and that requires eliminating unprofitable flying.”

When the airline completes its schedule changes at the end of February, 99 percent of its service will connect cities to its hub operations in Phoenix, Philadelphia and Charlotte, N.C.

“US Airways dropped those flights because they couldn’t make any money on them,” said aviation consultant Mike Boyd of Evergreen, Colo.-based Boyd Group International. “I don’t see it as a death blow (for Las Vegas). But the days of America West are over. They were great days, but the economy has changed.”

Bill Lerner, a gaming analyst with Union Gaming Group, told investors he doesn’t think the US Airways’ cutbacks would have a major effect on the financial fortunes of local resorts.

“We don’t think this latest round of cuts from US Airways is indicative of anything other than a legacy carrier trying to keep its head above water,” Lerner said in a note to investors after the announcement. “Quite simply, when demand for Las Vegas improves there will be a corresponding uptick in supply.”

When US Airways operated as America West Airlines in the early 1990s, it had more flights to more destinations than any other carrier. McCarran was a hub airport for the airline and it found a niche for leisure travelers by offering discounted late-night flights.

But in the mid-1990s, Southwest Airlines, capitalizing on its low-fare model matching up with leisure travel, surpassed America West and Las Vegas became a key battleground for the rival companies.

When America West merged with US Airways and adopted its name in 2005, it also tweaked its business model, de-emphasizing its hub status at McCarran.

In 2007, US Airways closed the night hub at McCarran, cutting capacity by more than half, and gradually reduced its flight offerings to several cities.

The most recent announcement means the airline will cut its flights by nearly half again. US Airways currently has an 11.7 percent market share in Las Vegas. After the cuts, it would dip to 6.9 percent and become the No. 3 carrier at McCarran behind United Airlines, which has 37 daily flights, if United maintains its current schedule.

By the end of December, US Airways will end nonstop round trips between Las Vegas and Detroit; Minneapolis; Seattle; Sacramento and San Jose, Calif.; and the Canadian cities of Edmonton, Alberta; Vancouver, British Columbia; and Toronto.

At the end of January, flights between Las Vegas and San Diego will be cut.

And, at the end of February, service will end between Las Vegas and Fort Lauderdale and Orlando, Fla.; Orange County, Calif.; and Chicago’s O’Hare International Airport.

US Airways also will trim its schedule of flights from two flights to one a day to Boston on Dec. 2; two to one to Fresno, Calif., on Dec. 17; and from six to five to Los Angeles International Airport on Jan. 4.

Although US Airways is ending service to 13 destinations, all of them are served by competitors — most of them by Southwest. Eight of the 13 are served by two or more competitors.

Dallas-based Southwest has nonstop flights to Seattle, Sacramento, San Jose, San Diego, Fort Lauderdale, Orlando and Orange County.

Rosemary Vassiliadis, deputy director of the Clark County Department of Aviation, which operates McCarran, said the evidence suggests that low-fare carriers might be interested in picking up some of the lost capacity.

“We cannot speculate on which airlines are likely to step in and pick up some of the lost routes,” Vassiliadis said in response to an e-mail inquiry. “However, in looking at recent U.S. Department of Transportation statistics, we’re able to see that US Airways was charging a higher fare than the average fare of its competitors on popular routes from Detroit, Chicago’s O’Hare, Fort Lauderdale and Orlando, for example. And, all of these routes had load factors between 87 and 92 percent, which suggests that some of McCarran’s low-fare carriers may be interested in picking up these routes.”

Would Southwest Airlines — the dominant discount airline in the country and the busiest carrier at McCarran — fill some of the capacity holes left behind by US Airways?

“We’ll certainly be taking a look at things,” said Martin Prichard, senior planner in schedule planning for Southwest in Dallas. “Because of the economy, we’re still in a conservative mode.”

Southwest has a track record for moving quickly to take advantage of schedule cuts by competitors.

When American Airlines announced it would cut service in St. Louis from 82 daily flights to 36 next year, it only took Southwest about two weeks to announce that it was adding nine flights to six destinations to and from the city’s Lambert-St. Louis International Airport.

The American cutback in St. Louis is very similar to US Airways’ changes in Las Vegas, with American refocusing on flights connecting its hub cities and the number of remaining flights exactly the same.

But Las Vegas is unusual in that so many airlines fly there. There are 29 carriers that serve McCarran, 17 on domestic routes and 12 internationally.

“We’ll look at existing government data, which we now have through the second quarter of this year, and analyze a lot of things,” Prichard said. “We’ll look at what they cut, how much traffic they were carrying and how much their fares were. If we do add flights, it would have to come at the expense of other cuts because our growth is running flat right now.”

The data don’t suggest Las Vegas to be a lucrative market right now with origination and destination flying — those passengers flying to and from the city as opposed to those connecting to other cities — is down 9 percent for all carriers in the market and the average fare to and from Las Vegas is down 11 percent from a year ago.

But Prichard said other factors, such as historic loads and the competitive environment, would be taken into account.

If Southwest were to take on some of the capacity losses left by US Airways, it could raise another issue — becoming overly reliant on a dominant carrier.

When US Airways’ capacity cuts are completed, Southwest would increase its market share from 43 percent to 45.3 percent, based on current figures and assuming no other major schedule changes.

If Southwest were to add much capacity, it would come close to having more than half the seats in and out of Las Vegas.

Mike Boyd of Boyd Group International doesn’t think it would be a problem.

“Southwest is not in the business to dominate anything,” Boyd said. “All Southwest wants to do is make money, but they don’t know how to squeeze a market. They play fair and have some moral values. I wouldn’t worry about it too much.”