A Tale of Two Airports

During this Presidential campaign, much has been made of the differences between Republicans and Democrats. And for those folks flying into Cleveland and Philadelphia for their respective party conventions, the contrasts when it comes to air access are nearly as stark as the party lines.

Philadelphia is an established national and international gateway with access to around 100 domestic destinations and around 35 international ones, mostly in the Caribbean and Europe. Cleveland has direct access to just 35 domestic routes and three international ones (Toronto, Cancún, and Punta Cana). While 31 million people flew in and out of Philadelphia in 2015, only a little over 8 million did the same in Cleveland.

What’s caused this difference? Economics explains why the national airspace system has evolved the way it has, and why it led to a situation where major cities like Philadelphia, New York, Chicago, San Francisco, and Los Angeles have dozens and dozens of destinations, and medium size cities like Cleveland, Saint Louis, Cincinnati, Memphis or Pittsburgh do not.

The airline business has always been cut-throat, with low margins in the good times, and losses in the billions in the bad. Through industry consolidation (there are now only four major U.S. airlines: American, Delta, Southwest, and United) and more discipline from management, the airline industry now appears to be on a sustainable path for profitability and stability. However this progress has come at a cost for smaller and medium size cities.

In Cleveland’s case, “de-hubbing” happened in June 2014. With that move, United cut around 70 percent of their daily departures (from 200 to 70) and reduced the number of direct connections from around 60 to less than 20. Some of the routes were quickly picked up by Delta and American, as well as ultra low-cost airlines like Frontier. Still, in the first 12 months after United de-hubbed, Cleveland saw a 30 percent drop in scheduled departures, and a 9 percent drop in passengers.

This trend towards concentration of the major airlines in big cities and low cost carriers in smaller ones is not unique to the U.S. A large portion of intra-European traffic is now handled this way. This has made Ryanair, the epitome of European low cost carriers, the biggest airline in Europe by number of passengers transported, and the biggest airline in the world by number of international passengers moved. While this means that many in Europe now have direct access to many other European cities at affordable prices (and tourism is booming partially because of that), the same has not happened for long haul travel, with service still concentrated on key gateways.

Will we reach a similar situation in the U.S? Perhaps, but for that, government policies must change. While virtually no one is demanding that the government should dictate where, how often, and what price airlines should fly (like they used to before economic de-regulation started to be implemented in 1979), there is still a role for government to foment competition. And the main (and cheap) way government can do that is by allowing for more competition in the attribution of gates and slots at airports.

While smaller carriers have no trouble getting access to Cleveland, they face huge barriers from incumbent airlines in most major airports. This is true in busy airports where competition for gate space is tough but it is also true in places where incumbents are not even using their gates.

We need policy solutions that allow more competition not only in smaller airports like Cleveland but also in big ones like Philadelphia. Doing so would mean more options potentially leading to lower prices. For years, the “Southwest effect” has been studied in the industry: when Southwest entered a market, it offered lowered prices, and the other carriers had to respond with lower prices of their own. It is time to allow more airlines access to our big hubs to allow for the same effect.

In this time of political division, surely this is something both sides can agree on.

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