How do you get ahead in the airport business? The best way is to start out ahead, as a large hub airport, and then grow.
The second-best way, according to a new report by Fitch, is to align with one of the newer, lower cost carriers – Spirit, Frontier or Allegiant – and hope to grow along with them.
Unfortunately, the report says, the second course comes with risk, because the trio of ULCCs – for “Ultra low-cost carriers” — are more willing to abandon airports if they cannot profit or if business conditions change.
Still, for now, during a period of record air travel, both approaches are working.
Between 2008 and 2018, enplanements at large airports have grown 25.2 %s, while growing 16.5% at medium sized airports and 9.1% at small airports, according to the Fitch report, entitled ‘Enplanement Growth Across All U.S. Hub Sizes,’ which was released Monday
The report said 2018 U.S. enplanements reached a record 1.0 billion, up 4.8% from 965 million in 2017, according to U.S. Department of Transportation figures.
As air travel has recovered from the 2008-2009 recession, the report said, “Large hubs have enjoyed steady year-over-year growth, with only two years of traffic declines since 2005.”
Performance at small hubs (defined as having 500,000 to 2 million annual enplanements) and medium hub airports (between 2 million and 10 million enplanements) has been more volatile, particularly between 2010 and 2014.
For now, however, “nearly all small and medium hub airports are now growing beyond pre-recession levels,” the report said. “Only a few outlier smaller airports are not realizing these positive trends.”
In particular, “Since 2016-2018 and YTD 2019 data indicates that small and medium-hub airports are experiencing growth at or above many large hubs on a percentage change basis.”
The report says large hub airports experienced a less severe downturn following the 2008-2009 recession, with their expansion exceeding U.S. GDP growth by a multiplier of 1.3X. The correlation with GDP is easily explained because large hubs account for 73% of all enplanements.
Large hubs include those with more than 10 million annual enplanements.
Among the top 30 airports, the growth leaders between 2008 and 2018 were Fort Lauderdale Hollywood, 60%; Boston Logan, 56%; San Francisco, 53%; Seattle-Tacoma, 52% and LAX, 48%.
Among the top five airports, Atlanta Hartsfield grew 19%; LAX, 48%; Chicago O’Hare, 18%; Dallas-Fort Worth 21% and Denver, 29%.
The slowest growth among the top 30 was at Philadelphia, down 1%; Washington Dulles, up 2.5%; Detroit Metro, up 2.6%; Houston Intercontinental, up 5.6%, and Honolulu, up 6.3%.
Meanwhile, “Small and medium sized hubs exhibited lower correlation with GDP growth, suggesting they are more susceptible to local market trends and air carrier decisions,” and more volatile in times of overall economic weakness or strength.
Still, ‘Sustainability of operations for these low-cost carriers is more uncertain than for legacy carriers and potentially more dependent on yield and route profitability,’ said Fitch director Jeffrey Lack, in a prepared statement.
New service may not be permanent, Lack warned. ‘Small airports will need to plan very cautiously once airport incentives are eliminated, though the smaller market share for these low-cost carriers nationwide limits this risk for airports,’ he said.
Often, the report said, “ULCCs will initiate service as non-signatory to the airline use agreement, meaning that they could stop serving the airport at any time in exchange for paying rates and charges that are typically 10%-25% higher than rates paid by signatory airlines.
The report listed a half dozen airports that have not been in the top level of beneficiaries from growing air travel.
One category is former hub airports that lost connections when their principal carriers shrunk operations due to consolidation or bankruptcy or both. Examples include Cleveland, Cincinnati, and Memphis airports.
Additionally, secondary hubs for legacy carriers at Detroit, Dulles and Philadelphia “have experienced the slowest recovery among large hub airports, and by 2018 had not recovered to 2007 peak levels,” the report said.
Philadelphia, a hub for American, “experienced at worst a 12% cumulative peak-to-trough decline, though the recovery has been slower than typical for large hub airports, reflecting the degree to which carrier decisions can impact enplanement growth,” the report said.
Cincinnati “fell victim to Delta’s de-hubbing, which exacerbated the impact of the Great Recession, and left enplanements on a downward spiral through 2013.” Still, Cincinnati, though still 45% below its recessionary enplanement level, is now growing. the report said. Enplanements have grown 46% over the last five years due to Southwest’s entry and local market strength.
Cleveland” is another medium-sized airport that stands at just 80% of its pre-recessionary peak” due to United’s de-hubbing, the report said. However, Cleveland, now focused on local traffic, has grown 25% in four years.
Among smaller airports, Long Beach has been the biggest winner. Its 2018 enplanement base of 1.9 million is about 33% above its recessionary low. In 2016, the airport added nine flight slots, bringing the total to 50, and airlines took advantage.
Other winners: Boise International, after losing 18% of its traffic in the recession, is now 15% above its pre-recessionary peak. Pensacola grew 16% in 2018 after growing 6% in 2017.