In my current USA Today.com column on the Continental-United merger I talk about the likely impact of the merger on business travelers and a number of cities. I then lay out some possibilities for additional consolidation that could occur following the Continental-United and Delta-Northwest mergers.
While everyone talks about the likely downsizing that will occur at Continental’s smallest hub in Cleveland, little attention has been given to United’s hubs in Denver and Washington Dulles Airport which also lack immunity to large capacity cuts as the merger takes shape. In the great mix of goodies acquired by each airline, Continental’s Newark hub stands out as one of the grand prizes in the CO/UA merger. You couldn’t ask for a better location for an international hub residing in the nation’s largest air travel market at an airport that is still less congested and constrained than the other two NY airports.
The new United is likely to make Newark its premier international gateway to Europe, Latin America and even Asia and the Pacific. As the new United reshuffles resources among its assets, Washington Dulles becomes a lot less important and strategic. I believe it’s likely United will severely downsize that hub or even abandon it eventually.
Denver is United’s other problem. Although it is one of the fastest growing markets in the U.S. Denver has been invaded by low cost airlines in recent years. Southwest has expanded rapidly in the past couple of years to become the #3 airline at that airport and now holds a 16% market share. In that same three year period United dropped from 44% to 32% of market share at Denver according to U.S. Department of Transportation data.
In addition to Southwest’s rapid expansion, Frontier Airlines has been revitalized following its recent acquisition by Republic Airways. Making money in Denver for any network airline would be a challenge in this environment and while Denver is certainly a very desirable location, it will be less important to United as an alternate hub to reroute traffic when other hubs get congested. With the addition of Continental’s Houston hub, United now has two perfectly positioned hubs in the center of the country and it can easily reroute traffic through one of those hubs when inclement weather impacts traffic at the other. I will bet United will eventually cut its losses and draw down this hub as the two low cost airlines fight it out.