ATLANTA (Reuters) - When an airline cuts back on the number of “hubs” in its system, for an affected city the economic pain can be deep and wide.
As Nashville discovered, it can take years of adjustments to come to terms with an airline’s decision to pull back. Yet the Music City showed it is possible to recover and prosper again.
Following its example, other former hubs are recruiting new carriers, consolidating facilities and finding alternate uses for their land to ensure their stability.
While credit ratings for Cincinnati, St. Louis and Pittsburgh airports fell when they lost their hubs, since then all three airports have cut costs and taken other steps to restore their ratings, said Seth Lehman, senior director of Fitch Ratings.
“It took several years for the airports to improve the things that they can control,” Lehman said. “Even at their lower levels of traffic, they were finally able to right-size their costs, and their ability to be competitive seems stronger now than when they were de-hubbed.”
For cities, cuts in air service have made it more difficult to lure conventions and leisure travelers, sent corporate headquarters packing and hurt business in general.
And just as airports have found ways to survive, Nashville demonstrated how a city itself can survive.
When American Airlines stopped routing connecting flights through Nashville International Airport in 1996, passenger numbers plunged to 7.1 million that year from a record 10.3 million four years earlier. Airport revenue fell 1 percent in the first year, though the impact on the economy - a center for music and healthcare - was broader.
Among the flights American discontinued was a nonstop to London, making European travel more difficult for the local business community.
“The loss of the London flight was a big blow,” said Tommy Lewis, senior vice president of growth initiatives for Emdeon Inc, a Nashville-based provider of healthcare payment management services with 4,000 employees.
Despite the long odds, Nashville handled 10 million passengers last year, a recovery fueled by an economic revival that has made the city a prime destination for businesses and leisure travelers. Still, it took almost 20 years and the persistent efforts of airport officials, for Nashville International Airport to regain the lost ground.
NOT TOP BANANA
As U.S. airlines merged in recent years, many found they didn’t need as many hubs, said William Swelbar, an air-travel researcher at the Massachusetts Institute of Technology.
“It has been a major contributor to the financial turnaround of the U.S. airline industry,” he said of hub closures.
But for many U.S. cities, the industry’s good fortune has come at a cost. The United States had 63 large and medium-sized hub airports in 2013, down from 68 in 2005, according to the Federal Aviation Administration.
The loss of hub status can hurt an airport’s ranking for passenger traffic. Memphis International Airport, a hub shuttered by Delta Air Lines last year, tumbled to 59th in passenger boardings in 2013 from 34th in 2005.
And for some cities, airport cutbacks have taken a wider toll.
In 2012, Chiquita Brands moved its headquarters to Charlotte, North Carolina, a US Airways hub, after Delta cut flights at the fruit company’s former base in Cincinnati. Chiquita said the importance of air connections contributed to its decision.
Though airports in St. Louis and Cincinnati lost as many as half their connecting travelers after being downsized, they have managed to claw back some of the lost passenger traffic. That has led to higher parking and rental car revenue.
Lambert St. Louis International Airport officials studied passenger travel patterns and worked with Boeing Co and other local employers to identify cities that most needed connections after American announced the closure of that hub in 2009. The effort paid off: In 2010, Alaska Airlines launched nonstop flights to Seattle after Lambert officials showed 260 local people traveled to the Pacific Northwest daily.
Similar initiatives helped secure more flights at Lambert, which is now served by 11 airlines, up from seven when American was dominant.
Lambert also leased unused land for a compressed natural gas fueling station, bringing in rent and pumping fees. Operating revenue rose 6 percent in 2013 and 5 percent in 2012.
“We’re not going to see these huge swings of 100 flights added in a year, but I think we can continue to steadily grow as the economy here is growing,” said Lambert Airport Director Rhonda Hamm-Niebruegge.
American’s hub closure in Nashville pushed political, business and tourism leaders into action.
“It hurt our ego,” said Butch Spyridon, president of the Nashville Convention and Visitors Bureau. “And it certainly didn’t enhance our sales ability” for conventions or tourism.
The airport lobbied airlines, and city leaders launched marketing campaigns that played up Nashville as a desirable place to live and operate a business since there is no state income tax, Spyridon said.
Nashville’s willingness to offer business incentives paid off, attracting such corporations as Nissan Motor Co Ltd, which moved its North American headquarters to the area from California in 2006.
New carriers came to the airport, with Frontier beginning flights in 2004.
As American scaled back, Southwest Airlines added flights and lowered fares, making Nashville more attractive as a travel destination, Spyridon said.
Though Southwest didn’t initially provide flights to as many markets as American had served, it expanded over time. Southwest is now the largest carrier in Nashville with about 86 daily departures.
Today, Nashville’s airport offers 380 flights, more than when it was at its peak as a base for American in 1993. Expanding entertainment, technology and healthcare industries have made the city a top U.S. market for job growth.
Standard & Poor’s and Moody’s raised debt ratings on revenue bonds issued by the airport this year, citing declining debt levels, passenger and population growth.
“What we learned from American and we continue to learn from Southwest is that if we can continue to create the demand, they will come in and meet that,” Spyridon said. “All the groundwork was laid from adversity.”
Nashville still doesn’t have a nonstop to London, however, something Emdeon’s Lewis pines for.
“We would love to restore that service,” he said.
Reporting by Karen Jacobs in Atlanta; Editing by Alwyn Scott
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