By James Pilcher
The Cincinnati Enquirer

HEBRON - More flights, more destinations, same relatively high prices.

That's Delta Air Lines' strategy for getting its hub at the Cincinnati/Northern Kentucky International Airport back to making money.

The new approach comes at a time when many other airlines are shrinking and even declaring bankruptcy to survive the current industry crisis.

Delta, the nation's No. 3 carrier, intends to significantly expand its hub operation here in the next two years, Delta vice president of revenue and network Subodh Karnik said in an interview this week.

The Cincinnati hub - a major employment center for Northern Kentucky - is Delta's second-largest operation behind Atlanta, but Mr. Karnik said it is not making money. In fact, none of the airline's hubs, including Atlanta, is making money.

And the only way out of the situation is to expand, he said.

"We want to make the (Cincinnati) hub vibrant and large in scope," said Mr. Karnik, whose company lost $326 million last quarter and is on pace to lose more than $1 billion for the year. "The plan for the next three years is to continue to add aircraft and destinations and frequencies to fill in the gaps we have now. The only way we can make money in Cincinnati is by offering the most number of destinations."

The news of further local expansion comes as Delta and the rest of the airline industry continue to struggle financially in the wake of the Sept. 11 attacks, which has caused fears that more cuts in service and jobs might be imminent. Two major carriers, United and US Airways, have declared bankruptcy in the past six months, and the industry is still in a freefall that shows no signs of stopping.

Delta and its Erlanger-based regional subsidiary Comair employ almost 10,000 workers locally. While Comair has been hiring, Delta cut 10,000 positions last year immediately after the terrorist attacks and is slicing as many as 8,000 more. (The company will not say how many Cincinnati workers have been affected so far, but the local impact is thought to be minimal.)

Airport aviation director Bob Holscher, whose airport is the 24th-busiest nationally, welcomed the news, saying that continued expansion was good news for the entire community.

"Our philosophy has been to run a fiscally conservative but safe and efficient operation," Mr. Holscher said. "I'm glad they are recognizing that, and Delta continues to look upon us favorably."

Retrenching

Many experts have said the dire straits facing the airline industry means the death of the hub-and-spoke system, pointing to the crises at United and US Airways and the fact that the only carriers making money are low-cost airlines such as Southwest, which don't operate hubs.

But others, including airline analyst Brian Harris with the Wall Street firm Salomon Smith Barney, have said major airlines need to pull back into their cores, with the bigger hubs to benefit the most. Mr. Harris said that hubs such as Cincinnati are still the most efficient way to connect passengers to many different destinations,

"Where Cincinnati ranks in there is yet to be seen, because while they're not big, they're not small," Mr. Harris said, pointing out that there are several hubs in the Midwest, including Northwest in Detroit and Minneapolis, Continental in Cleveland, United and American in Chicago and US Airways in Pittsburgh.

Yet Mr. Karnik said Cincinnati is the fourth-largest hub in the world, based on single airline departures from a single airport. Between its big jet and regional jet operations, Delta operates 537 departures here, ranking the hub behind only Delta in Atlanta, United in Chicago-O'Hare, and American in Dallas-Fort Worth.

"I would see a double-digit increase in the total number of aircraft deployed there, and I could see an increase of 20-30 departures easily by the end of next year," Mr. Karnik said, declining to give any more specifics on the growth plans.

The strategy calls for further growth by adding different cities, primarily to small or mid-size markets in the Midwest or East Coast using Delta's extensive regional fleet. Cities that have already been added include Binghamton, N.Y.; Moline, Ill.; Erie, Pa.; and Flint, Mich.

"Those aren't served by anywhere else in the Delta system, so they will raise the profile of Cincinnati that much further," Mr. Karnik said.

As for existing routes, Delta plans to use a new mix of small to mid-sized airplanes to add more flights each day, with big cities such as Chicago, New York or Washington listed as potential targets.

In addition, Delta next spring is bringing back a daily flight to Rome on a full-time basis after a successful experiment with the route this summer.

However, Mr. Karnik said the plan included no change to the pricing structure, which has long been a thorn in the sides of local travelers.

According to the U.S. Department of Transportation, Cincinnati has the third-highest airfares nationally. Those who fly from here pay 53 percent more than the average flier on similar routes. The numbers come from the Transportation Department's August report on airfares in the third quarter of 2001, the most recent statistics available.

Those local travelers say that the airline is just cashing in on its local dominance - including its Delta Connection regional jet operation, Delta operates roughly 93 percent of all the flights locally.

The relatively high prices even have sent many business fliers, much less cost-conscious vacation travelers, looking for cheaper fares at other airports in the region.

Yet Delta has long defended the practice by saying that Cincinnati has many more flights to many more cities than the local market would ordinarily support.

Overall, experts said the growth plan makes perfect sense, given that Cincinnati already has the reputation among the traveling public as an efficient switching point and that Delta has the corner on the local market.

"Cincinnati is probably more lucrative than any of their hubs on a per-passenger basis because of that lack of local competition and the fact that many travelers would rather connect through here than bigger hubs such as Atlanta and Chicago," said Barbara Fritsche, an Anderson Township-based aviation consultant with Wilbur Smith Associates.

"So it's not surprising that growth is the strategy."

CVG's changing face

The new growth plan is a result of Delta chairman and chief executive officer Leo Mullin's August memo to employees, in which he said one of the company's goals for the coming year was to raise the profitability of the company's other hubs to that of Atlanta - the busiest airport in the world.

But as Mr. Karnik said, none of Delta's hubs is profitable, including Atlanta. Cincinnati also is in the red for Delta, even though subsidiary Comair has said that it was marginally profitable in the third quarter of this year. Comair officials would not provide further specifics, and Delta does not break out financial information for its subsidiaries.

Comair has recently added 700 jobs, however, mostly for frontline workers such as pilots, flight attendants and other ground workers. There also are plans to hire even more over the coming year as it continues to receive new aircraft into its fleet.

But Comair is no longer the only regional game in town.

Delta has quietly been adding flights on other Delta Connection carriers locally on airlines such as Atlantic Southeast (another Delta subsidiary) and Atlantic Coast (a contracted affiliate).

Those two carriers now make up 18.2 percent of all the Delta departures from Cincinnati, compared with just two years ago, when Comair was the lone Delta regional carrier here.

Comair still operates the most flights locally and the most flights under the Delta banner with 279 daily departures, but that is down from a high of 310-plus in late 2000 and early 2001 (right before a pilots' strike).

The two new airlines fly different size planes (and occupy a growing share of Concourse A at the airport), allowing Mr. Karnik and his staff to "right-size" certain cities with the demand.

That new dynamic, which actually got its start here with Comair's introduction of the regional jet in 1993, could push Cincinnati into the top tier of hub airports.

"That's a big unknown factor in this current downturn," said Mr. Harris, the Wall Street analyst, who publishes an annual report on hubs. "The regional jet wasn't around the last time we had a major industry downturn. And you saw the closures of hubs in places like Nashville.

"And right now, we've got too much capacity and too many hubs. So it will be interesting to see how Cincinnati fares, especially with so many hubs there in the Midwest."

E-mail jpilcher@enquirer.com