By James Pilcher
Enquirer staff writer

The financial crisis facing airlines such as Delta has been called "a second tipping point" and the "other shoe dropping" of industry deregulation that 25 years ago largely freed airlines from government supervision on everything from route structures to fares.

The "other shoe" has meant radical changes to the very system deregulation created - the hub-and-spoke network of which Cincinnati/Northern Kentucky International Airport is a vital part.

Since the 9/11 terror attacks, airlines have closed or plan to close hubs in Columbus, Pittsburgh and St. Louis.

Delta's decision to pull out of Dallas-Fort Worth early next year adds to that.

The move will mean cutting at least 2,000 jobs there, and shifting more than 150 flights elsewhere.

In its "dehubbing" Dallas, Delta will retain just 21 daily departures.

But experts say the run of hub closings doesn't signal the death of the hub system, and that airports such as Cincinnati/Northern Kentucky should not be concerned.

But a lot depends on whether the big airlines can get their debt loads under control.

"On the contrary, this is a validation of the system," said airline/airport consultant Mike Boyd, president of The Boyd Group in Colorado. "First of all, look at what Delta is doing. They are refocusing where they are strong already, and that is their hubs. They are adding more flights to Cincinnati, Salt Lake and Atlanta, not less."

Overall, the restructuring plan Delta announced Wednesday makes radical changes to Delta's route structure, and calls for the elimination of 6,000-7,000 jobs company-wide.

And while the strategy also calls for more direct flights between cities, especially in Florida, it reinforces the Atlanta-based carrier's reliance on its transfer points, even if it is killing a hub that started well before the Cincinnati operation.

Cincinnati will get 29 new flights, however, as the Dallas resources are redeployed. That will push the local flight total to more than 600 departures daily.

"Hubs are essential, and will be with us for as long as there is viable air transportation," said Phil Roberts, vice president and managing partner of the aviation arm of consulting firm Unisys R2A in San Francisco. "At question is the manner which they are operated and by whom they are operated."

Roberts and others point out that hubs are vital, especially to smaller communities that do not warrant direct connections to cities all over the country. It's just that airlines have to figure out a way to make them work profitably.

"The functionality is there, but the hub model is changing in how it is operated," Roberts says.

Too many hubs

Another problem is that there are too many hubs, especially in the Midwest. Consider that in addition to Delta's Cincinnati hub - its second largest - Continental Airlines operates a hub in Cleveland, United and American both have huge operations in Chicago-O'Hare and Northwest operates hubs in Detroit and Minneapolis.

Including Southwest Airlines "focus cities" such as Baltimore, Phoenix and Nashville that operate much like hubs, there are nearly 30 hubsnow operating in the United States.

And evidenced by the Dallas example, airlines had usually been loath to eliminate hubs because it could mean a loss of market share.

Delta says the Dallas hub has made money in only three of the past 12 years. But the carrier kept experimenting with it, using different plane sizes to try to protect its market share in the nation's third-busiest airport.

Yet the losses kept coming, and as Delta chief executive officer Gerald Grinstein said when making the announcement, "if 10 people tell you you're drunk, lie down."

Now, with losses mounting and bankruptcy a real possibility, Delta has to look more at the bottom line.

"But it's gotten to the point where it becomes a profit issue versus a market share issue," Roberts said, adding that hub traffic generally leads to lower yields, or the amount of revenue an airline can get from a single ticket.

However, experts and Delta officials say that Cincinnati is too valuable to close, and considering Delta faces little competition here, it probably would survive anything but a total liquidation of the airline.

Changing how hubs work

A major point of Delta's plan also had to do with how it operates its biggest hub. The airline will dramatically change its Atlanta schedule, completely abandoning the concept of "banks," or groups of flights scheduled closely together to allow passengers to connect easily.

Starting early next year, the schedule will be spread farther apart.

Grinstein says that it will extend the average connect time in Atlanta by three minutes, but that in this environment, travelers say, "price is king."

"We looked long and hard at this, but the potential cost savings and efficiencies we will get are far and above any revenue dilution we might see from people looking elsewhere for shorter total trip times," Grinstein said, adding that the company will be able to operate more flights with fewer planes under the new system.

That could mean people looking for shorter times could seek to connect through Cincinnati instead, which still uses a "bank" system, even though that was flattened somewhat a few years ago.

Whether or not such a "flattened hub" concept could work in Cincinnati is an open question.

Grinstein said that there are not enough flights here yet to make those natural connections possible, and aviation consultant Boyd agrees.

"It can only be done at large population areas where there is a lot of local demand" and a large area from which to draw connecting traffic, Boyd said. "Cincinnati and Salt Lake don't have those."

Roberts disagrees, saying it could work here.

"They'll have 619 flights a day there, and that is pretty substantial," Roberts said. "It's always a tradeoff, though, between the potential lost revenue from missed connections with the savings you get from more efficiencies and lower costs."

One thing everyone appears to agree upon, hubs in whatever form are here to stay, including Cincinnati, although the fate of the local operation also is hinged to Delta's financial fortunes.

"What Delta announced was not a survival plan, it was a battle plan going forward in this new airline world," Boyd said. "The airline is putting its eggs back in the basket where it is strongest."

To hub or not?

U.S. airline hubs that have closed since 1987

• St. Louis (Ozark, 1987)

• Minneapolis/St. Paul (Republic, 1987)

• Dayton (US Airways, 1992)

• Denver (Continental, 1994)

• San Jose (American, 1994)

• Nashville (American, 1994)

• Raleigh-Durham (American, 1996)

• Baltimore (US Airways, 1999)

• Columbus (America West, 2002)

• St. Louis (American, 2003)

• Pittsburgh (US Airways, 2004)

• Dallas (Delta, planned for January 2005)

Source: The Boyd Group

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E-mail jpilcher@enquirer.com