United plans to trim Houston operations
United Airlines, which until recently had hoped for modest growth in and out of Houston for 2016, is shifting resources toward markets like Denver and San Francisco as the crude-oil slump reduces demand here from corporate customers in the energy and, recently, other sectors.
United said Thursday that it plans to “shift capacity” by such means as relocating planes currently based at Bush Intercontinental Airport, using smaller planes for some routes or changing some existing routes. The carrier did not provide more specifics during a morning call to discuss its record earnings for the fourth quarter.
The pullback in Houston, however large it turns out to be, follows a major expansion by Southwest Airlines at Hobby Airport, from where it began flying international
flights last fall.
Mario Diaz, director of the Houston Airport System, said he thinks United is reacting to the oil-related economic slowdown rather than competitive pressure from Southwest. He noted that other airlines have made similar strategic shifts locally and that, “If they don’t have the passengers here, there’s nothing we can do.”
Given the reduced oil-field activity and widespread layoffs in the industry, other sectors of the economy were bound to be affected, said Patrick Jankowski, senior vice president of research for the Greater Houston Partnership. Housing, commercial real estate and automobile sales are all predicting a slower 2016.
“It shouldn’t surprise anybody,” he said.
Still, passenger totals continue to grow at both Bush Intercontinental and Hobby, up 4.3 percent and 0.8 percent, respectively, through November. Diaz has said previously that Intercontinental has added so many international carriers that its terminal is nearly at capacity.
United previously expected to grow about 2 percent in the Houston market this year, but it now expects growth to be flat. The airline said its presence will remain largely the same in Houston, and it continues to be committed to the city and to terminal improvements at Bush Intercontinental.
As part of the overall IAH Terminal Redevelopment Program, United is building an 11-gate concourse dubbed Terminal C North. The project was expected to cost $244 million in May.
Henry Harteveldt, founder of San Francisco-based Atmosphere Research Group, a travel industry research company, said United’s changes are “not going to push the Houston Airport System into the abyss.” He expects Houston will remain a major hub.
“This is simply the normal pattern of behavior that we see airlines do based on the economic environment,” he said.
Diaz cited other airlines that are trimming service to Bush Intercontinental. Emirates, for example, has reduced its plane size from the Airbus A380 — which has private suites and showers in first class, flat-bed seats in business class, and extra room and custom lighting in economy — to the Boeing 777. Air France downsized from the Boeing 777 to the Airbus A330.
KLM Royal Dutch Airlines cut back on the frequency of flights, and Scandinavian Airlines stopped its nonstop flights between Bush Intercontinental and Stavanger, Norway, in late October.
During an earnings call for Southwest Airlines on Thursday, CEO Gary Kelly also answered questions about the impact of stubbornly low oil prices. The Dallas-based carrier had strong fourth-quarter results in its oil and gas markets, he said.
And both airlines cited lower fuel prices in helping boost profits to record levels in the just-ended quarter and for all of 2015.
Low fuel prices nationally cannot completely offset slower demand locally. Diaz said that when oil was above $100 a barrel, Houston was a premium market for business travelers willing to pay more for their tickets.
“Houston is no longer super Houston,” he said. “We’re just back to everyone else.”
United likely feels the pinch from oil’s collapse more than other carriers, said John Heimlich, vice president and chief economist of Airlines for America, the industry trade organization for the leading U.S. airlines.
“It’s not surprising that United is talking more about it because United operates a big hub there
and nobody else does,” he said.
For Jack Stelzer, a retired Houston-based airline consultant and senior airline executive, United’s announcement sparked some unease. He said he wishes United would invest more in the city and add international routes instead of ceding ground to foreign carriers that have entered the market the last couple of years.
“I’d be somewhat concerned about how United seems to be backing away from Houston in small steps while other carriers are coming into Houston,” he said.
Budget carriers Spirit Airlines and Frontier Airlines said low oil prices have not hurt them.
“Frontier hasn’t been affected as much with the business climate, as our primary customers are leisure travelers like families,” spokesman Jim Faulkner said in an email.
Earlier this month, Frontier announced it will add routes from Bush Intercontinental to Atlanta and Cincinnati beginning in April. In mid-December, it began nonstop daily service to Orlando.