Delta Is Abandoning “Secondary” Airports Now Though It Promised Congress It Wouldn’t Act Until Oct. 1

In exchange for $9.2 billion in government survival grants and low-interest loans Delta Airlines agreed to not drop service to any domestic markets. Then on Sunday it quietly announced that it will, in effect, drop service to 10 domestic markets.

Well, not exactly. It’s dropping service to 10 domestic airports. Depending on your definition of what constitutes a market, Delta says its continuing to serve those 10 markets. It’s just doing so from a bigger, “primary” airport in the same “market.”

That, of course, is not what members of Congress thought the airlines were agreeing to when they accepted the rules for the deal that gave them collectively $25 billion in grants and low-interest loans. So, from that perspective, what Delta is doing now could be viewed as welching on its deal with Congress. But it’s not really, thanks to the U.S. Department of Transportation, which is partly in charge of implementing and managing that controversial deal with the airlines. The agency approved Delta’s latest move before the carrier announced it.

Still, by announcing the move on Sunday Delta clearly was hoping nobody would much notice. But, just in case someone did notice that’s its dropping service to 10 airports it seemed to have promised only a few weeks earlier to continue serving until at least Sept 30, Delta couched the cessation of service to those airports in terms like “suspension of services”and as a “temporary consolidation of services” within regions served by more than one airport. And, by the way, it also mentioned that it has asked the DOT for permission to drop service to an additional nine other “secondary” domestic airports. Like the first 10, these, too, would be just “suspensions” or “temporary consolidations…” until Sept. 30.

To be fair, what Delta has done, and hopes to do more of makes perfectly good business sense. It, no doubt, is losing more money at such secondary airports on a per flight and per-seat basis than it currently is losing at bigger airports where demand, though still ridiculously weak in light of the global COVID-19 pandemic, still exists. And there are at least legitimate expectations that passenger demand will bounce back – though probably not close to all-the-way back – by year’s end or early 2021 at those bigger, primary airports. Realistically, no such hopes exist for demand returning to these 10 – or 19 – secondary airports.

The real foolishness in this picture was painted by Congress and, to some lesser degree, members of the Trump administration who acquiesced to stupid and wasteful Congressional demands that airlines maintain service at every airport already served by carriers receiving federal grants and loans.

Every member of Congress represents a district or a state that’s home to an airport with commercial service. Some of those airports have – at least in normal times – substantial travel demand. But, almost by definition, secondary airports in most cases have little or no natural demand for airline service, or at least no where near enough for an airline to serve profitably. Secondary airports, therefore, must survive by attracting low fare carriers that will generate customers from among area residents who otherwise would not fly at all, from super price sensitive travelers willing to drive an hour or two to access ridiculously cheap fares, and maybe from a few locals who are just happy they don’t have to drive an hour or two to a primary airport.

So coercing airlines to continue serving airports that, thanks to the COVID-19 pandemic, have lost all hope of being able to support profitable air service by big brand name airlines was always going to end badly for members of Congress and some of their constituents. But then, no one under that big white dome in Washington, D.C., would have voted to give U.S. carriers collectively $25 billion in grants and loans without a guarantee that “their” secondary airports wouldn’t lose any service.

When the nation really opens up again and things “return to normal,” there’ll be a new normal in the travel business. Simply put, there won’t be enough demand for airlines to have the slightest chance of making a profit at most such secondary airports. Heck, there likely won’t be enough demand for them to turn profits anytime in the next couple of years, at least, serving the bigger airports either, but at least they’ll have a shot at it, eventually. Delta’s just jumping the gun a bit with its latest move to abandon – “temporarily,” wink, wink – 10 or more secondary airports.

Currently Delta’s burning through up to $50 million per day. It isn’t alone in losing such enormous amount of money. The whole industry has stopped focusing on traditional metrics like revenue per passenger and average fare price. The only data point that matters to them anymore is their daily cash burn rate.

So, Delta – like its competitors – has an enormous incentive to eliminate services wherever possible. Prior to Sunday those service eliminations had focused on international routes, where costs inherently are high and travel demand almost non-existent, and on reducing the number of daily frequencies on many of the airline’s domestic routes. But Delta had not abandoned any U.S. airports, until now.

The smart folks at Delta’s headquarters in Atlanta noticed that the rules established by Congress for the bailout required the carrier to continue service all U.S. domestic “markets,” which to their way of thinking is not quite the same as all domestic “airports.”  So, even they long have insisted that secondary airports typically served distinct markets from nearby primary airports, Delta now has taken the position that secondary airports really are just redundant airports serving markets already amply served by primary airports, especially in times like these. And in some cases, that’s true.

For example, Oakland International Airport, where Delta is suspending service, is just 20 miles from downtown San Francisco. And depending on traffic conditions you often can travel from Oakland International to downtown San Francisco faster than you can get there from San Francisco International, which is only 15 miles from downtown. Oh, and for good measure, Mineta International Airport in San Jose is less than a hour away from both San Francisco and Oakland.

The same is true at Hollywood Burbank Airport, where Delta also is “suspending” service, relative to Los Angeles International Airport just down the freeway a few miles.  Similarly, Newport News/Williamsburg Airport in southeastern Virginia is less than a 30 minute drive from Norfolk’s airport, which Delta will continue serving.

The same argument, however, is not quite so easily made in some of the other cases where Delta is “suspending” service “temporarily.”  Either because of the longer distances or the longer drive times involved, Delta’s decision to drop service at the following secondary airports because primary airports are close by doesn’t pass the giggle test.

·        Westchester (N.Y.) Airport vs. New York LaGuardia Airport

·        Chicago Midway Airport vs. Chicago O’Hare International Airport

·        Long Beach Airport vs. Los Angeles International Airport

·        Providence’s T.F. Green International Airport vs. Boston Logan International Airport

·        Stewart International Airport near Newburgh, NY vs. New York’s John F. Kennedy International Airport

·        Akron-Canton Airport vs. Cleveland Hopkins International Airport

·        Manchester-Boston Regional Airport vs. Boston Logan International Airport

What’s more, come Oct. 1, when the restriction against bailout-receiving carriers dropping service to any domestic airport goes away, it’s highly likely that Delta will indeed drop service altogether to most of these 10 – or 19 – airports where already has or wants to “suspend” service. At that point the pretense of “suspension” and “temporary consolidation” no longer will be necessary. The airline will be able to do the expense cutting its really does need to do by cancelling its airport space leases at the soonest opportunity.

To be sure, Delta might eventually return to some of these airports. In particular, Chicago Midway stands of good chance of seeing Delta planes once again in the future. In many respects Midway really is a distinct economic market from O’Hare Airport in a metropolitan area of 9.5 million people, the third-biggest conglomeration of people in the nation. The same, to varying degrees, is not true of the other nine markets where Delta is now suspending service, or in some of the nine additional markets where it has requested DOT permission to suspend service.

Still, it is interesting and instructive to know that the reason Delta – and other carriers – were serving such “secondary” airports in the first place is that until about two-and-a-half months ago they were, with the possible exception of one or two, viable “markets.” Indeed, carriers like Delta promoted them as distinct markets from the bigger, primary airports in the same region. Their marketing tactics and strategies, invariably, were distinctly different from their marketing approaches at the big, primary airports.

And they succeeded there, albeit not as much as they succeeded at primary airports, because demand for air travel was so stinking high at just about every airport. For an industry that historically struggled to fill more than about 65% its seats, airlines for the last dozen years or so have been filling well north of 80% of their available seats. And they couldn’t add more planes fast enough to meet demand.

But that airline industry isn’t coming back any time soon – not in the next couple of years, and perhaps not until the second half of this decade.

The airline industry that comes back once the nation fully reopens for business will be significantly smaller than the one that was flying as recently as early February. The big four – Delta, American, United and Southwest, collectively have parked well over 1,000 big jets thanks to the pandemic and resulting almost total evaporation of demand. There’s debate over how soon it will happen, but some of that demand will return. But not all of it. Therefore a lot of those parked planes are more likely to be turned into tuna cans than they ever to be put back into revenue service.

Continuing weak demand – relative to pre-pandemic demand – effectively will make it impossible for the big, brand name airlines with high operating costs, to make any money at all serving most “secondary” airports. Heck, they’re not likely to turn a profit in the next two years flying from any airports, even their huge hubs. Plus, all of them, except perhaps Southwest, will come out of the pandemic carrying enormous amounts of debt; 50% to 100% more debt than they were carrying at the end of last year (when investors were already growing concerned about some carriers having too much debt on their books even then).

Thus, they will be facing the herculean challenge of paying the interest and principle on perhaps twice as much debt with half to maybe 75% as much revenue generating capacity.  That means they simply won’t have enough planes to serve more than a few secondary airports anymore. And if they were to try they’d be certain to lose tons of money in such places.

So, despite Congress’ efforts to secure long term service at the secondary airports in members’ districts and, it was just silly, wishful thinking. Indeed, that stipulation that airlines not drop service in any domestic markets through Sept. 30 has contributed to the speed at which carriers now are losing money. And it may ultimately be blamed for pushing one or more carriers into bankruptcy. Just think of how much less money they would be losing every day if they didn’t have to continue operating virtually empty planes into the Akron-Canton, Newport News/Williamsburg and Manchester-Boston airports of the world. Collectively, it might even be enough money to make a difference between a carrier surviving or being forced into reorganization or, worse, liquidation.