Cleveland Hopkins International Airport - Relationship With The Former Continental Airlines (now United Airlines)

Relationship With The Former Continental Airlines (now United Airlines)

For many years in the postwar era, United Airlines had a strong presence in Cleveland. The former Continental Airlines (now merged with United Airlines as part of United Continental Holdings) began its efforts to establish hub in Cleveland in the late 1980s when United Airlines, then a separate carrier, dramatically reduced its operations in Cleveland and relocated most of its flights to Washington Dulles International Airport. At the time, Continental maintained hubs in Houston, Denver (later abandoned as a Continental hub, but now a United hub), Guam, and Newark (the latter as a result of Continental's 1987 acquisition of People Express Airlines) but lacked a hub in the Midwest. Continental increased its presence at Hopkins and became the airport's largest tenant, eventually handling as much as 60% of passenger traffic. Continental and Hopkins both made substantial investments in support of Continental's presence at the airport, including the 1999 construction of Concourse D, primarily to accommodate Continental Express flights.

However, the airport, Cleveland community, and Continental developed something of an uneasy relationship beginning in the late 1990s. In 2003, the tension became public when Continental then-CEO Gordon Bethune publicly scolded the Cleveland business community and encouraged business flyers to support Continental at Hopkins rather than to take cheaper fights from neighboring Akron-Canton Regional Airport, which at the time advertised itself as the "preferred alternative" to Hopkins and "a better way to go." Around this time, Akron-Canton Airport was undertaking an ambitious expansion in response to substantial increases in enplanements while Hopkins boardings declined. Shortly thereafter, Continental reduced the size of its board of directors by halving the number of representatives from the Cleveland area, began to more closely scrutinize local passenger traffic volume, and closed its four off-airport ticket offices in the Greater Cleveland area (while maintaining offices near its Houston and Newark hubs).

On September 14, 2007, Continental announced what was at the time called a "major expansion" at Hopkins that would have increased the hub's capacity by some 40% over a two-year period. The expansion would have entailed some 20 new destinations served primarily on regional aircraft, followed later by a dozen new destinations served on mainline aircraft. This expansion was expected to create 700 jobs, and the state of Ohio offered a $16 million incentive package to help bring the service increase to fruition. However, when record-high fuel prices forced Continental to cut capacity in the summer of 2008, the airline reduced its workforce, eliminated service between Cleveland and 24 cities (including 12 cities that were part of Phase I of its hub expansion program), and reduced the frequency of its flights to a number of others; the service cuts in Cleveland were deeper as a percentage of overall flight volume than concurrent cuts at Continental's Houston and Newark hubs. In March 2009, Continental indicated that it would continue to make capacity cuts in response to reduced demand for seats. Also in March 2009, Continental CEO Larry Kellner omitted Cleveland but referenced Newark and Houston when commenting on the carrier's strengths, stating, "We are strong in the Atlantic, we are strong in Latin America, we are strong in New York, we're strong in Houston."

On July 10, 2009, the US Department of Transportation approved Continental's membership in Star Alliance (it had been a member of SkyTeam with Northwest Airlines and Delta Air Lines) and most aspects of the code-share agreement it had requested with United and other Star Alliance members (e.g. Lufthansa). Then, on October 1, 2010, United and Continental officially completed the legal aspects of a full merger. The Continental-United marriage only heightened simmering concerns within the greater Cleveland area about the potential effect on Cleveland air service; Continental's previous merger talks with Star Alliance founding partner United had been viewed in some circles as a serious threat to Continental's future at Hopkins. When the 2010 United/Continental tie-up was initially announced, it prompted Cleveland politicians to propose hearings to investigate the potential impact of the marriage on the community; these investigations ultimately had no effect on the companies' efforts to combine.

There have been persistent worries that a post-merger United will reduce or eliminate direct service from Cleveland to a number of cities and instead route passengers through United's hubs in Chicago (315 miles west by air) and Washington (287 air miles east by air). In an article about the Continental-United merger, the Wall Street Journal reported on May 3, 2010, that "One city that could feel the pinch from the latest consolidation is Cleveland, a small Continental hub. Analysts say that a combined United-Continental could shift more connecting traffic to Chicago, United's largest hub. Delta has continued to scale back flights at its small Cincinnati hub since it acquired Northwest, which had hubs in nearby Memphis and Detroit."

In response to the concerns, the newly formed company, United Continental Holdings, Inc., signed a letter of agreement with Cleveland officials in October, 2010 stipulating what service levels would be maintained at Hopkins for five years, but it has been criticized as weak, vague, and having loopholes that the airline can exploit if it chooses to reduce service before the agreement expires. For example, the agreement dictates a certain number of flights but does not stipulate the type of aircraft used to operate them, which would allow the company potentially to substitute mainline Boeing jets with propeller-driven aircraft such as the Saab 340 (with 34 seats) or the Beechcraft 1900 (with 19 seats). Moreover, the agreement hinges largely on United's profitability on routes to and from Cleveland, which might be subject to variation depending on how United assigns costs. Finally, the potential $20 million penalty for violating the agreement is a relatively minor amount for a company the size of United Continental Holdings, with 2010 revenue of $29 billion. Terms of the agreement are as follows:

For the first two years after the merger (i.e. until October 1, 2012):

• The new United must maintain at least 90 percent, or 170, of the 189 average daily departures that the two airlines had at Cleveland Hopkins in the year before their combination.

During the remainder of the five year agreement (i.e. until October 1, 2015):

• United's average daily departure obligation decreases to 67 percent of pre-merger strength—or 127 departures—in the event that "segment profitability" at Hopkins is more than 15 percent worse than the network as a whole, with annual losses in Cleveland of more than $25 million.
• If segment profitability is more than $40 million in the red during the second year, minimum departures in year three can fall to 45 percent of pre-merger levels, or 85 average daily departures. The minimum in years four and five can fall to 14 percent of pre-merger departures, or 26 departures a day.
• If United's Cleveland operations lose more than $40 million in years three or four, then the 14 percent rule applies.
• If the Cleveland operations are losing money and more than 25 percent worse than United's network as a whole, United can walk away from the agreement entirely and can cut service as deeply as it deems necessary.

On November 10, 2010, Continental CEO Jeff Smisek stated in a speech in Cleveland that "Cleveland needs to earn its hub status every day" and added that overall profitability would be the determining factor in whether the new United kept or shuttered the Cleveland hub operation. However, after the agreement was signed, passenger volume at Cleveland continued to drop, and the Wall Street Journal noted on September 28, 2011 that "Cities such as Cleveland, Pittsburgh and St. Louis are dealing with a deep retrenchment in flights, as airlines have cut costs in the wake of consolidation. Since 2005, the number of flights from Cleveland's Hopkins International airport are off 23%; Pittsburgh's are down 49% and St. Louis's are 36% lower."

At the beginning of 2012, and in contrast to pre-merger Continental's other hubs (EWR, IAH, GUM) or those of merger partner United Airlines (ORD, LAX, SFO, IAD, DEN, NRT), Continental's Cleveland operation had only a handful of flights to any international cities (all of them in Mexico and Canada), had not been able to sustain service from the airport to Europe or other trans-oceanic destinations, handled an overwhelming majority (81% as of May 2011) of its traffic via Continental Express regional jet or propeller-driven/turboprop aircraft rather than mainline jets (e.g., in Continental's case, its Boeing jets), and did not fly to Cleveland with any twin-aisle, wide-body aircraft (e.g., in the case of Continental, its Boeing 767 or Boeing 777 planes).

As of late June, 2012, United operated 175 daily flights from Cleveland, down from 210 flights operated collectively by United and Continental prior to their merger. United's 2012 schedule accounts for approximately 75% of flights at Hopkins. Also in the summer of 2012, United added six additional daily flights from Cleveland to its other hubs, and United executives expressed appreciation for the efforts of Cleveland's business community to support a Cleveland hub for the airline.

With the exception of Detroit, the cities closest to Cleveland have all lost airline hubs (note that many of these cities have decreased in population in the last few decades):

• the former US Airways hub at Pittsburgh International Airport
• the former America West Airlines and Skybus hubs at Port Columbus International Airport
• the Delta Air Lines hub at Cincinnati/Northern Kentucky International Airport, which has seen a substantial reduction in flight volume and has as a result shut down an entire terminal.
• the former Piedmont Airlines hub at Dayton International Airport
• the former American Trans Air hub at Indianapolis International Airport
• the former TWA and American Airlines hub at Lambert-St. Louis International Airport

If United de-hubbed in Cleveland, it would not be the airline's first experience radically scaling back in a hub city; Continental abandoned its hub at Stapleton International Airport in Denver when Denver International Airport was built. It would also not have been the first time that Cleveland lost an airline hub; ironically, as mentioned previously, United maintained a substantial hub at Hopkins before relocating it to Washington Dulles International Airport in the late 1980s as Cleveland's prominence as a business center began a more precipitous decline.