Does A New Agreement Mean United Will Keep Their Dulles Hub?

United Airlines has had a significant presence at my home airport, Washington-Dulles for as long as I can remember.  They might not be the prettiest digs, what with the “temporary” terminal they’ve operated out of for decades.  There have been plenty of questions over the last few years as to whether United will “de-hub” Dulles.  Investment analysts that follow the airline have repeatedly brought up the issue, claiming it would make the airline more profitable.  And, they have shrunk Dulles a bit.  But, it doesn’t appear the hub status is going anywhere.

According to this announcement late last week, United has inked a new agreement with the airport that runs through 2025:

It’s a rumor that seems to circulate every six months: United Airlines is shutting down its hub at Dulles International Airport.

Well, Virginia Gov. Terry McAuliffe sought to tamp down such nonsense this week with the announcement that the airline had signed a new agreement that will ensure that it maintains a significant presence at Dulles though at least 2025. The agreement is an extension of a three-year deal signed in 2015.

The article also references $50 million set aside by the governor to help establish low-cost carriers at Dulles, something the airport is lacking.  Sure, there are a few Southwest flights and JetBlue stops by once in a while.  But, it’s been quite some time since there’s been a large low-cost carrier presence like Independence Air, which was borne out of a contract dispute United had with one of their regional carriers.  JetBlue has drawn down flights from its peak at Dulles years ago and Southwest has more flights out of Reagan than Dulles.

The governor appears to have set the right path in motion, telling the airport authority they could only have the $50 mil if United agreed to stay at Dulles.

Will United Actually Keep A Hub Here?

I feel like this is one of those situations where we say, “it depends on what the definition of is is”.  Is Dulles a hub now?  Yes, even if it is smaller than it used to be.  I imagine it will continue to be a connecting point for a good deal of traffic no matter what.

For starters, there are a number of Star Alliance international flights that arrive here.  Those flights aren’t switching to Reagan or BWI, and I don’t think they’re going away.  So, there should always be some need for connecting traffic.  However, I’m not sure that means growth for narrow-body and wide-body routes.  It might only mean continuity for regional routes.

With Newark coming off of slot restrictions United will have more competition there.  But, they’ll also have plenty of opportunity to expand if necessary.  In a vacuum, there’s no clear indication that United will grow or shrink Dulles.

Dulles Hub

About That $50 Million

But, what happens if the airport authority actually does something right for once and manages to attract more low-cost competition to Dulles?  United is the dominant carrier, so they stand to lose the most if a low-cost carrier starts establishing/increasing their presence at Dulles.

American is dealing with this same situation where Spirit competes on almost a third of their routes (based on ASM, Available Seat Miles).  It’s pushed them to establish a stripped down Basic Economy product (Last Class) and likely affected their earnings.

What Does 2020 Look Like At Dulles?

My crystal ball is in the shop, but I’ll take a whack at this.  In 3 years, I bet that there is a larger presence by a low-cost carrier.  It’s not likely to be Spirit.  They’ve made their lot at BWI.  I don’t think it’s Southwest, either.  But, I wouldn’t be surprised if it was.  Jetblue makes some sense with more planes coming, but they also seem to want to focus on Boston and New York.  Alaska could make a bigger play with Virgin America, who already has a handful of flights at IAD.

I’ll be that Untied is smaller, though not by much.  And, I’ll bet we’re no closer to a new C/D concourse at IAD.  They’ve renovated/upgraded most of the retail options there, which has me betting that’s a 6-9 year play.

That’s likely a better thing for me personally, as well as the 500,000+ people who find Dulles convenient based on where they live/work.  Fares are likely down (adjusted for inflation, oil, etc) with a true low-cost carrier.  The only thing I really don’t have a good read on is whether $50 million is enough to attract the right carrier.  Landing fees at Dulles are already artificially high because of bookkeeping hocus pocus to do with DCA.

The next few years will surely be more interesting than the last 3 at Dulles, where other than a few new restaurants and lounges, there hasn’t been much in the way of seismic shifts.

The post Does A New Agreement Mean United Will Keep Their Dulles Hub? was published first on Pizza in Motion

10 Comments

  1. Ed, I’ve re-read the MWAA announcement, and I don’t see any implication for the $50 Million to attract a “low cost carrier” by name. I see the $50M as specifically “to reduce airline operating costs and further strengthen the competitive position of Dulles International” – I read that as – lower United’s landing fees, and give Dulles a carrot to attract more international service. Recall, Gov McAuliffe was very focused on that Air China flight a few years back. My read, is that he sees international linkages as just as important as having a major hubbed airline at Dulles.

    But, yeah, I just don’t see the implication of Dulles attracting an LCC anywhere in this announcement. I’m curious if you have greater insight, and this is a “read between the lines” thing.

    1. Trevor, I was looking for the article but I may have actually used the newspaper to start a fire. 🙂
      One of the local publications (Loudoun Now, IIRC) published an article a month or two ago about these funds being used in support of low-cost carrier fees at Dulles. And, the way I read the new article is that Dulles only gets the $50 Mil if they work out a deal with United. But, that’s influenced by my reading of the earlier article.

      It’s an interesting point, and one that will make me want to do some more research.

      1. Yeah, my read was that Dulles needed to secure a longer term lease, United was the clear favorite for this. I have a hard time seeing an LCC coming in and committing to 8-9 years cold. Though Dulles did make a big deal about Frontier’s expansion, but, correct me if I’m wrong, that seems to have tapered off, and some routes have not survived, like the IAD-St. Augustine, FL route (which was a fun one, considering St. Augustine doesn’t have a true terminal).

  2. Rumors of Dulles’ demise as a United hub have circulated for a long time now. But I tend to think that United is likely to keep Dulles as a hub (even if it means some “right-sizing”) because: 1) it avoids the problems of delays and congestion in the NYC area and the EWR hub; 2) the DC area has a robust economy that is more diversified than say Houston (not to mention the government and related businesses are unlikely to ever shrink), and can support significant O/D traffic, unlike say CLE; and 3) Dulles will become more attractive when the Silver Line of Metro reaches it.

    1. 02nz, Dulles will be more attractive when the Metro finally reaches it, no doubt. I agree with all your other points, and continue to emphasize “right-sizing”. I don’t see many market conditions developing that would make me think United will get bigger at Dulles.

      1. The WMTA just has too many problems right now. I was in D.C. last month and became aware of maintainance issues and a planned cut back of service hours. Frontier Airlines use to fly from STL to IAD and I caught a good price aand attend an FTU event. However, I wasn’t happy to spend $7.50 for a bus ride from the airport to a Metro site.

    2. I agree on UA “right-sizing” Dulles — but I’d much on the government traffic, considering UA lost out on at least one major route (to Dubai) to a JetBlue / Emirates partnership. Though, there is probably a bunch of other routes that UA does have.

  3. I too don’t see the LCC link with the $50 million. It doesn’t make sense to me that the Gov would give the money only if United stayed. United staying is what deters LCCs from growing there, in my opinion. A smaller UA presence at IAD would likely entice an LCC to move in — considering that for any significant impact an LCC would need to establish a large presence, not just the current VX, B6, and FR style operations.

    1. Steven, I don’t think an LCC would need a large presence, but I guess that depends on your definition of large. Back when Virgin America used to run frequent promos on IAD-LAX, both AA and UA matched, effectively lowering the price at those times by as much as 50%.

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