On June 5, Atlanta-based Delta Air Lines announced that it was de-hubbing its once robust hub at Memphis International Airport, marking the end of a historic operation that dated back to the mid-1970s when Southern Airways launched a secondary hub to complement its Atlanta operation. Over the next 30-plus years, the operation grew and prospered, first under the umbrella of Republic Airways, and then as the gateway to the Southeast for Northwest Airlines. By the mid-2000s, the operation had settled at a robust 240 daily departures, with several regional international flights and even an intercontinental flight to partner airline KLM’s hub in Amsterdam.

But all that changed when Delta merged with Northwest Airlines. Initially, Delta claimed that it would keep the Memphis hub intact. After all, thanks to the super-hub of air freight giant Federal Express (FedEx), Memphis has amongst the lowest operating costs of any hub in the nation, with further savings as Memphis does not impose a passenger facility charge (PFC) on travellers. However, Delta finally reached a point where the hub became unsustainable due to weak origin and destination (O&D) demand for its flights, which precipitated this closure.

Following the busy summer travel season this year, Delta will officially de-hub Memphis beginning 3rd September, right after Labour Day weekend. Around 36 daily departures will be eliminated while Memphis will lose 230 Delta employees. 13 of the current 42 destinations served by Delta from Memphis will be eliminated altogether, while several of the remaining 29 destinations will see reduced frequencies. The move will drop Delta’s peak-day departure count in Memphis to 60 from 96 currently.

Destinations Being Cut

Frequencies Lost

Destinations Losing Flights

Frequencies Lost

Baton Rouge (BTR)

1

Austin (AUS)

2

Fort Lauderdale (FLL)

1

Nashville (BNA)

1

Jackson MS (JAN)

1

Columbus (CMH)

1

Little Rock (LIT)

1

Washington Reagan (DCA)

1

Oklahoma City (OKC)

1

Dallas Fort Worth (DFW)

1

Omaha (OMA)

1

Houston (IAH)

1

Phoenix (PHX)

1

Indianapolis (IND)

1

Shrevport (SHV)

2

Kansas City (MCI)

1

St. Louis (STL)

2

Orlando (MCO)

2

Tulsa (TUL)

1

Milwaukee (MKE)

1

Knoxville (TYS)

2

San Antonio (SAT)

1

Northwest Arkansas (XNA)

2

Louisville (SDF)

1

Seattle

1

The fate of Memphis as a hub for Delta is no surprise; Delta has slowly been chopping away at its Memphis operation since it peaked at 240 daily departures in early 2009. By July that year, the figure had fallen to 203. Over the course of 2010 and early 2011 the operation slowly fell towards 180 departures, before nearly 25% of the hub was cut in May. October saw the reduction of a further 8 destinations and by mid-2012 service levels had fallen to 125 flights per day. Further triage occurred over the course of 2012 and the operation settled at around 100 flights per day before the current de-hubbing.

Memphis’ main challenge lies in its structural role within Delta’s route network. Delta’s operation at Atlanta, which is the world’s largest airline hub, is just 332 miles east of Memphis, meaning that the vast majority of connections served through Memphis can be just as easily served via Atlanta. Furthermore, even though Atlanta may have a higher cost of operation per flight, because the hub is so massive with more than 1,000 flights per day, those fixed costs are spread out across so many passengers that the per-passenger cost differential with Memphis becomes almost negligible. Delta can save millions of dollars by eliminating its hub in Memphis and sending the connections through Atlanta.

But the problems run deeper than network overlap; Memphis simply does not have the kind of O&D demand that sustains a full service hub in the current American airline market, at least not without a significantly unique geographical role. In fact, Memphis has a very poor O&D profile in the context of Delta’s other major connecting complexes. Memphis currently has 80 destinations with more than 10 daily O&D passengers per day each way. In comparison, Cincinnati has only 77 O&D markets, whereas Salt Lake City has 123, Minneapolis-St. Paul 157, Detroit 137, and Atlanta 171. Even considering just the O&D markets with more than 10 passengers for each city, Memphis severely underperforms.

Airport

Daily O&D passengers

Daily O&D revenue (US$)

Memphis

6,955

$1,815,832

Salt Lake City

21,170

$4,759,548

Cincinnati

8,141

$2,280,799

Minneapolis-St. Paul

36,279

$8,454,478

Detroit

33,209

$7,525,269

Atlanta

63,458

$12,662,615

Only Cincinnati is remotely comparable to Memphis in O&D, though it has more revenue. Memphis has just one tenth of the daily O&D demand that Atlanta has, and the amount of O&D revenue that will be sacrificed by ending the hub in Memphis is minimal. Moreover, Delta will still maintain a presence in several of the top 20 O&D markets from Memphis, which will allow them to continue to capture a strong share of the O&D revenue remaining in Memphis.

Market

O&D passengers/day each way

Delta flights

New York City

641

4

Atlanta

517

10

Washington DC

480

2

Orlando

346

1

Los Angeles

315

2

Chicago

267

4

Miami

259

0

Providence

207

0

Philadelphia

197

0

San Francisco

183

0

Dallas Fort Worth

183

2

Tampa

179

1

Charlotte

179

4

Detroit

175

8

Las Vegas

174

1

Minneapolis

148

5

Raleigh-Durham

134

3

Denver

119

1

Houston

118

2

Pittsburgh

101

3

Medium-sized airline hubs are a dying breed – Is Cincinnati next?
Memphis is just one of several mid-sized full service hubs to have been closed in recent years. Starting with Pittsburgh back in 2006, US legacy carriers have closed every hub in a medium-sized market in terms of O&D traffic) – US Airways in Charlotte, Delta in Salt Lake City and Cincinnati, and United in Cleveland. Charlotte and Salt Lake City remain hubs due to their unique geographic roles in the respective networks, while the future of Cincinnati and Cleveland is more unclear. The growing bifurcation in airline networks is clear: either an airport serves as a mega-hub or a spoke destination. The days of mid-sized hubs and large focus cities are gone, especially with the concurrent demise of 50-seat regional jets for airlines such as Delta which is trimming its fleet of regional jets by more than 60% over the next few years.

This brings up the interesting question of whether Delta will de-hub Cincinnati as well. Currently, its Cincinnati operation stands at 113 departures serving 42 destinations, similar to where Memphis was right before it lost its hub status. Of course Cincinnati is a stronger O&D destination, with some of the highest fares in the nation, and strong corporate demand. But within the framework of Delta’s network, it faces significant overlap with Detroit and is heavily reliant on 50-seat regional jets. Therefore it will be interesting to see whether Cincinnati remains a hub in Delta’s network in the not-too-distant future.

Regardless, the de-hubbing of Memphis is a poignant event in aviation history. It truly punctuates the end of an era – US airlines have entered the age of consolidation, and there is no turning back.

Image Courtesy of Delta Air Lines

Image Courtesy of Delta Air Lines

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