The high-level picture for the Dulles hub is worrisome. Back in summer 2011 (the week of June 23), the hub was at roughly 300 daily departures to 115 unique destinations, including roughly 55 daily departures on turboprop aircraft and 95 on 50-seat RJs. By the summer of 2015 (week of June 20), the hub shrank to roughly 230 daily departures to 104 destinations, with just 20 daily turboprop departures and roughly 50 on the 50-seat RJs.
The capacity figures are not as startling because United has added mainline/70-seat RJs flying, but the overall trend is still painful. And while United both added and removed destinations over the interceding four-year period, the additions tended to be low frequency vacation flights while the reductions were a mix of long haul and domestic high frequency flights.
There have been major air travel market shifts in the Washington D.C. air travel market, each of which worsened the relative value of Dulles for passengers in the region. The first of these major shifts was the Delta-U.S. Airways slot swap, which gave U.S. Airways (now American) 42 additional daily slot pairs at Reagan National (DCA). The major impact to United was indirect, as U.S. Airways only added three new destinations (Jacksonville, Ottawa, and Savannah) and one additional frequency to Hartford actually overlapped with United flights offered at Dulles.
The indirect effect of the slot swap was to incentivize more passengers in the D.C. area to shift loyalty from United to U.S. Airways. Moreover, U.S. Airways and Delta were also required to divest eight slot pairs at DCA, which were auctioned off to JetBlue and increased Low-cost carrier (LCC) competition at the airport. JetBlue used the slots to add multiple daily frequencies to Boston, Fort Lauderdale, and Orlando as well as launch new daily service to Tampa, all of which competed with United at Dulles.
Even more damaging was the increase in beyond perimeter exemptions at Reagan in May of 2012, when four new perimeter exceptions were granted and the law was changed to allow existing carriers to shift four slot pairs from within perimeter to beyond perimeter routes. These shifts resulted in new flights/frequencies from DCA to Portland by Alaska Airlines, Austin by Southwest, San Juan by JetBlue, San Francisco by United and Virgin America, Los Angeles by American (and eventually from pre-merger US Airways which initially added San Diego), and Salt Lake City by Delta.
These new beyond perimeter routes broke or weakened the O&D dominance for Dulles on these routes; traffic and revenue of which United held the lion’s share. In fact, Delta’s second daily Salt Lake City – DCA flight was a major factor in United eliminating Salt Lake City service
Less than a year later, U.S. Airways and American announced their merger, which immediately provided an incremental boost to an already strong U.S. Airways by strengthening the beyond perimeter portfolio at Reagan (adding two daily flights to Los Angeles, the most important beyond perimeter destination) and combining operations at Dulles and Baltimore-Washington to build more critical mass at those two spokes for D.C. Origin and Destination (O&D) traffic.
However, the major effect was once again the divestment, which increased LCC competition at DCA sharply. The new American was required to divest 44 slot pairs (basically the entire pre-merger operation for American at DCA), which were given to JetBlue, Southwest, and Virgin America. This spurred competition to big O&D airports from DCA—the preferred airport for the D.C. market—and weakened the traffic that United could pull to Dulles.
Accompanying a downturn in the airport’s broader fortunes was a shift in the role of Dulles in United’s network. Prior to the United-Continental merger, Dulles was the primary European gateway and connecting complex to Northeast for United. But today, Newark boasts a stronger O&D to most domestic and international destinations, and serves those flows more and more. Fleet shifts have also hampered the Dulles hub, in particular the draw down of turboprops and 50-seat RJs.
Actually, most of the domestic destinations lost since 2011 were props to small cities in the Northeast. The lack of props means that there is no viable way to serve places like State College, Beckley, or Altoona, so these cities are lost from the Dulles network, creating a cyclical reaction, as the loss of these routes lowers feed for United’s domestic ops, which in turn reduces viability for some larger domestic destinations as they are now more reliant on O&D.
Dulles domestic operations were also dependent on 50-seat RJs as a way to offer frequency and capture O&D. But the economics of these have collapsed in recent and United has shifted to a model of larger aircraft with lower frequency, which also means less O&D.
Structural changes have pushed down O&D and the number of markets served, both of which reduce connectivity. On the domestic side, every lost destination reduces connectivity, which means the O&D threshold for remaining destinations is higher for sustainability purposes. But that is being hurt by structural changes in the market, and so the overall domestic destination portfolio for United at Dulles declines.
On the whole, there is still some capacity that is likely to be pruned by United. Washington D.C. is a massive global city that throws off important numbers in international O&D traffic. This gives the operation a staying power that other somewhat redundant hubs don’t have. Over time, we expect United’s hub at Dulles to converge on an international O&D focused operation with service to key business domestic destinations to retain corporate contracts dependent on D.C. and offer some feed for the international routes.
In other words, United’s operation at Dulles will resemble to that of American at New York JFK. Eventually, small cities will be dropped while boasting a similar international destination profile. This particularly seems to be the trend as United will launch two new daily seasonal routes from IAD to Barcelona and Lisbon on May 25.
In the long run, there will be more international routes added as the D.C. metro grows, as well as a few targeted domestic routes added if the opportunity presents itself.
In other words, United’s Dulles operation will look a lot like that of the new American at New York JFK. This does mean that the small cities – Charleston, Albany, Columbia, Charlottesville, Greensboro, and the like – will likely be dropped. So overall, this works out to between 150-175 daily departures, mostly on mainline aircraft with a similar international destination profile to today give or take a Manchester. In the long run, you’ll likely see more international routes added as the DC metro grows, as well as a few targeted domestic routes added if the opportunity presents itself.
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