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  • John Wickson

How COVID-19 is Shaping U.S. Domestic Network Strategies

As more people are vaccinated, mask mandates are loosened and with tourist attractions reopening, many are predicting that Summer 2021 travel demand will mark a significant rebound for the airline industry, which sustained billions of dollars in losses and significant drops in demand during COVID-19.

Confirming statements of pent-up demand materializing have come from American's Doug Parker, Delta's Ed Bastian, Southwest's Gary Kelly, as well as from the CEOs of United and Alaska. These and other carriers have been busy aligning their networks and strategies to prepare -- some playing to opportunism, others to long-term strategic goals and still others to strategic retreat.

We looked at the June 2021 domestic schedules for the largest U.S. airlines for clues to the competitive implications of the network changes implemented during COVID-19. We’re using figures for the 10 largest U.S. carriers as measured by scheduled available seat miles (ASMs) -- a measure of the industry’s capacity -- in June 2019. These include flights operated by regional partners in their network carrier’s totals.

Low-Cost Carriers Seize Market Opportunities

“Never let a good crisis go to waste” is the apparent motto at ultra-low-cost carriers (ULCCs) Allegiant, and Frontier and, to a lesser extent, Spirit. While the industry in total is still down 18 percent in departures, Allegiant and Frontier grew departures by 12 percent and 9 percent, respectively year-over-year. Spirit’s June departures are down, but by only 7 percent overall, and were up substantially in many markets, including South and Central Florida and New York City.

Allegiant and Frontier also grew domestic destinations by a net of eight and three cities, respectively. Half of Allegiant’s destination growth came in Orange County, Portland, OR, Boston and Houston-Hobby: these metro areas are larger than typical for Allegiant, and with up to to eight destinations each and an average of 59 monthly departures these already have more service than most Allegiant cities.

While Southwest’s June departures are down in line with the industry, they also took advantage of the crisis to selectively expand their strategic footprint. Flight reductions were distributed unevenly across the network, seemingly not solely based on demand variations. For example, Southwest added a net new 16 destinations, including strategic entry into the network carrier hubs of Miami, Houston Intercontinental, and Chicago O’Hare.

Purposefully or not, Southwest appears to have targeted United foremost, with its entry into Chicago and Houston, but also gaining departure share in Washington-Dulles and Denver, especially since United reduced departures by only 7 percent in Denver. Also noteworthy is that Southwest’s average stage length (the measure of how far they’re flying each flight) which has been creeping up for years, jumped 6 percent to 782 miles, though it is still shorter than other low-cost carriers (LCCs) and “value” carriers such as JetBlue and Alaska.

The U.S. Big Three Make Necessary Adjustments

United, for its part, made the most drastic changes to its network of the big three network carriers, cutting departures by 28 percent year-over-year. This included major departure reductions of more than 50 percent to its Newark and San Francisco hubs. While some of this may be temporary reallocations from COVID-19 hotspots where local restrictions may have been tighter, the complete cancellation of 22 markets in the East Coast, South and Midwest from San Francisco and 16 from Newark points to a longer-term network restructuring.

United’s departure share also fell in Chicago, Denver and Los Angeles—in fact, the only airport among United’s top 20 by departures in which United gained departure share was New York-JFK, where United reopened the station after a five-year absence.

American was the most aggressive of the three big network carriers, reducing departures by only 13 percent overall. Consequently, primarily by reducing departures less than others, American gained departure share in 62 percent of the airports it served between June 2019 and June 2021, including Chicago-O’Hare, Dallas-Fort Worth, Charlotte, Philadelphia, Boston and Washington-DCA. American’s departure share did fall in both LaGuardia and JFK in New York, as well as in its hubs of Phoenix and Miami, reflecting the entry of Southwest into Miami, and possible plans to rely on its partnership with JetBlue to support its NYC presence.

Delta succeeded in maintaining or growing its share of departures in its hubs of Atlanta, Seattle, Detroit, Minneapolis, Los Angeles, Boston, Salt Lake City and both LaGuardia and JFK in New York by reducing less than competitors. In contrast, Delta reduced departures more than the competition in four of its five focus cities (Raleigh-Durham, Cincinnati, Nashville and San Jose), while Austin scheduled departures are growing 2 percent. It is not surprising that focus cities took a bigger hit during retrenchment, nor that only Raleigh-Durham and Austin will retain focus city status.

JetBlue and Alaska Take Divergent Approaches

Like the ULCCs, value carriers JetBlue and Alaska took divergent approaches to selectively improve their presence in strategic markets. JetBlue had a net reduction of four destinations, while Alaska added five net new destinations. Alaska reinforced its historical strengths on the West Coast by reducing departures only 14 percent-- less than the industry average of 18 percent, and hence grew its share of departures in Seattle, Los Angeles and San Francisco.

In contrast, JetBlue reduced departures by 24 percent, but still managed to grow its share of departures in both New York-JFK and Newark. By nearly doubling its departures in Newark, JetBlue provided further evidence of American’s intentions to rely on JetBlue to maintain its NYC presence, particularly with JetBlue having established a significant presence at all three NYC-area airports.

While the impact of COVID-19 was financially devastating across the entire industry, none of the three big network carriers has yet undertaken a comprehensive restructuring that would compromise their ability to serve their historic geographic strengths.

Instead, efforts by the three big network carriers to adjust their networks to prepare for an uncertain future varied from opportunism by American, selective retreat by Delta from its focus cities, and a more extensive network reconfiguration by United whose contours are not yet clear.

Meanwhile, all airlines with lower-cost business models and less comprehensive networks exploited these as advantages to selectively expand or reinforce their strategic footprints. If corporate and international traffic remains depressed for an extended period, the pressure to restructure will grow on the network carriers as more of their markets are exposed to non-stop, low-cost competition.

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