Wednesday, February 5, 2020

Feeling United's Paine: United Couldn't Compete with Alaska's Service

The tale of commercial air service in Paine Field is about as old as time. Since the late-2000s, various airlines have expressed interest in operating commercial service from the airfield. However, air service at the airport was always going to be a challenge. The airport lacked an existing public terminal and the local community was combative to the idea of commercial air service at Paine.

It wasn't until Propeller Airports built a new terminal and a lawsuit or three resolved before airlines could announce their service. Once everything was in place, Alaska quickly announced service in May 2017, followed by United over the summer, and Southwest early winter 2018. Southwest would later bow out of the running. (Really boring, but informative read regarding the history)


With so many airlines trying to access to Paine, demand for the two gate facility quickly exceeded the planned capacity of 16 daily flights. By April 1, 2020, the terminal saw 24 daily departures on just two gates. Neither of the carriers really adjusted their schedule down on off-peak days. Offhand, I can't think of another airport in the US that is turning 12 flights per gate every day. 


With 12 flights per gate per day, the operation was tightly scheduled. This could lead one to believe that the airport would be operationally challenging. This really does not appear to be the case. Since the services started, airlines operated at the airport with roughly 88% on-time rate. But, just because the airport operated on time, does not necessarily mean the airlines could schedule to fit their commercial network, which we will get into here shortly. 



Alaska's commercial strategies at PAE seem to be pretty clear: operate in top Seattle originating markets within range of their respective regional fleets. Alaska with their 18 flights blanketed seven out of the ten originating markets. Most of these markets fit nicely into Alaska's growing California network. 


United's commercial strategy seemed to follow Alaska, just via their DEN and SFO hubs. With most of Seattle's originating traveling to California, Vegas, and Phoenix, you can see why United placed most of their capacity into SFO. In theory, if the flights were well-timed and connected to the SFO bank structure, we should expect to see robust connections to all of these top markets. But we didn't.


Each of the PAE-SFO markets only connected to 4-5 of the top Seattle originating markets. The PAE flights often arrived 30 minutes to an hour after their ideal connecting bank into SFO. At a normal airport, this is often easy to fix, just adjust the departure time. However, with PAE's 12 turns per gate, adjusting departure times was likely out of the question unless Alaska wanted to play nice. But with no upside for Alaska, why would they play nice? With no ability to adjust their schedule, United's SFO schedule stayed nearly identical since they launched service in late March 2019. 


The lack of quality itineraries over SFO can be seen in the passenger data. PAE saw sizable passenger demand in its top markets. These markets largely mirrored the Seattle originating passenger demand as well as where the airlines allocated capacity. However, since United did not have quality itineraries via SFO, especially to Southern California, United only saw single-digit PDEWs to these top destinations.


Let's not forget, United was also going head-to-head in San Francisco versus Alaska. Since United operated four daily flights vs Alaska's two daily flights it would be logical to assume United would carry twice as many passengers, however, this is not the case.

When we look at the SEA-SFO market, the market is evenly split between originating in SFO vs SEA. However, in the PAE-SFO market, the market skews towards PAE 60-40. This should not be unexpected since PAE is a new, mostly originating airport. This was ultimately a huge disadvantage for United. While the two carriers equally split the SFO originating market, Alaska nearly doubled the passenger demand on the PAE side of the market. 


With the local PAE-SFO market favoring Alaska and United's inability to build connections to top PAE markets, United's revenue performance on the route suffered significantly. My models show the route was roughly 60% below what United would expect on a similar staged market.


Now, I caution anyone from using the graph above in absolute terms. I debated for quite some time about even including the chart given how negative PAE-SFO was. It is important to remember this information comes from modeled data. Airlines do not publish their actual RASM production figures. However, we can see the direction and magnitude of United's performance in the market. It was negative. Really negative. This likely explains why United killed the route even before its first birthday. 

Astute readers will likely point out that DEN is also performing below system production. While this is true, the data available to us only includes the first six months of service. It is common for new routes to underproduce revenue during their first couple of years as a market matures. So while the market might appear to be a red flag, I say it is a wait and see. Why?

DEN does not have the disadvantages that we saw with SFO. Currently, Alaska is not flying to nor over DEN. Even if we see Alaska attempt to operate to or beyond DEN, their ability to put substantial pressure on United would be much more muted than SFO. This would not preclude Alaska from operating DEN as it is still a large originating market for the Seattle area.

So what will happen with the available gate time saved from United reduction? It is hard to say. The facility was built originally for 16 flights. I have to wonder if Propeller would like to dial capacity back for a bit, but they are an investment group and investment groups typically aim to maximize returns.

If Alaska were to pick up the gate times, it would be reasonable to see them in DEN as discussed above. It would be equally possible to see them add depth to existing markets or new service to a secondary Basin market.

I would doubt that Delta would be interested in operating three flights into the airport, especially if they are locked into United's old times. As these old times likely would not fit operationally or commercially into LAX or SLC. In the unlikely event Delta was to jump in, I would not be surprised to see them operate a non-hub such as Vegas really to just be a thorn in Alaska's side. 

There's also Allegiant if the costs are low enough. They had expressed interest in the past.

There's plenty of gamesmanship that could be played here. But ultimately, we will all just keep an eye on the schedules and see who, if anyone, takes the gate times in PAE.  

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