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United Upgrades San Francisco Hub as Boeing 787 Chengdu Flight Looms

Stocks in this article: BA UAL AAL DAL

Action-oriented Delta aggressively deals with the realities it faces -- in New York, it is growing service and improving facilities at both JFK and LaGuardia, although both are congested airports where no single carrier dominates. Delta is also growing in Seattle, which is closer than the California airports to many key Asia destinations, but faces impediments posed by an entrenched hub carrier, Alaska (ALK) and by a relatively small local market. By mid-year, Delta will serve six Asian destinations from Seattle.

American doesn't dominate any of the three New York airports, nor does it dominate any of the three major West Coast airports. It may be said that American's New York hub is Philadelphia and its West Coast hub is Phoenix. Neither location is optimal.

LAX would seem to potentially represent the best West Coast hub for American, but it is difficult to make money at LAX because the airport is gate-constrained and the market is so diversified that no carrier can carve out a major hub, although both American and United operate undersized hubs.

"International carriers are more interested in collecting origin and destination traffic in Los Angeles," Znotins said. They help to make LAX the third-biggest U.S. international gateway, after JFK and Miami. But U.S. carriers need substantial hubs to build a critical mass of flights to feed international service.

That is why the Chengdu flight serves San Francisco and not LAX. United will begin thrice-weekly service in June with a 787 seating 216 passengers.

"This whole business, this entire industry, works best when you match capacity with demand," Znotins said. "The 787-8 allows us to do that. No other 220-seat airplane can go 8,000 miles."

United's Houston-Lagos route provides an example of the efficiency: United had served the route with a 777 seating around 300 passengers; loads were in the 70% range. In August, United switched to a 787, loads are in the 80% range, and profits have improved by about $2 million a month. The biggest contributor to the improvement, Znotins said, is the reduced fuel burn.

The Boeing 787 means United "can get deep into Asia," he said. "Fast forward 20 years, and United will be serving six to eight secondary markets in China, as more of these opportunities in secondary cities in China open up. All signs point to significant growth in China." United currently flies nine 787s.

The Chengdu flight is evidence that in every case, "SFO is going to be the first and most successful gateway to serve new Pacific destinations," Znotins said. "If a destination doesn't work there, it's not going to work anywhere." Potentially, United would even fly between SFO and Tokyo Haneda, a problematic airport for U.S. carriers because they have been unable to secure acceptable arrival and departure times.

Delta recently sought approval to switch its Haneda destinations from Seattle and LAX if it needs to, although the carrier said it has no immediate plans to switch. Said Znotins: "If any service to Haneda is going to work, it's San Francisco, because of the power of the hub."

Written by Ted Reed in Charlotte, N.C.

To contact this writer, click here.

Follow @tedreednc

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