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United's Cleveland Hub Closure Is an Added Plus for Airlines as Industry Consolidates

Stocks in this article: UAL DAL

CLEVELAND ( TheStreet) -- Cleveland may not be happy with the loss of its United (UAL) hub, but airline analysts applauded the move, widely seen as both inevitable and beneficial not just for United but for other carriers as well.

"We've been waiting for this," wrote Wolfe  Research analyst Hunter Keay, in a report issued Wednesday. "We thought an announcement of a hub closure could come at [United's] November analyst day."

Imperial Capital analyst Bob McAdoo said the Cleveland hub closure means that "Cleveland will no longer compete for traffic with United's other hubs" or with flights operated by other carriers.

"Benefits associated with the reduction in Cleveland service will be shared across the industry," McAdoo wrote in a report issued Tuesday, noting that passengers who had connected through Cleveland are now likely to connect through Philadelphia to the east, Atlanta and Charlotte to the south and Chicago or Minneapolis to the west.

"In addition, local Cleveland passengers will gravitate towards Delta (DAL) service to Atlanta and Minneapolis and American Airlines (AAL) service to Charlotte, Miami and Philadelphia," he said.

United said Saturday that it will reduce Cleveland daily departures by about 60% between April and June. Capacity will decline 36%, with 70% of regional flights eliminated. Mainline flying will be minimally impacted. In fact, just one of United's 26 daily mainline Cleveland departures will end. Ciities losing service will include Atlanta, Charlotte, Minneapolis and Philadelphia as well as regional destinations like Nashville, Providence, Syracuse and Harrisburg.

Cuts will occur April through June, leaving 72 daily Cleveland departures to 20 destinations.

Fitch Ratings also applauded the move, saying it has positive credit implications for United, which is seeking to cut $2 billion from its annual costs by 2017.

"We believe the changes in Cleveland make strategic sense given that much of the flying out of that hub is done on 50-seat regional jets," Fitch wrote in a note. "Small RJs have become less attractive from a unit-cost perspective in recent years as fuel prices have remained high, making the changes in Cleveland positive from a cost per available seat mile standpoint.

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