The Implications of Airline Turbulence for the Denver Regional Economy

When global companies make headquarters site selection decisions, access to transportation linkages is often a key factor.

"With customers and operations in all 50 U.S. states and 160 countries, air travel to and from Dallas will be more convenient, time efficient and cost effective. The DFW airport is the third largest in the U.S. and one of the top six in the world, offering daily nonstop service to 35 international and 133 U.S. destinations. Additionally, Dallas enjoys a second major airport; Love Field — the 50th largest U.S. airport — offers more than 160 nonstop flights daily.

Being headquartered near leading air transportation facilities is critical to global companies like AT&T as the airline industry continues to consolidate and reduce hubs and flights amid higher fuel prices and industry economic pressures."

AT&T Press Release Announcing the Relocation of their Corporate Headquarters from San Antonio to Dallas, June 27, 2008.

The press release above, shows that senior corporate decision-makers are keenly aware of the impending contraction of the airline industry in the face of high fuel prices and the economic slowdown. Decision-makers believe it is important to be located in a air hub city with multiple airline networks to avoid the risks and costs being in a city with "thin" or "shrinking" linkages to the global transportation network.

At first blush this portends well for Denver given the high traffic density at DIA. Denver is clearly better situated within the global airline network than the vast majority of cities around the country. A View of the Rockies believes that its hard to overstate DIA's importance to the economic health of the Denver Metro Region and that building the airport was a wise and necessary investment.

However, recent turbulence in the airline industry has left me wondering if DIA's relative status could be adversely impacted by airline contraction. The news that United has cut its routes and flights in Denver, including the highly prized Denver to London flight which began in March 2008 was probably inevitable given current economic conditions but also noteworthy. The Frontier bankruptcy and capacity reductions along with the Southwest expansion in Denver, raises the prospect that Southwest could replace Frontier as the second major airline in Denver. These factors got me thinking about a "terrible two-some" of events which, if they occurred jointly, could harm Denver's status as a major hub:

• United merges with Continental (or another major airline) or is forced into a dramatic restructuring and reduces flights dramatically in Denver to focus on other hubs.
• Frontier is forced into Chapter 7 bankruptcy or a merger, eliminating the only major airline headquartered in Denver.

If these two events came to pass, it could raise the cost and reduce the convenience of air travel in Denver and drag down the regional economy. Even a short-term dislocation of traffic at DIA could prevent the region from attracting investment at a critical time and in key sectors with long-term consequences. For example, a major contraction at DIA could disrupt the emergence of the regional renewable energy cluster in Colorado, causing businesses to relocate to other parts of the country. Once you "lose" a cluster, its almost impossible to win it back.

In the long-term, DIA's location in the middle of the country, capacity and expandability and runway design should allow it to thrive as a key hub in the U.S. airline network. However, let's hope in the short-term we are able to avoid the "terrible two-some" listed above.