In early February, news leaked that United Continental (NASDAQ:UAL) was about to ax its Cleveland hub. This had been long feared by city leaders and business figures, as Cleveland was United's smallest domestic hub, and was located within 400 miles of three other (larger) United hubs.
Since United announced its hub closure, other airlines have rushed to fill the vacuum. Ultra-low-cost carrier Frontier Airlines has led the way. Last month, Spirit Airlines (NYSE:SAVE) -- the top ultra-low-cost carrier in the U.S. -- announced plans to start service to Cleveland, too.
As a result, Cleveland may actually find that it is better off without the United hub. It's true that Cleveland has lost nonstop service to several dozen airports. However, most of these were small-to-midsize cities. By contrast, Cleveland is seeing a boom in competition on the routes that most travelers want to fly. This will lead to lower prices, stimulating travel demand.
United gives up on the Cleveland hub
On Feb. 1, United CEO Jeff Smisek sent a letter to employees stating that United planned to cut its capacity in Cleveland by approximately 60% by June. Smisek attributed the end of hub operations in Cleveland to a combination of sustained losses there and pilot shortages at several of United's regional airline partners.
Despite the downsizing, United decided to keep Cleveland as its largest nonhub market. United now operates about 72 peak-day departures from Cleveland to 20 destinations, serving all of United's domestic hubs, as well as several key business and leisure markets. (At the time of the announcement, United had nearly 200 peak-day departures in Cleveland.)
Many in the Cleveland area bemoaned the loss of the United hub as a big blow to the regional economy. Indeed, the hub closure led to several hundred job losses at United, not to mention job losses at other businesses that depended on the hub. Furthermore, losing nonstop service to dozens of cities could make Cleveland a less attractive place to do business.
Other carriers swarm in
However, the flip side of losing the United hub was gaining new competition. In the last eight months, several airlines have added flights in Cleveland or announced plans to do so. The biggest increases have come from ultra-low-cost carriers Frontier Airlines and Spirit Airlines.
Frontier's growth in Cleveland has been the most remarkable development. At the beginning of February, Frontier operated just three routes from Cleveland: serving Denver, Cancun, and Punta Cana. It also had plans to start service to Trenton, New Jersey, later that month.
Within less than two weeks, Frontier was ready to announce new year-round service to Orlando and seasonal service to Seattle. A month later, it added six more cities: Raleigh-Durham, Atlanta, Tampa, Fort Lauderdale, Fort Myers, and Phoenix.
Frontier has continued to announce new routes from Cleveland in the ensuing months. These have targeted five large markets: Chicago, Dallas/Fort Worth, Las Vegas, Washington, D.C., and New York. On the flip side, it has also reduced service on some routes with lower demand.
A little more than a week ago, budget leader Spirit Airlines announced its own plans to conquer the Cleveland market. Between January and April, it will start year-round service to Orlando, Fort Lauderdale, Dallas/Fort Worth, Las Vegas, and Los Angeles, as well as seasonal flights to Fort Myers, Tampa, and Myrtle Beach.
Prices will fall dramatically
For Q1 of 2014, Cleveland Hopkins Airport had the sixth highest fares -- adjusting for route length -- out of 121 airports tracked by the Department of Transportation. For years, United's dominant position has kept potential competitors away, allowing United to keep fares high.
The demise of United's hub in Cleveland is also proving to be the end of its status as a high fare airport. Frontier and Spirit have been offering promotional fares as low as $15 to build buzz about their growth in Cleveland. They won't sell tickets at such low prices for long, but having ultralow-cost carrier competition on 15 to 20 routes will keep a lid on airfares in Cleveland.
This reduction in airfares will help Cleveland-area travelers save a lot of money on air travel, particularly because Frontier and Spirit are attacking routes with high leisure demand. Low fares should also help stimulate more travel to Cleveland, bringing more tourist dollars to the city.
More flights vs. lower fares
It's difficult to weigh the benefits of having nonstop flights to more destinations and high fares against the alternative of having fewer nonstop flights but lower fares. Businesses are the main beneficiaries of having a wide array of nonstop flights. Leisure travelers tend to care a lot more about price.
While losing nonstop flight options can inconvenience business travelers, it only becomes a problem for the broader community if businesses start to leave. (One prominent example is Chiquita's decision to move from Cincinnati to Charlotte, a city with many more flight options.)
So far, this hasn't happened in Cleveland. Furthermore, a fair number of midsize U.S. cities have lost airline hubs in the last two decades, including Pittsburgh, St. Louis, Memphis, Nashville, and Columbus (among others). None of these cities has seen a devastating loss of business activity from the loss of its airline hub.
On balance, most people in Cleveland seem to be better off with the new state of affairs: fewer but cheaper flights. For now, at least, Clevelanders should breathe a sigh of relief and enjoy the low fares!
Adam Levine-Weinberg is short shares of United Continental Holdings. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.