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VOL. 6 | NO. 27 | Saturday, June 29, 2013

Avoiding a Tailspin

Nashville’s loss of airline hub provides blueprint for Memphis

HOLLIE DEESE | Special to The Memphis News

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Memphis, Nashville feels your pain.

As Delta de-hubs Memphis International Airport – whose recent improvements include a new ground transportation center – other opportunities could arise in the form of new carriers and cheaper fares.

(Daily News/Lance Murphey)

When Delta announced earlier this month it would no longer use Memphis International Airport as a hub – cutting 230 jobs in the process – it brought back bad memories for the Music City.

In 1996, Nashville was riding high. Then-Mayor Phil Bredesen had already landed the National Football League’s Houston Oilers and was leading a revival of the city’s downtown, anchored by the rising $160 million Nashville (now Bridgestone) Arena. Six months later, a franchise would be granted for its primary tenant, the National Hockey League’s Nashville Predators.

The city’s reputation as a health care center was growing, the music industry was riding high, the Opryland Hotel and Convention Center had grown into a world-class facility and Middle Tennessee’s population was swelling.

Then American Airlines – the same airline that put the “International” in Nashville International Airport with non-stop flights to London – pulled the plug on its Nashville hub.

Nashville, despite its hot streak, had been dumped. It’s not you, American whispered, it’s us.

Fortunately for Nashville, its rebound relationship with Southwest Airlines turned into a pretty good marriage.

“It was a huge blow to our ego and I would say everyone’s feelings were hurt,” said Butch Spyridon, who since 1991 has served as president and CEO of the Nashville Convention and Visitor’s Bureau.

“Then we went into a bit of panic in terms of losing all these seats and markets,” he said. “How were we going to grow? How were we going to recover? That became the paramount issue.”

Spyridon has advice for Memphis, which will see Southwest here this November.

“I think it’s getting over the mental and philosophical blow that occurs with losing that hub,” he said, adding the focus should be “on where your growth can and should be, and how do you overcome it.

“I think the best thing that can come out of this for Memphis is that Southwest and AirTran are sitting there ready to help fill some of the voids and the city should take advantage of that,” he said. “Fortunately for us, Southwest had made some significant overtures to us before we went the hub direction. As opposed to being the rejected suitor after, they were a ready and willing replacement partner.”

American Airlines announced the development of the Nashville hub in June 1985 as a base of operations for expanding service to the eastern U.S. At the time of the announcement, American’s only other hubs were in Chicago and Dallas-Fort Worth.

Today, nearly 30 years after American Airlines’ announcement of the Nashville hub and 17 years after it ended, the airline’s relationship is just now winding down. It recently renegotiated a lease that will give hub space back to the airport.

And while hashing out the final lease terms in court isn’t exactly good times, it does offer an end in sight for a sometimes rocky relationship between the airline and the city.

While the airport was busy securing other carriers to offer additional service to Nashville travelers, the city was busy trying to minimize the damage caused as convention business began to falter from the news.

“We had a marketing plan that laid out our message, our strategy and how we were going to overcome the PR black eye, and then the reality of less service nationwide in the marketplace,” Spyridon said. “It has been a few years, but our strategy was to talk about it, and talk about how we were going to overcome it.

“I think, to a large degree, we minimized the fallout, but it took a few years. Now, we have recovered all of the losses, and we are at record levels on both leisure and meeting side.”

Memphis does have the edge on 1996 Nashville.

Back then, business travelers expected the best of the best. In 2013, leg room, while nice, in no way trumps low rates in today’s market.

“It’s easier to talk about it today because value and cost is so much more important than whether or not I have a first-class seat,” Spyridon said. “But at the time, largesse was pretty prominent in the meeting industry.

“And so it really took relationship selling and convincing decision-makers that the trade-off with having a lower fare and the potential for higher attendance offset the convenience or comfort of a first-class seat.”

Despite losing the hub, Spyridon said, Nashville was still in a good place in terms of business travelers because of the Delta addition at the Opryland Hotel and Convention Center, which opened just months prior in June.

The opening made Opryland the largest hotel and convention center complex at the time, with nearly 3,000 rooms and 600,000 square feet of meeting space. It was reported in 1996 that a few months after opening, 3.7 million room-nights had been contracted though 2013.

“Then we began to feel the pains of the early to mid-2000s, and we saw a lot of markets outpace us,” Spyridon said. “We took a pretty significant drop in business. The recession helped us a lot in terms of eliminating first-class as a major objection.”

The airline industry as a whole faces difficulties through mergers and rate hikes, both of which can lead to a hub like Memphis being closed.

“Since 2008, you have a lot of merger transactions which have resulted in a much more compact and consolidated industry,” says Bob Mann of R.W. Mann and Co., an airline industry analysis and consulting firm, with clients such as American Airlines, Trans World Airlines, Air Canada and British Airways/Speedway Consulting. “But secondly, you have seen much more risk aversion. But the need for higher fares actually causes demand destruction, where you literally price people out of the market.”

As a way to save money, airlines opt to close low-performing hubs.

“There is less flying today than what you saw in 2007 in terms of the number of flights, which contributes to eliminating marginal flying and concentrating the remaining flying in the very strongest hubs,” Mann said. “So in other words, Atlanta as opposed to Memphis.”

Southwest, which is scheduled to begin Memphis service Nov. 3, will have twice-daily non-stop service from Memphis to Houston Hobby and Tampa.

AirTran flights to Baltimore/Washington, Chicago Midway and Orlando, which begin Aug. 11, will be rebranded as Southwest.

With Southwest’s flight schedule, Memphis will see an increase from four to five nonstop destinations served and an increase from 77 to 80 total markets served (including one-stop), despite Delta’s departure.

Travel is again on the rise, and not just the business kind, as Nashville can attest with its rise in tourism. And while it may not ever be on par with vacation destinations like Orlando and Las Vegas, Nashville has a good mix of business travel and tourism, especially now with the new convention center open.

“We are one of the five fastest-growing airports in the country, service-wise, and so at the end of the day, especially now, demand drives the decisions more than marketing and more than incentives and more than anything else,” Spyridon said. “If we can continue to create demand for the market, the airlines are going to respond.”

In March and May 2013, Nashville International experienced its highest all-time passenger levels, exceeding 1992 figures at the height of American hub activity, says Nashville Airport spokeswoman Emily Richard.

Last year, 1.4 million passengers flew out of Nashville on American. More than 5 million flew Southwest.

Southwest currently holds 53.1 percent of the market share at Nashville with 84 daily flights. Delta follows with 35 flights (16.3 percent), American with 34 flights (14.2 percent) and US Airways with 16 flights (7.2 percent).

Richard said the only city that American was flying to in the early 2000s that Nashville has not recouped is to the Tri-Cities in East Tennessee. Boston and St. Louis are the other two cities that were dropped but have since regained service with Southwest.

Memphis would do well to embrace Southwest as it expands in the market, Spyridon advised.

“In the long run, it helped tourism because Southwest was more leisure-travel focused, and they brought the fares down in the market,” he said. “So the tradeoff was that we lost a lot of non-stop service but we lowered fares and picked up coverage into the larger markets.”

Hollie Deese is a Nashville-based freelance writer who contributes regularly to the Nashville Ledger newspaper, which is owned by The Daily News Publishing Co. Inc.

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