Memphis may emerge as Delta’s Midwest gateway

Thanks to ongoing disputes between Delta Air Lines, Inc., and the Hartsfield-Jackson Atlanta International Airport, as well as a strategy by Delta to grow capacity in the Midwest, Memphis International Airport is in position to be a key figure in the airline giant’s restructuring.

Airline analysts had marked the Memphis hub, which formerly served as a major hub for Northwest Airlines Corp., for dead after the two airlines merged in October.

Delta operates its main hub in Atlanta, which features more than 1,000 daily Delta departures.

But current concerns expressed over fee hikes at Atlanta International and a desire to capture more market share in Dallas, Houston and the upper Midwest have many Delta officials pointing to Memphis as a key hub in the airline’s future.

“Memphis brings to the Delta network some markets that we were never tapping into before,” says Bob Cortelyou, Delta senior vice president of network planning. “Where people say Memphis and Atlanta are too close and they are serving the same market, the reality is that Memphis does bring a part of the country to the table to us.”

Prior to the merger, Delta relied on Atlanta for connecting flights to the Midwest. But in the Atlanta scenario, serving large metropolitan markets like Houston and Dallas meant having to fly passengers east before sending them back west.

“It’s circuitous and it takes a lot more time,” Cortelyou says. “With Memphis, we now get to participate in traffic flows that we were not participating in before.”

Since the merger, Delta has added new flights to Salt Lake City, New York City, Washington, D.C., and McAllen and Lubbock, Texas.

The additions have not come without cuts. Delta, and Northwest before it, have slimmed flights from Memphis International as the entire industry faces lower demand with current economic conditions.

Post-merger, Delta eliminated flights from Memphis to Bristol, Tenn., Norfolk, Va., and Savannah, Ga. Those markets are now served out of Atlanta. According to Memphis airport officials, direct flights to San Francisco, San Diego and Colorado Springs, Colo., also were slashed in 2008.

Despite cuts, Cortelyou says departures should stay relatively equal in 2009 to 2008 numbers.

One factor that could mean greater increases in capacity at Memphis International is the ongoing dispute between Delta and Atlanta International.

Disagreements over a sixth runway and capital improvement and operating costs between the Atlanta-based carrier and Atlanta International were made public in January, bringing to light that Delta is considering options pertaining to costs it is incurring from airports.

Delta vice president for real estate John Boatwright wrote in a September memo that information provided to bond underwriters that are financing Atlanta International’s $1.6 billion international terminal stated that the airport would raise per enplanement fees by more than 50%. That would be “an amount that would cause Delta to reduce its use of Atlanta for flow traffic,” Boatwright wrote.

Limiting airline fees has been central to Memphis International’s philosophy for growing capacity.

According to Arnold Perl, Memphis-Shelby County Airport Authority chairman, Memphis is the only connection hub in the U.S. to forgo charging airlines a passenger facility charge.

The fee is approved by the Federal Aviation Administration to help airports raise money for capital improvements.

The Atlanta airport is approved by the FAA to collect $1.9 billion in passenger facility charges in the next 12 years.

Memphis International has relied mainly on revenue from parking and other retail opportunities to raise capital as well as operating with a philosophy of limiting capital improvements to those that are urgently needed.

Without further hikes, Atlanta’s cost per passenger sits around $10 per passenger, a cool 100% more than Memphis’ $5 fee.

“Either the passenger pays (passenger facility charges) or the airlines absorb it,” Perl says. “Memphis International is in a position to be one of the most attractive connecting hubs for airlines and passengers.”