Mountain Market Muscle
Denver and Salt Lake City emerge as airline powerhouses
There’s nothing particularly flattering about their pandemic-era traffic trends. In July (the most recent month for which data are available) Denver and Salt Lake City airports saw y/y traffic declines of 61% and 65%, respectively. Cataclysmic by normal standards. By current crisis standards, however, the declines are somewhat below the national average. Beyond mere traffic trends, more importantly, is the emergence of the Rocky Mountain region as one of the crisis era’s relative winners.
Denver and Salt Lake City are indeed seeing among the mildest declines in traffic and capacity among all major U.S. hub airports. One reason is simple: To the extent that Americans are still taking vacations, a large percentage are avoiding big cities and crowded theme parks, visiting national parks and other outdoor scenic spaces instead. With a deadly infectious disease on the loose, what better place to escape than the mountains? July visits to Rocky Mountain National Park near Denver were down by a quarter from last year’s record-breaking figure. But that was mostly because the park limited entries (to promote social distancing). Salt Lake City happens to be the closest airline hub to Yellowstone National Park, where July visits were actually up 2% y/y. Many visits don’t involve air travel of course. But many do, especially from distant parts of the country, like the east coast.
A relatively resilient tourist sector is one reason Salt Lake City currently has the lowest unemployment rate of any airline hub city: Just 5% in July, compared to almost 11% nationally. (New York’s unemployment rate is 16%). Denver is well below the national average too, at less than 8%. Tourism aside, Denver and Salt Lake are both cities with large technology sectors. And technology is an area of the pandemic-era economy that’s holding up well.
Demographically, Denver and Salt Lake are growth superstars. Between 2010 and 2019, the U.S. population grew by 6%, according to U.S. Census data. Denver’s population by contrast grew 16%. Salt Lake saw a 13% increase. Utah also happens to have the highest birthrate and youngest median age of any state. Two decades ago, when airlines were dealing with the 9/11 crisis, Salt Lake City was one of Delta’s weaker hubs, with many routes busy enough to support only regional jet flying. Thanks to years of above-average population and economic growth, the market can support much more demand today.
Even before the pandemic, Denver in particular was a booming airline market. It welcomed 69m passengers last year, up 7% from 2018. Salt Lake City itself grew 5% to 27m. Neither city, importantly, has a whole lot of intercontinental traffic in normal times. They’re primarily domestic hubs, and that’s a good thing right now with international borders closed. Population centers within the mountain region, meanwhile, tend to be rather spread apart, making air travel often more practical than surface travel. Locals in Denver and Salt Lake are big per capita fliers — just driving from one to the other is an eight-hour affair. As for hub competition, Denver and Salt Lake are alone in the mountain region; contrast this with the midwestern region pre-consolidation, which had more hubs than the market could support. Even today there are three big ones (Chicago, Detroit, and Minneapolis).
The mountain region certainty has its fair share of low-cost and ultra-low-cost air travel. Frontier is based in Denver. It was Southwest’s second largest market by seats after Chicago last year (according to Cirium data). Spirit and JetBlue are there. Allegiant and Sun Country dabble there. Southwest is large in Salt Lake City too, with JetBlue and Frontier sporting a smaller presence. Spirit and Allegiant are not yet in Salt Lake, partly due to facility shortages. Breeze, the new airline backed by David Neeleman, will have its headquarters in Salt Lake City.
Denver, of course, is a United hub. Salt Lake City is a Delta hub. Well, both airlines, as they slash frequencies to cities around the country, are funneling more traffic through their midcontinent hubs. Want to fly United’s nonstop from San Francisco to Philadelphia? It’s gone. An alternative is flying via Denver. That Los Angeles-Columbus nonstop on Delta? Doesn’t exist anymore. Go via Salt Lake instead. Note also that neither hub is particularly big for corporate traffic, another segment of demand (like international) that’s deeply depressed.
Helpfully, Covid-19 infection rates were low throughout the summer, at least when compared to hotspots like Florida and Southern California. Texas, always a big source of mountain region visitors, was a major Covid hotspot this summer, surely encouraging some to flee for the mountains. The intense heat wave currently scorching the west is another incentive to head for higher altitudes. Looking ahead, Denver and Salt Lake are hoping for a relatively busy ski season, Covid permitting.
When traffic does start to revive in earnest, Salt Lake City will be ready. This week, Delta will operate the first flight from the city’s brand-new airport, built on the site of the existing airport (and using the same runways). As it happens, the site is notable for its proximity to the city center, which is most definitely not the case at Denver. It can handle close to 40m passengers annually. Denver, for its part, has 39 new gates under construction, a 30% increase on its current capacity.
Longer-term, both cities — Denver, especially, given its size — will strive to attract more international service. Its only European destinations pre-crisis were London, Frankfurt, Munich, Paris, and Reykjavik. Its only Asian destination was Tokyo. It offered nothing south of Panama City. Intercontinentally from Salt Lake City, it’s just London, Paris, and Amsterdam. KLM is alone among longhaul foreign airlines flying to Utah’s largest city. No British Airways. No Lufthansa. But the airport believes nonstops to Seoul could become a reality once markets recover, thanks to Delta’s partnership with Korean Air. More service to Central and South America is a target as well, and in many cases reachable with narrowbody planes.
Interestingly, one of Salt Lake City’s biggest travel buyers, with lots of international itineraries, is the Church of Jesus Christ of Latter-Day Saints, known for worldwide missionary work. Business Travel News (BTN), in fact, ranks it number 43 on its list of spenders on U.S. air travel. It spent an estimated $93m on airline tickets in 2018, BTN estimates, much of it naturally booked with Delta. Adobe, a Silicon Valley-based software giant, has a large presence in the Salt Lake region. Palantir, another notable Silicon Valley company, will soon move its headquarters to Denver. The mountain region in general has a large federal government presence. And it’s an area with many natural resource companies as well.
Add it all up, and you’ll see two airline markets absorbing the Covid shock better than most. Forward airline schedules are subject to major changes these days, even close in. But it’s hardly random that among America’s 50 busiest airports excluding those in Hawaii, Salt Lake City’s October seat counts are scheduled to drop the second least of any: down 21% y/y (Cirium). Only Fort Myers in Florida (down 13%) shows a smaller decline. Denver sits just three notches down from Salt Lake, with a 28% decrease. The next few months will be tough for all airports. But for a bit of bullishness in an era of bears, head for the mountains.