United Continental Holdings Inc. plans to cut 1,300 jobs and some service at Houston’s main airport after the city backed Southwest Airlines Co.’s bid to start international service from a secondary facility.
The 10 percent reduction in seating capacity at George Bush Intercontinental Airport includes dropping a planned route to Auckland, United told employees in a memo today. Most of a $700 million terminal project at IAH, as the airport is known, is “in significant doubt,” Chicago-based United said.
“This will harm us and IAH, but IAH will continue to be a strong hub for United,” Chief Executive Officer Jeff Smisek said. “Unfortunately, the city of Houston will suffer the consequences of this decision for decades to come.”
Southwest, the largest low-fare carrier, won approval hours earlier from Houston’s City Council to add international flights at William P. Hobby Airport in a $100 million expansion. The decision was a rebuff to United, the world’s biggest airline, which had said its Intercontinental hub was at risk.
Council members voted 16-1 for Southwest’s plan, joining Mayor Annise Parker and the Houston Airport System in backing the Dallas-based airline’s proposal to add flights from Hobby to Mexico, the Caribbean and South America.
Cuts Over Time
Jobs at Intercontinental will be eliminated over time, and relocations and a voluntary departure program will be offered to ease the blow, United said in the memo. The pullback in flights will take effect with United’s fall schedule, the airline said.
Southwest declined to comment on United’s move, said Paul Flaningan, an airline spokesman. The carrier said earlier that the council vote was “a monumental moment for Southwest and the city.”
United’s cutbacks will mark a retrenchment in a city that a predecessor once called home. The carrier was formed in the 2010 merger between former United parent UAL Corp. and Houston-based Continental Airlines Inc., and Smisek moved from Continental to United’s headquarters to run the new company.
United had said that allowing flights outside of the U.S. from a secondary airport would drain passengers from its biggest hub, putting Houston at a competitive disadvantage to other cities that serve as major global gateways. About $600 million of a $700 million terminal upgrade project at Intercontinental remains unfinished, United said.
Nothing New
“We didn’t announce anything new today,” Mary Clark, a United spokeswoman, said in a telephone interview. “This is part of what we have been saying all along would be the result of international service starting from Hobby.”
United rose 1.2 percent to $24.17 at the close in New York trading, while Southwest fell 0.8 percent to $8.87.
Hobby Airport is 12 miles (19 kilometers) from downtown, in Houston’s southeast quadrant. While Intercontinental is almost twice as far from the central business district, it’s closer to newer business and residential areas on the city’s northwest fringes.
Southwest, which agreed to pay for a new international terminal at Hobby, said the city will benefit from more travelers and local jobs. The airline still needs approval from U.S. officials before it can begin international flights at Hobby in 2015.
The $100 million international terminal at Hobby would include five gates to support as many as 25 Southwest round trips a day and facilities for U.S. Customs.
Improved Security
Southwest also would pay to improve security checkpoints to handle more passengers, expand a fuel system and relocate its ticket counters and offices and the airport management offices. The terminal could be used by other airlines, too.
The Southwest plan would cause the loss of 5,000 jobs and erode $414 million of regional economic activity, according to a study commissioned by United and released earlier this month. It may force the larger airline to cut 6 percent of capacity at Intercontinental, the study indicated.
A Houston Airport System study found that expansion of Hobby under Southwest’s plan would create an annual economic benefit to the region of $1.6 billion, create 10,000 jobs and attract 1.5 million passengers.
Southwest has financed similar projects in other cities, including a $500 million modernization of Dallas’s Love Field that will open later this year.
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