What's the Matter with Oakland?

(MoneyWatch)  The capacity carnage continued last week with both US Airways and Continental detailing their cuts. Unsurprisingly, US Airways announced it would shutter its night hub in Vegas. Continental, however, had much wider ranging cuts that hit Cleveland the hardest. There are plenty of changes to pull out and examine, but there's one that's particularly interesting to me: the slow decline of Oakland.

But before I get into Oakland, let's talk about the overall picture. The Vegas night hub was something that America West started more than 20 years ago to keep planes flying overnight instead of sitting them on the ground. Apparently, fuel is so expensive now that incoming revenues can't cover the variable cost of flying anymore. It's better to just park the planes on the ground. Vegas is really getting hit hard, but that's no surprise. As a largely leisure destination (yes, there are conventions as well, but it's still largely leisure), Vegas is seeing more hurt than most. Capacity is way down in that market from all airlines (well, except Virgin America for some reason). Look for the hotels to start panicking soon.

Meanwhile, Continental focused much of its cuts on Cleveland, a hub it just recently built up. The flights must have been marginal when they were added but now they're clearly not even close. Many flights to outstations will be disappearing from one hub while keeping service from others, but some will close entirely. Here's the list of airports that will no longer see Continental, Continental Micronesia, or Continental Express aircraft.

• Denpasar, Bali, Indonesia
• Cali, Colombia
• Chattanooga, Tenn.
• Cologne, Germany
• Green Bay, Wis.
• Guayaquil, Ecuador
• Monclova, Mexico
• Montgomery, Ala.
• Oakland, Calif.
• Palm Springs, Calif.
• Reno, Nev.
• Santiago, Dominican Republic
• Sarasota, Fla.
• Tallahassee, Fla.
• Toledo, Ohio

Many of these are small domestic cities that just can't be justified anymore or thinner international routes that were probably on the edge before fuel prices ran up. So that doesn't surprise me. But the one on this list that really gets me is Oakland. American has announced it will be doing the same and United will be ending its Chicago-Oakland flights.

The airport is slowly becoming similar to Dallas/Love Field, Chicago/Midway, and Houston/Hobby - dominated by Southwest. At least they have a nice JetBlue presence as well, but with a brand new terminal expansion and extensive food/retail remodeling, the airport must be getting very nervous. According to the USA Today compilation of cuts I wrote about before, by October, Oakland will have 20% fewer seats than it had at that time last year. So what's going on here?

I tend to think there a few issues. First, there has been a ton of increased low fare competition across the bay at SFO. In the last couple years, Southwest restarted service there, JetBlue entered the market, and of course, Virgin America started up. As SFO booms with low fare capacity, fewer people will bother crossing the Bay to go to Oakland. And for those who like public transit, the fact that BART now goes directly into SFO but you still need to transfer to a shuttle bus to get to Oakland makes SFO much more convenient.

Also, this airport is following the same trend as Chicago/Midway which will be down 12.4% year over year. Southwest keeps growing and the other airlines pull out in favor of other area airports that don't directly compete with Southwest. Considering Southwest's low costs (thanks to fuel hedging) and high frequency, it becomes harder to compete with them as fuel prices rise.

Obviously, this is a mixed blessing for the airport. Of course, airports should be happy to have a large presence from a strong low fare carrier like Southwest, but they clearly don't like other airlines running away. I won't be surprised to see further cuts at this airport as time goes by.