strategic transportation & tourism solutions
Session ME302
Airline Routes:
How You Can Influence Their Development
Paul Ouimet
49th ICCA Congress & Exhibition
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Presentation Outline
1. What airlines are looking for…
2. Implementing an Air Service
Development program…
3. What you can do
Financial Credit Crisis, Global Recession & H1N1 Outbreak 9/11, Economic Downturn & SARS outbreak Asian Economic Flu Gulf War and Recession
Global Air Passenger Traffic
IATA forecasts 7.1% increase in 2010 Millions
Source: International Civil Aviation Organization (ICAO).
Total Passengers
24% 76% 34% 66% MillionsAirline Financial Performance
Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA).
Global Air Carriers Operating Profit/Loss
Global Air Traffic and Capacity
Source: International Air Transport Association (IATA).
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Consolidation: Mergers & Failures
EasyJet go dba Ryanair buzz Lufthansa Swiss Austrian Brussels US Airways America West Air Canada Canadian Delta Northwest Air France KLM Gol Varig KLM Martinair Aloha SkyEurope MyAir Aviacsa Centralwings FlyLAL Sterling XL Airways Zoom Silverjet EOS MaxJet Nationwide ATAOasis Hong Kong SkyBus
Southwest
AirTran
United
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Growth of Low Cost Carriers
strategic transportation & tourism solutions
The Airline Reality
Airline planners require detailed, accurate information
to make new route decisions
But airlines do not have the resources to fully evaluate
every market
– Legacy carriers have scaled back staff
– LCCs face innumerable expansion opportunities
A sound, well articulated business case, can convince
airlines to introduce new air services
Airports/destinations can influence the airline planning
process
Airline Economics
New routes are a huge investment & risk to an airline
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Note – Assumes 75% load factor. Source – InterVISTAS Consulting Inc.
Annual
Operating Cost: ~ US$50 million
Route Priorities
Air service development is a long term, strategic effort
Airlines will add service in order of expected
profitability
Different airlines pursue
different strategies
Destinations can move up
the priority board with:
– Solid research & analysis (always) – Incentives (sometimes) 13 PRIORITY ROUTE 1 2 3 4 5 6 7 8 9 10 100
Influencing Airline Decisions
Airline questions for new routes:
– What is the current, actual market for a potential route? – How much can I stimulate the market?
– How will the competition react?
– How much market share will I achieve?
– What will be the connectivity contribution? – Will the new route be a financial success?
Airports/DMOs can answer these questions and reduce
uncertainty and risk
strategic transportation & tourism solutions
Implementing an Air Service
Development Program…
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The Air Service Development Process
• Required to quantify the true size of the existingair travel market on an O&D basis
Business Case
Evaluate and Negotiate
Airline Incentives
• Deficiency analysis and detailed route analysis
• Packaging & presenting the information to airlines
• An appropriate incentive, in certain circumstances, helps airlines commit to new air services
Market Assessment
Market Assessment
Determine Catchment Area
– What is reasonable?
Quantify Market Size & Traffic Leakage
– Government, GDS, primary research – Identify & fill the deficiencies
Data must be:
– Relevant – Current
– Conservative – Defendable
ASD Strategy
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Benchmark Air Services
Identify Deficiencies Identify
New Route Opportunities
Identify Potential Air Service Providers
Assess Viability of Potential Air Services
Prioritize
Route Opportunities and Target Carriers
New Route Business Cases
Business cases should include all information airline
planners require:
– Catchment area profile: demographics, economy, tourism, etc. – Airport profile: facilities, traffic
– Market profile: market sizes, top city pairs, traffic leakage, etc. – Suggested service: frequency, schedule, aircraft, routing
– Route analysis: market share, load factor, stimulation potential,
self-diversion, etc.
– Strategic considerations
strategic transportation & tourism solutions
What you can do
to attract new services…
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Tourism Stakeholder Involvement
Route Development Success
Provide Unique Data
Guest origins, occupancy rates, ADRs, group potential, etc.
Support route development efforts Budget support, airline fam trips, etc.
Adapt product to match target airline business models, where appropriate
All inclusive, fly-drive, package tours, etc.
Contribute to incentive funding
Incentives
Destinations have become increasingly aggressive in
pursuing new services
– Portland-Tokyo: $3.5 million – Pittsburgh-Paris: $5.0 million – Baltimore-London: $5.5 million
Airlines often demand risk sharing programs
Incentives can be a good investment, if used properly
Types of Incentives
Common types of incentives:
– Airport fee concessions
– Start-up cost reimbursement – Operating cost reimbursement – Direct subsidy
– Revenue guarantees – Marketing support
– Ticket trusts/travel banks
Designed to impact either the supply of or demand for
air services
Best Practices - Incentives
Air service checklist - will the route be:
– Strategically important?
– Marginally (un)profitable?
– Self-sustaining in the short term?
Service must meet all three criteria
Qualifying services:
– New routes only?
– Increases on existing routes? Does this work? – Service retention incentives?
The Challenge…and Solution
How can airports afford aggressive airline
incentives/fee discounts and still fund route
development marketing in a difficult economy?
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The Solution:
Develop and maximize
non-aeronautical revenue streams:
• Retail & duty free • Food & beverage • Parking
• Loyalty & premium programs • Land development
Investments in Marketing
& Fee Discounts New Air Services
Additional Flights & Passengers
Incremental Airport Revenues
Cooperative Marketing Program
Marketing funding can be an effective incentive for
destinations
– However, it may not differentiate a market, as route marketing
incentives are used by over 80% of communities in the U.S.
Marketing incentives can be:
– Unilateral (DMO or airport pays 100%), or – Cooperative (airline matches some portion)
Funding amounts are often tied to the capacity of
inbound seats to be available on the new route
– E.g., Puerto Rico offered $5-$10 per inbound seat
By calculating the economic impact of new visitors
(spend at the destination), a destination can calculate
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