strategic

transportation
& tourism
solutions

Session ME302
Airline Routes:
How You Can Influence Their Development
Paul Ouimet
49th ICCA Congress & Exhibition
October 25, 2010
 Presentation Outline

1. What airlines are looking for…

2. Implementing an Air Service

Development program…

3. What you can do

to attract new services…

2
 Global Air Passenger Traffic

Millions Financial Credit IATA

Crisis, Global forecasts
Recession 7.1%
9/11, & H1N1 Outbreak
Economic increase
Downturn in 2010
Asian & SARS
Economic outbreak
Gulf War Flu
and
Recession

Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA).
 Global Air Passengers by Sector
Total Passengers
Millions

34%

24%
66%

76%

Source: International Civil Aviation Organization (ICAO).

 Airline Financial Performance
Global Air Carriers Operating Profit/Loss
US$ (millions)

Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA).
 Global Air Traffic and Capacity

% Change

Source: International Air Transport Association (IATA).

 Consolidation: Mergers & Failures

EasyJet Gol
Lufthansa KLM
Air France go Varig
Swiss Martinair
Austrian KLM dba SkyBus
Brussels
Air Canada Oasis Hong Kong
Delta Canadian
US Airways Northwest
America West Silverjet ATA

Ryanair Southwest
AirTran XL Airways MaxJet
buzz Zoom
FlyLAL
United
Continental Aviacsa Sterling EOS
MyAir

SkyEurope Aloha Centralwings Nationwide

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Growth of Low Cost Carriers

8
Growth of Low Cost Carriers

LCC Capacity Share by Region (YTD Aug-2009)

9
 strategic
transportation
& tourism
solutions

What airlines are looking for…

 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

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 Airline Economics

 New routes are a huge investment & risk to an airline

Annual
Operating Cost:
~ US$50 million

Note – Assumes 75% load factor. 12

Source – InterVISTAS Consulting Inc.
 Route Priorities

 Air service development is a long term, strategic effort

 Airlines will add service in order of expected
profitability
PRIORITY ROUTE
 Different airlines pursue 1
2
different strategies 3
4
 Destinations can move up 5
the priority board with: 6
7
– Solid research & analysis (always) 8
9
– Incentives (sometimes) 10

100

13
 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

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 strategic
transportation
& tourism
solutions

Implementing an Air Service

Development Program…
The Air Service Development Process

• Required to quantify the true size of the existing

air travel market on an O&D basis
Market Assessment

• Deficiency analysis and

detailed route analysis
ASD Strategy

• Packaging & presenting the

information to airlines
Business Case

• An appropriate incentive,
Evaluate and Negotiate in certain circumstances,
Airline Incentives helps airlines commit
to new air services
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 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

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ASD Strategy

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 18
 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

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 strategic
transportation
& tourism
solutions

What you can do

to attract new services…
 Tourism Stakeholder Involvement

Provide Unique Data

Guest origins, occupancy rates, ADRs,
group potential, etc.

Adapt product to match target airline

business models, where appropriate
All inclusive, fly-drive, package tours, etc.

Support route development efforts

Budget support, airline fam trips, etc.

Contribute to incentive funding Route Development

Quantify incremental benefit and invest Success

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 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

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 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

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 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?

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 The Challenge…and Solution

 How can airports afford aggressive airline

incentives/fee discounts and still fund route
development marketing in a difficult economy?

The Solution: Investments in Marketing

& Fee Discounts New Air Services
Develop and maximize
non-aeronautical revenue streams:
• Retail & duty free
• Food & beverage
• Parking
• Loyalty & premium programs Incremental Airport Additional Flights
Revenues & Passengers
• Land development

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 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
the return on investment in co-op marketing 26
Thank You

Paul Ouimet

Executive Vice President

InterVISTAS Consulting Inc.

paul.ouimet@intervistas.com

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