How Airlines Choose Their Destination Cities

Fly VPS Route Map August 2016

We get questions all the time about adding new cities to the airline routes of the Destin- Fort Walton Beach Airport. And although it might seem that we can just “add” a new city, there is actually a lot of research and evaluation that goes into the decision before deciding where to go.

Each airline has to see first where the demand is. They also look to see what routes currently have high fares and limited competition. That’s when an airline potentially can come in and drop the price. On a more operational level, you need an airplane to fly the route… so where does the plane come from? Are you anticipating new deliveries? If not then you may need to cancel or alter an existing route. That can have a huge chain reaction down the line. Other things to consider are flight crews and their overnights, gate space at a certain time period that the flight will be operating, can you profitably fill the airplane you are using on that route, etc. When it comes to new cities, you also have to take a look at demographics of the new city. Are people willing to pay high airfare to fly out of that city or is it a leisure market where people save up their money in order to fly.

Here is some specific research that goes into detail and science behind the decisions taken from Dr. Peter P. Belobaba, a professor of Airline Management at MIT. { For Reference Click 16.75J/1.234J Airline Management Dr. Peter P. Belobaba March 15, 2006 }

Economic considerations dominate route evaluation: – Forecasts of potential passenger and cargo demand (as well as expected revenues) for planned routes are critical to evaluations

  • Origin-destination market demand is primary source of demand and revenues for a given route, but far from the only source
  • In large airline hub networks, traffic flow support to the new route from connecting flights can make it profitable
  • Airline’s market share of total forecast demand for the new route depends on existence of current and expected future competition
  • The fundamental economic criterion for a planned route is potential for incremental profitability in the short run, given the opportunity cost of taking aircraft from another route

Route Evaluation Issues

  • Practical considerations can be just as important:
    • Technical capability to serve a new route depends on availability of aircraft with adequate range and proper capacity -Performance and operating cost characteristics of available aircraft in the airline’s fleet determine economic profitability
    • If the route involves a new destination, additional costs of airport facilities, staff re-location, and sales offices must be considered
    • Regulations, bilaterals, and limited airport slots can impose constraints on new route operations, to the point of unprofitability
  • Strategic considerations can overlook lack of route profit:
    • Longer term competitive and market presence benefits of entering a new route even if it is expected to be unprofitable in short run Route Planning Models
  • Route planning requires a detailed evaluation approach:
    • Demand, cost and revenue forecasts required for specific route, perhaps for multiple years into the future
    • Assumed market share of total demand based on models of passenger choice of different airline and schedule options
    • Depends to a large extent on presence and expected response of competitors to route entry
    • “Route Profitability Models” Computer models designed to perform such route evaluations, but ability to integrate competitive effects is limited
    • Profit estimates entirely dependent on assumptions used

Review: Basic Airline Hub Economics

  • Routing flights and passengers through a hub is more profitable for the airline if:
    • COST SAVINGS from operating fewer flights with larger aircraft and more passengers per flight IS GREATER THAN REVENUE LOSS from passengers who reject connecting service and choose a non-stop flight instead, if it exists
  • Passenger preference for multiple connecting departures vs. 1 or 2 non-stops per day:  Large multiple hub network operated by Delta, for example, provides over a dozen daily connections Boston-San Diego

Hub Impacts on Route Planning

  • New routes to smaller spoke cities become much easier to justify in an established hub network:
    • An airline needs only 1 or 2 passengers per flight to each of 30+ connecting destinations to make a 100-seat aircraft “profitable”
    • However, such incremental analysis leads to a tendency to overlook potential displacement of other traffic on connecting legs
    • Same “incremental” logic makes it more difficult to stop service to a potentially unprofitable destination, which provides connecting traffic support to other flights

Difficult to justify a new non-stop service to by-pass the hub, as it might steal traffic from hub flights:

  • However, large number of departures in a connecting market can allow airline to build market share and perhaps introduce a non- stop flight supported by many connecting opportunities 

So, as you can see…it’s not just choosing an airline. At the Destin – Fort Walton Beach Airport, we value your input and want to hear where you want to go. We are able to communicate that demand to our airline partners for future destinations. But, all of us involve also want to make sure that a flight is going to make it. The more seats that are booked on those new flights, the higher the demand is seen by the airlines and that causes them to look at future cities.

Keep booking your flights and giving us information! We are here for YOU!