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

Gulf War
and
Recession

Asian
Economic
Flu

9/11,
Economic
Downturn
& SARS
outbreak

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

Financial Credit
Crisis, Global
Recession
& H1N1 Outbreak

IATA
forecasts
7.1%
increase
in 2010

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

Lufthansa
Swiss
Austrian
Brussels

Air France
KLM

US Airways
America West
Ryanair
buzz

Delta
Northwest

EasyJet
go
dba

SkyEurope

KLM
Martinair

SkyBus

Air Canada
Canadian

Oasis Hong Kong

Silverjet

Southwest
AirTran

United
Continental

Gol
Varig

XL Airways

Zoom

ATA
MaxJet

FlyLAL
MyAir
Aloha

Aviacsa

Sterling

Centralwings

EOS
Nationwide
7

Growth of Low Cost Carriers

Growth of Low Cost Carriers

LCC Capacity Share by Region (YTD Aug-2009)

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

11

Airline Economics
New routes are a huge investment & risk to an airline

Annual
Operating Cost:
~ US$50 million

Note Assumes 75% load factor.

Source InterVISTAS Consulting Inc.

12

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)

PRIORITY
1
2
3
4
5
6
7
8
9
10

ROUTE

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

14

strategic
transportation
& tourism
solutions

Implementing an Air Service

Development Program

The Air Service Development Process

Market Assessment

Required to quantify the true size of the existing

air travel market on an O&D basis

ASD Strategy

Business Case

Deficiency analysis and

detailed route analysis

Packaging & presenting the

information to airlines

Evaluate and Negotiate

Airline Incentives

An appropriate incentive,
in certain circumstances,
helps airlines commit
to new air services
16

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

17

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

19

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
Quantify incremental benefit and invest

Route Development
Success
21

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

22

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

23

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?

24

The Challengeand Solution

How can airports afford aggressive airline
incentives/fee discounts and still fund route
development marketing in a difficult economy?
The Solution:
Develop and maximize
non-aeronautical revenue streams:

Investments in Marketing
& Fee Discounts

New Air Services

Retail & duty free

Food & beverage
Parking
Loyalty & premium programs
Land development

Incremental Airport
Revenues

Additional Flights
& Passengers

25

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
27