Representatives from the Baton Rouge Metro Airport have multiple meetings with airlines every year (often 12 or more) to seek new or expanded service. These include incumbent BTR airlines and those not serving the airport currently such as Southwest. Today, four airlines control 85% of the domestic airline seating capacity due to industry consolidation. BTR is served by three of the four in American, Delta, and United, which are the only truly "global" airlines that can connect Baton Rouge to destinations worldwide and the world to Baton Rouge.
Airlines perform route analyses to estimate how profitable a potential flight may be, looking at passenger demand forecasts, hub connectivity (network airlines), aircraft and pilot availability, and other competitors. Airline business models and current priorities also play a pivotal role in where they choose to fly. For example, many low-cost airlines focus on larger markets, often linking them to major "destination markets." They fly large jets they must fill with local passengers going to a single destination unlike network airline flights to a "hub" with hundreds of connections. Conversely, a network airline flight that can be filled with passengers going to multiple destinations due to connecting opportunities at a "hub airport" is often a better fit for a smaller airport. However, limited slot and gate availability at hub airports has become a factor since a new flight needs to be timed to connect to/from other flights, and seating capacity on those flights has to be available for connecting passengers. If gate times and slots are not available to facilitate significant connectivity, the flight's prospects for success diminish.
Airlines also analyze existing competitive service for multiple airports in the region. Proximity to other airports is a key factor since some airlines are hesitant to serve an airport close to one they currently serve, especially if it means duplicating routes. This is particularly true with low-cost carriers. Airlines parse and analyze multiple sources of aviation market intelligence tools to determine the potential passenger volume and profitability on flights under consideration. Sometimes it is not just whether a new flight can be profitable, but if it can be more profitable than an existing route or other new route options. Aircraft and pilot availability are other considerations. Until recently, most airlines were not growing their fleets but just replacing aircraft on a 1-for-1 basis. The pilot shortage is also limiting growth options.
Airlines follow passengers. Supporting existing service at BTR is critical since airlines need to see high load factors (% of seats filled) on those flights to confirm that additional service is warranted. The more passengers that choose BTR, the better our business case for more flights. Incentives play a role as well, especially those provided by third-party sources that offer more than the airport is allowed to provide. Airports are restricted to waivers and advertising funds, which BTR offers, but other incentives such as revenue guarantees must come from non-airport funds. Lastly, commitments from high-volume travel generators such as a corporations and large organizations to use potential new service can be influential. If your company or organization has significant travel volume to certain destinations that you could commit to an airline offering nonstop flights, we always like hearing from you.
Here is some specific research that goes into the detail and science behind the decisions taken from Dr. Peter P. Belobaba, a professor of Airline Management at MIT.
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