ME302 - Paul.pdf
27
strategic transportation & tourism solutions Session ME302 Airline Routes: How You Can Influence Their Development Paul Ouimet 49 th ICCA Congress & Exhibition October 25, 2010
Transcript of ME302 - Paul.pdf
strategic
transportation
& tourism
solutions
Session ME302
Airline Routes:How You Can Influence Their Development
Paul Ouimet
49th ICCA Congress & Exhibition
October 25, 2010
2
Presentation Outline
1. What airlines are looking for…
2. Implementing an Air ServiceDevelopment program…
3. What you can doto attract new services…
Financial CreditCrisis, Global
Recession& H1N1 Outbreak9/11,
EconomicDownturn& SARSoutbreak
AsianEconomic
FluGulf Warand
Recession
Global Air Passenger Traffic
Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA).
IATAforecasts
7.1%increasein 2010
Millions
Source: International Civil Aviation Organization (ICAO).
Total Passengers
24%
76%
34%
66%
Millions
Global Air Passengers by Sector
Airline Financial Performance
Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA).
Global Air Carriers Operating Profit/LossUS$ (millions)
Global Air Traffic and Capacity
Source: International Air Transport Association (IATA).
% Change
7
Consolidation: Mergers & Failures
EasyJetgodba
Ryanairbuzz
LufthansaSwiss
AustrianBrussels
US AirwaysAmerica West
Air CanadaCanadianDelta
Northwest
Air FranceKLM
GolVarig
KLMMartinair
AlohaSkyEurope
MyAirAviacsa
Centralwings
FlyLAL
Sterling
XL AirwaysZoom
Silverjet
EOS
MaxJet
Nationwide
ATA
Oasis Hong Kong
SkyBus
SouthwestAirTran
UnitedContinental
8
Growth of Low Cost Carriers
9
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 informationto make new route decisions
But airlines do not have the resources to fully evaluateevery market
– Legacy carriers have scaled back staff
– LCCs face innumerable expansion opportunities
A sound, well articulated business case, can convinceairlines to introduce new air services
Airports/destinations can influence the airline planningprocess
11
Airline Economics
New routes are a huge investment & risk to an airline
12Note – Assumes 75% load factor.Source – InterVISTAS Consulting Inc.
AnnualOperating Cost:~ US$50 million
Route Priorities
Air service development is a long term, strategic effort
Airlines will add service in order of expectedprofitability
Different airlines pursuedifferent strategies
Destinations can move upthe priority board with:
– Solid research & analysis (always)
– Incentives (sometimes)
13
PRIORITY ROUTE123456789
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 reduceuncertainty and risk
14
strategic
transportation
& tourism
solutions
Implementing an Air ServiceDevelopment Program…
16
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 NegotiateAirline Incentives
• Deficiency analysis anddetailed route analysis
• Packaging & presenting theinformation to airlines
• An appropriate incentive,in certain circumstances,helps airlines committo new air services
Market Assessment
ASD Strategy
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
18
Benchmark Air Services
Identify Deficiencies
IdentifyNew Route Opportunities
Identify PotentialAir Service Providers
Assess Viability ofPotential Air Services
PrioritizeRoute Opportunities and
Target Carriers
New Route Business Cases
Business cases should include all information airlineplanners 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 doto attract new services…
21
Tourism Stakeholder Involvement
Route DevelopmentSuccess
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 airlinebusiness models, where appropriate
All inclusive, fly-drive, package tours, etc.
Contribute to incentive funding
Quantify incremental benefit and invest
Incentives
Destinations have become increasingly aggressive inpursuing 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 forair 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 Challenge…and Solution
How can airports afford aggressive airlineincentives/fee discounts and still fund routedevelopment marketing in a difficult economy?
25
The Solution:
Develop and maximizenon-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 AirportRevenues
Cooperative Marketing Program
Marketing funding can be an effective incentive fordestinations
– However, it may not differentiate a market, as route marketingincentives 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 ofinbound 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 calculatethe return on investment in co-op marketing 26
