What does good route development look like?


Airport route development is the process of encouraging an airline to launch new routes at an airport. In a deregulated environment airports will compete directly for scarce airline capacity, which represents the opportunity to generate significant direct and indirect revenue. Route development requires engaging with airline decision-makers and providing credible analysis to prove that there is a profitable opportunity to launch a new route.

In the regulated world, airports provide the physical infrastructure and airlines carry the passengers from A to B. Generally speaking, neither party needs to really understand the others’ business except when contracts are reviewed. These contracts are an attempt to find a solution to matching the needs of the capital-intensive, fixed cost business of airports with the highly volatile and competitive airline world.

At non-regulated airports the arrival of the low cost airline model, together with downward pressure on airline yields and the general economic environment has increased competition between substitute airports which can offer access to the same core catchment. Expecting an airline to operate simply on the basis that the runway is long enough and the fire cover is sufficient is no longer enough to secure new routes.

In today’s world it is all about evaluating risk. Airlines, by the very nature of what they do, expose themselves to the greater level of risk than an airport. However they are also able to be flexible and adjust their route network by adding or cancelling routes at short notice. The evolution of route development has seen low cost airlines adopt a fast ‘churn’ approach; axing routes if they don’t achieve the expected results within a very short space of time.

Airline risk exposure, in terms of new route development, has both financial and reputational elements. Financial risks, such as employing crew at the new airport, entering into contracts with handling agents and purchasing necessary maintenance equipment can be quantified and understood before decisions are made. Reputational risks, such as bad press received for delayed or cancelled flights and poor passenger experience are less easy to quantify and harder in some ways to recover from. What is a reasonable period to allow a route to grow from the launch phase to maturity?

Airports also suffer reputational risks from failed routes: airline network planners are very well aware of the strategic decisions of their competitors and if a route is cancelled it can be very hard to overcome the subsequent perception that ‘it didn’t work for them; why would it work for us?’ Overambitious airport route development, with ultimately unsustainable routes, can have a catastrophic effect on traffic development at the airport in the long term.

The following chart shows the operating costs of a typical A320 aircraft on a sector length of around 1,300km (equivalent to Amsterdam-Barcelona). Airport charges account for an estimated 6% of total operating costs. Assuming that the airport can only influence their own end of the route, operating costs can only be reduced by about 3%.

Source: Apex

Other types of support from an airport can therefore be much more valuable than an attractive deal on airport charges. Airports often have a deep knowledge of the local infrastructure and the travel habits of their catchment population. They can also deliver awareness of the new route through established communication channels, promoting the service through the local media, chambers of commerce or social media channels. All of which can also help the airport to establish what the market needs pre-launch and the airline to forecast the opportunity for them to operate commercially viable and sustainable services.

The number of passengers on board, the ticket fare paid by each passenger and any ancillary revenue all contribute to the total flight revenue. Ancillary revenue has become increasingly important to airlines. True ancillary revenue came as part of the low cost revolution, with increasingly more of the airline product being removed from the original ticket price and becoming ‘optional’ at an additional cost. Ryanair, for example, achieves ancillary revenues in the region of €15 per head, enabling the airline to advertise lower headline prices that will be topped up by ancillary revenue.

The revenue required for an airline to breakeven varies greatly depending on factors that influence cost (i.e. sector length, airline cost base and aircraft type) and factors that influence revenue (i.e. business or leisure travellers, competition and schedule).

Taking the same A320, 1,300km sector length example, the chart below illustrates the average fare per passenger required for a flight to breakeven, at any given load factor. Looking at the average network load factors for both easyJet and Aer Lingus, the required average fare to breakeven is very different.

Source: Apex

Even before taking into account the different cost bases of the two airlines, it is evident that each demands something different from the market; easyJet needs more market at a lower average fare and Aer Lingus less market at a higher average fare. Airlines of course know their business and know what factors make the difference between loss-making and profitable routes. It is this type of analysis that enables an airport to understand the different characteristics of airlines and how this fits with their own catchment demand.

In our experience good route development starts and ends with understanding: the airport understands the airline business model, and the airline understands the airport catchment, demand and demographics. Ultimately, route development is working together towards a common goal – to find routes that are sustainable, enabling both the airport and airline to succeed in a long-term partnership.

By Jo Hunt

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Jo Hunt