Airport route development in Europe has evolved alongside changes to the structure of the airline industry. Airlines are looking for good value access to sustainable and profitable markets.
There was a time years ago when airlines would stand losses on a new route for a couple of years while it matured into profit. Cash cows elsewhere on the network would provide the buffer until the new route paid its way, or ultimately cut if it didn’t make the grade.
The development and expansion of LCCs upset this particular applecart on short and medium haul routes. Gone were the cash cows that could supply the excess profits, and without these, weaker routes no longer had the luxury of making losses while they were nurtured into health.
Photo by Hans Dinkelberg
All sorts of weird new routes sprang up over Europe, linking second and third tier cities that barely even had airports. And some of them survived, even prospered. There was a definite ‘have a go’ flavour to developing new services, blending market intelligence and gut feel with the ability to chop a route if it didn’t perform well enough quickly enough. New routes became a commodity rather than a long term investment.
Over time, new networks developed, as airlines ‘joined the dots’ between existing bases and destinations. Life became harder for flag carriers and regionals, as LCC competition spread its tentacles into all corners of Europe. Regionals had to become more nimble and competitive, codesharing with bigger carriers, feeding hubs, or finding market niches to exploit.
Airports raise their game
As the market changed, so airport route development also had to evolve and become more professional. Airport marketing departments became more experienced – many a route developer attending a Routes conference in 2000 could also be found at a Routes conference in 2014, older, wiser, and with many more contacts. Airline personnel left to become airport personnel, and shiny new terminals and long runways ceased to become useful marketing tools. Route development became more about passengers, product, and profit as airports became better at understanding the market.
Perhaps a new reality dawned on airport route developers, that promoting routes that were unlikely to succeed was not a good use of their time and resources. It could be the wrong product, the wrong aircraft type, or a marginal destination, but routes that didn’t work didn’t last long. Losing routes because the market wouldn’t support them sent out a message of failure, for both airport and airline operator, and it can be very hard to overcome the subsequent perception that ‘it didn’t work for them; why would it work for us?’
But the basics of route development still held. The messages may have been changed, and the speed of decision making increased, and to some extent the dot-joining of evolving LCCs brought some transparency as to which destinations might be next. But even with the commoditization of new routes, there was usually some thought, experience and analysis behind decisions, especially on the part of the more successful operators.
Comparisons and being realistic
Existing experience counts for a lot. If a destination has worked from a number of different origins, then for a similar set of criteria: catchment size and quality, competitive environment, charges regime and aircraft operating costs, a similar route stands a reasonable chance of success. It doesn’t always work that way, but it’s not a bad start. And even for a new route where there may be a limited amount of existing data to work with, the catchment, competition, and charges need to be favourable if the route economics are to add up.
So, being realistic about the extent of the airport’s catchment population is a vital first step. If there are competing services at airports nearby that offer a similar product, they will limit the extent of the catchment. If a flight is proposed to depart at 06.00, then that might limit the catchment too. And just because a regional airport is within a couple of hours of the capital city, it doesn’t make it a gateway to that city.
Be realistic too about the quality of the catchment, or rather about the product(s) that will most appeal to the local and regional population. Airports can become typecast. A resolutely low-cost airport will find it very difficult to attract business or mainline long-haul services. It’s hard to fight the market, so an airport that relies on a single LCC for its livelihood probably ought to try to attract a second LCC to spread the risk, rather than pitch for a hub feeder service with a regional jet. New route development in this case is more about developing and expanding the core business, recognising where the best chance of success lies.
Perhaps the key element of any new route development is the economic case. If the new service is unlikely to make money, then it won’t last long. Airlines will have an idea of the likely costs and revenues for a new service; airports with a similar knowledge will have a better idea of which routes may and may not succeed, providing a useful insight in a market where lost routes can tarnish an airport’s reputation.
Aside from the route economics, the structure and level of airport charges are a core part of new route negotiations. Incentives, discounts, route support, risk sharing. All have become part of the vocabulary when new routes are being discussed. Whereas once they were seen as a bonus, today there is an expectation that an airport will share the pain of giving birth to a new service. The introduction of a new class of small regional airports with modest catchment areas, ushered in by the LCC revolution, is a case in point.
Route development at such airports is a relatively simple equation; get the fares down low enough to generate a market that’s big enough. Most of the airline’s operating costs are established and inescapable, so the variable element in any new route is the airport charges. It’s a simple trade-off between catchment and cost; the smaller the former, the lower has to be the latter, with every last pip squeezed out of the airport charges. At smaller regional airports, incentives have been replaced by permanently low charges as a result.
At the other end of the scale, large airports already have an established catchment and route network, and a wealth of data to understand the travel habits of their passengers. There is less pressure to discount charges down to the floor, as carriers are essentially buying access to an already-thriving market place. Ryanair’s recent strategic shift to larger primary airports is perhaps a recognition that you get what you pay for in terms of access to a large and profitable core city catchment.
A win-win sustainable relationship
So once again it comes back to local knowledge, of the infrastructure and the travel habits of the catchment population. It’s also about delivering 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 helps 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.
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.