Session ME302 Airline Routes: How You Can Influence … - Paul.pdf · Session ME302 Airline Routes:...

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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 Session ME302 Airline Routes: How You Can Influence … - Paul.pdf · Session ME302 Airline Routes:...

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strategic

transportation

& tourism

solutions

Session ME302

Airline Routes:How You Can Influence Their Development

Paul Ouimet

49th ICCA Congress & Exhibition

October 25, 2010

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Presentation Outline

1. What airlines are looking for…

2. Implementing an Air ServiceDevelopment program…

3. What you can doto attract new services…

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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

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Source: International Civil Aviation Organization (ICAO).

Total Passengers

24%

76%

34%

66%

Millions

Global Air Passengers by Sector

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Airline Financial Performance

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

Global Air Carriers Operating Profit/LossUS$ (millions)

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Global Air Traffic and Capacity

Source: International Air Transport Association (IATA).

% Change

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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

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Growth of Low Cost Carriers

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Growth of Low Cost Carriers

LCC Capacity Share by Region (YTD Aug-2009)

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strategic

transportation

& tourism

solutions

What airlines are looking for…

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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

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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

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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)

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PRIORITY ROUTE123456789

10

100

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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

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strategic

transportation

& tourism

solutions

Implementing an Air ServiceDevelopment Program…

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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

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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

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ASD Strategy

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Benchmark Air Services

Identify Deficiencies

IdentifyNew Route Opportunities

Identify PotentialAir Service Providers

Assess Viability ofPotential Air Services

PrioritizeRoute Opportunities and

Target Carriers

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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

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strategic

transportation

& tourism

solutions

What you can doto attract new services…

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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

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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

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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

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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?

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The Challenge…and Solution

How can airports afford aggressive airlineincentives/fee discounts and still fund routedevelopment marketing in a difficult economy?

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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

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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

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Thank You

Paul Ouimet

Executive Vice PresidentInterVISTAS Consulting Inc.

[email protected]