How Airlines Decide Where to Fly

Summary

This video delves into the intricate process of airline route planning, highlighting how factors like passenger demand, ticket pricing, and competition influence flight decisions. Using examples from major U.S. airlines like United, Delta, and American, the script explores successes and failures in route launches, with a focus on profitability and strategic decisions. It also discusses the role of data analysis, government approvals, and fleet management in ensuring that routes are sustainable. Ultimately, the video emphasizes the continuous cycle of planning, launching, and evaluating airline routes to maintain profitability.

Takeaways

• 😀 Airlines can make huge profits by flying to the right destinations, such as British Airways’ $1 billion annual revenue from the London Heathrow to New York JFK route.
• 🤔 Deciding where to fly is a complex process that requires in-depth market analysis and can be the difference between a profitable airline and a failed one.
• 💡 The survival rate of new routes varies by airline. United Airlines had the highest success rate at 85% for routes launched in 2015.
• ✈️ United Airlines has the advantage of operating unique routes to destinations that no other U.S. airlines serve, such as Melbourne, Tahiti, and Chengdu.
• 📊 Airlines use data from travel booking sites like Skyscanner and Google Flights to gauge demand for new routes, based on search volume and existing travel patterns.
• 💰 Airlines need to consider what passengers are willing to pay for non-stop routes, as high competition and low fares can lead to financial challenges, as seen with United's Los Angeles to Singapore route.
• 🔍 The balance between passenger demand and pricing is crucial in determining whether a route will succeed or fail, as seen with the cancellation of American Airlines' Chicago to Beijing route.
• 🌍 Airlines often need to make strategic decisions beyond financial factors, such as using a route to block competitors, as American Airlines did with its Dallas to Reykjavik route to outmaneuver Icelandic airlines.
• 📉 Launching certain routes, like the one from Reykjavik to Dallas, may not be immediately profitable but can serve to protect an airline's market share and prevent competitors from gaining ground.
• 🛫 For a route to succeed, airlines must have the right aircraft, gate space, and sometimes government approval, making the launch process long and bureaucratic, despite careful planning.

Q & A

What makes a route profitable for airlines?

A route becomes profitable for airlines when it attracts enough passengers willing to pay higher fares, especially for non-stop flights. The profitability depends on demand, competition, and the ability of the airline to offer competitive pricing without sacrificing too much margin.

Why did American Airlines cancel its Chicago to Beijing route?

American Airlines cancelled the Chicago to Beijing route because it was losing tens of millions of dollars annually. The route couldn’t compete with the lower fares offered by Asian airlines, leading to underutilized flights.

What are the main factors airlines consider when deciding on new routes?

Airlines primarily consider two factors when planning new routes: the demand for the route (how many people want to go to the destination) and the price passengers are willing to pay. Additional considerations include competition and the cost-effectiveness of operating the route.

How do airlines determine how many people want to fly to a particular destination?

Airlines use a combination of their own data on existing flight connections and third-party data from travel booking sites like Expedia and Skyscanner. These platforms provide valuable information on flight searches between city pairs, indicating potential demand for direct flights.

Why did United Airlines' non-stop Los Angeles to Singapore route fail?

United's Los Angeles to Singapore non-stop route failed primarily due to fierce competition. While the route was popular in theory, the low prices of connecting flights meant United couldn’t match the prices offered by competitors, leading to underperformance of the route.

How do airlines like United assess if a route will be profitable?

United Airlines evaluates potential routes based on demand (how many people are searching for flights to the destination) and pricing (how much people are willing to pay). They also look at whether the route has strong competition or is a unique opportunity with limited competition.

What role does nationality play in the success of an airline route?

Nationality plays a crucial role in route success because travelers often prefer to fly with airlines from their home country. Additionally, the direction of travel affects route dynamics, as in the case where Chinese airlines dominate flights from China to Australia, where demand is higher from Chinese passengers.

Can an airline operate a route even if it doesn’t make financial sense on its own?

Yes, sometimes airlines launch routes for strategic reasons, such as limiting competition. For example, American Airlines added a route to Reykjavik from Dallas to prevent competitors like Wow Air and Icelandair from taking market share, even though the route itself may not have been the most profitable.

How do airline route launches involve coordination with other industry factors?

Launching a new route requires coordination with aircraft availability, gate space at airports, and government approvals, especially for international flights. Airlines also need to ensure that they have the necessary equipment, such as the right type of aircraft for the route's demand.

Why did United Airlines choose to use the 787-8 Dreamliner on its San Francisco to Tahiti route?

United Airlines used the 787-8 Dreamliner for the San Francisco to Tahiti route because it was a relatively low-demand destination. The Dreamliner is their smallest long-haul aircraft, and using it allowed them to serve the route without overcommitting resources.