Con­nect­ing the Dots

There’s both sci­ence and art be­hind the de­ci­sions that shape an air­line’s net­work

Business Traveler (USA) - - WORLD WISE - By Ram­sey Qubein

It’s just af­ter 6 AM, and a wide-eyed Dolly Par­ton im­per­son­ator is grip­ping the mi­cro­phone and wel­com­ing fliers to Boston’s gate C36 for the in­au­gu­ral JetBlue flight to Nashville. The fes­tiv­i­ties in­clude free bis­cuits and Dunkin Donuts cof­fee to fuel the mood. Pas­sen­gers (in­clud­ing off-duty em­ploy­ees ex­cited to join the mer­ri­ment) hear from air­line ex­ecs on the ground and in­flight where a draw­ing for free flights and True Blue points keep the party at­mos­phere go­ing.

Af­ter land­ing, the air­craft re­ceives a tra­di­tional wa­ter can­non salute be­fore park­ing at gate B6. It so hap­pens this is the air­line’s iden­ti­fier, and many air­ports like to give JetBlue this gate num­ber.

This is the story of a typ­i­cal in­au­gu­ral flight, of­ten a party mood for ea­ger trav­el­ers and avi­a­tion fans. Aboard JetBlue’s Nashville flight, one cou­ple was fly­ing their fifth in­au­gu­ral with the air­line be­cause they find them“so much fun.”

Launch­ing a new flight takes in­tense fore­cast­ing from an air­line’s route plan­ning and rev­enue man­age­ment teams. Air­port ex­ec­u­tives and city lead­ers of­ten lobby air­lines for ser­vice. Con­sul­tants may help to de­velop pro­pos­als to ex­plain why an air­line can per­form well in a cer­tain mar­ket. Oc­ca­sion­ally, cities of­fer in­cen­tive pack­ages and air­port usage fee dis­counts to lure air­lines, too.

The Cal­cu­lus of Fares

Full planes don’t al­ways trans­late to prof­itable fly­ing. While ex­plor­ing ori­gin and des­ti­na­tion num­bers (the num­ber of pas­sen­gers that travel be­tween spe­cific city pairs as recorded by the De­part­ment of Trans­porta­tion) is im­por­tant, the mix of fares an air­line can sell per flight is equally im­por­tant. Fares for mostly leisure travel to many cities in Florida may not be as high as flights to busi­ness hubs. Routes with limited com­pe­ti­tion yield higher fares, which be­come a gold mine for air­lines.

Air­lines must take into ac­count the op­por­tu­nity cost of us­ing the same air­craft to fly another, more prof­itable route. JetBlue (and other air­lines) may have been eye­ing Boston to Nashville flights for awhile, but if a plane can be more ef­fec­tively used to earn a bet­ter range of prof­itable fares on another route, that’s where it goes.

Over­all do­mes­tic ca­pac­ity is shrink­ing fol­low­ing a round of re­cent air­line merg­ers, and cities are vy­ing for air­line at­ten­tion. The re­duc­tion in hubs and money-los­ing flights to and from those hubs cor­re­late to the air­line in­dus­try’s record profits. Air­lines don’t have un­lim­ited fleets and must man­age their re­sources to max­i­mize profits for share­hold­ers. That may not in­spire you while you’re jostling 200 fel­low pas­sen­gers to board a flight or fold­ing your­self in half aboard a smaller re­gional jet.

In the case of re­gional jets, flights might be packed full, but the air­line knows it can use its larger planes more ef­fi­ciently else­where or of­fer greater fre­quency in a mar­ket with smaller planes. Plus, by of­fer­ing fewer seats, an air­line can some­times se­cure a higher mone­tary yield per seat.

Don’t for­get about cargo. For ex­am­ple, flights be­tween many US cities and Lima, Peru are known for car­ry­ing large amounts of cargo, which are im­pres­sive money makers for air­lines. Most re­cently, Delta up­graded its air­craft to a Boeing 777, one of the com­pany’s largest, to of­fer greater cargo ca­pac­ity.

De­spite all this so­phis­ti­cated plan­ning, some air­lines op­er­ate flights as a sta­tus sym­bol or to flex their eco­nomic mus­cle. Flights to, from, or be­tween NewYork or Lon­don are of­ten the first to show­case new air­line prod­ucts be­cause of the im­por­tance of be­ing present in those com­pet­i­tive mar­kets. Malaysia Air­lines has op­er­ated its most elab­o­rate air­craft, the Air­bus A380, to Lon­don Heathrow for many years, de­spite weak de­mand, to be com­pet­i­tive.

Back to Nashville and Dolly Par­ton. Ar­riv­ing pas­sen­gers are treated to JetBlue gift bags, Star­bucks cof­fee, and wel­come cel­e­bra­tory cake to the tune of a lo­cal band. Brand aware­ness for the“new air­line in town”grows for JetBlue as oth­ers take note of the hub­bub at gate B6. The hard work of city lead­ers and air­line net­work plan­ners is now com­plete. Pas­sen­gers have a new route, and the pres­ence of JetBlue in­jects com­pe­ti­tion into the lo­cal mar­ket.

The air­line busi­ness is cer­tainly one of com­plex­ity, and oc­ca­sion­ally in­ex­pli­ca­ble ac­tions, but at the end of the day, it’s a well-oiled ma­chine that serves pas­sen­gers and share­hold­ers alike with a net­work of flights cho­sen for max­i­mum value. BT

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