Industry aims to forecast profitability from routes before takeoff
Iwrite about new airline routes quite regularly. But I recently got an email from a reader pointing out that we don’t give the same attention when an airline pulls out of markets shortly after arriving. h “I would also love to see an article about all of the new routes that they already discontinued such as a majority of their flights to Nashville (Tennessee),” Kirsten Petterson said in an email. “I feel like they’re continuing to get all of this press surrounding their expansion but they’ve been retreating in other markets and it’s gotten no press.” h It was a reasonable question: How do airlines decide where to fly? And how common is it for flights to get chopped after fanfare around new routes?
Bijan Vasigh is a professor in the Department of Accounting, Economics, Finance, and Information Sciences at Embry-riddle Aeronautical University’s David B. O’maley College of Business, and he said it’s common for carriers – especially newer airlines – to add and cut routes regularly as part of their growth plans.
“If a route turns out not to be profitable, they will pull out of that market and use their assets in more profitable markets,” he said
According to Vasigh, most airlines have teams analyzing potential routes for demand and profitability. And with high upfront costs to start flights to a new city, carriers are careful to make sure that sufficient demand for a new flight seems to exist.
Sometimes, he added, cities or airports
will put financial incentives or other perks in place to lure new air service, but carriers typically won’t stay if demand is not selfsustaining.
“About four or five years ago, Daytona Beach (Florida) gave some incentive to Jetblue to inaugurate service from Daytona Beach to New York City,” he said. “Jetblue came to this market, after two years they recognized that this market does not generate the amount of revenue as they can generate from other destinations,” so the airline cut the route and reallocated the planes.
When Avelo Airlines started service out of Wilmington, Delaware, on Feb.1, even the airline’s CEO conceded there was some trial and error involved with new routes.
“It’s too early to know if this is going to work,” Avelo CEO Andrew Levy told USA
TODAY. But he added that early indications gave him reason for optimism.
Vasigh said it’s common for airlines to tweak their networks, and though there is some cost to pull out of a city, it’s relatively easy to do if a place just isn’t profitable.
“If that market does not generate enough revenue for them, they can take their assets, which are highly mobile, their assets are aircraft, they can use that in another market,” he said.
These kinds of changes were common during the height of the pandemic. When travel demand plummeted and borders closed, airlines were forced to redeploy their planes to places where they could still fly. Now that demand for flights has largely returned, carriers are poised to grow and test new markets.