Take Canada’s low-cost airline WestJet, which serves 88 destinations. It strives to maintain its position as one of the five most successful airlines in the world and has built a strong business model based on steady growth. But recently it took steps to expand its routes in directions once thought out of bounds.
John Weatherill, WestJet director of network and schedule planning, said: “In addition to the recent launch of our new regional carrier – WestJet Encore – we’ve announced our first trans-Atlantic route, to Dublin. All of this from an airline that pledged 18 years ago to never fly east of Winnipeg, Manitoba, which hardly anyone outside of Canada has heard of.”
WestJet’s 20-person Network and Schedule Planning team takes the decisions over new routes. It works around 18 months in advance developing and adjusting existing and future routes. “Before selecting routes, the team always look at new and existing destinations with an eye on passenger demographics. What routes will satisfy business, leisure and family requirements? Which ones will allow them to keep in touch with family and friends?” said Weatherill. “WestJet Encore was introduced in 2013 to provide these services to smaller Canadian communities. As well as stimulating local economies in catchment areas, the competition introduced to the regional market has created a significant drop in the high cost of regional travel.”
Once a route is up and running, WestJet’s planning team monitors it closely. “They are constantly evaluating and planning ahead to make sure routes are performing well. If not, adjustments are made to improve performance. The important factor is to remain flexible and competitive across the entire network to offer the choices guests have asked for,” said Weatherill.
WestJet has a broad cross-section of passengers to satisfy when selecting routes. “In Canada, one can imagine how popular sun destinations are between October and April, and with such a vast expanse of Canadian soil to cover, the domestic market is popular with both business travellers and guests visiting friends and family from coast to coast,” said Weatherill. “Our business travel market is also growing and we have introduced different fare options and Plus seating to appeal to that demographic.”
WestJet has certain characteristics that have kept it in the ranks of North America’s most profitable airlines. “We have kept out of the airline graveyard by offering destinations the public is asking for. But that is part of a larger strategy to adapt routes to capitalize on popular destinations in different seasons, optimizing the fleet and remaining vigilant in terms of route performance,” he said.
Compared to low-cost airlines, legacy carriers have different criteria to take into account when selecting routes, but their business models also have to adapt to changing circumstances. For a long time, Air Japan focused on selecting city destinations to favour business travellers, but an airline spokesperson said it had adapted its strategy in recent times.
“Now when we select new destinations, our strategy is to look carefully at the mixture of business and leisure travellers,” he said. “Our route development is a comprehensive and systematic project. International air travel demand is volatile and an airline’s main task is to gain stable and sustained profits. So our route network is based on a thorough profitability analysis. We also discuss every detail with the airports, even down to putting up signs in Japanese.”
Air Japan has traditionally focused on providing services to famous and iconic cities, including New York, London, Beijing and Shanghai. But it recently introduced new routes to second-tier cities, including Boston, San Diego and Helsinki.
“Introducing a completely new route helps strengthen economic relationship between city pairs on our routes. Also, by connecting smoothly throughout our network, the new city gets easier access to various cities. This can yield enormous growth to local economies. Once the routes are in place, Air Japan works closely with the local community and tourism offices to consolidate their success,” he said.
Although Air Japan recognises the competitive challenges posed by low-cost carriers, it believes further growth is possible. “We are aiming to capture the growing travel demand between Southeast Asia and North America. We will utilize Japan’s geographical advantages – it is almost in the middle of Southeast Asia and North America. In this particular market, we’ll be focusing on high-yield business travellers. There’s a strong possibility of new launches to and from these regions. We have a list of candidate cities and the route development teams are selecting the best ones,” he said.
Dutch carrier KLM also believes it has an advantageous strategic position in the heart of Europe. “Despite having a relatively small home base at Schiphol International Airport, in Amsterdam, KLM has maintained an international orientation from the beginning and now serves 135 destinations,” said their spokesperson. “Our strength lies in the tightly knit worldwide network we have created with our partners. It links nearly every important economic region in the world with the Netherlands, and with each other. Passengers transfer easily at Schiphol and cargo planes can get practically anywhere easily.”
For many years, KLM has regularly introduced new routes based on its route development team’s analysis of a country’s economy and tourist industry. Last year, KLM opened four new routes: Bilbao in Spain, Turin in Italy, Zagreb in Croatia and Santiago de Chile in Chile.
“We launched three weekly flights to Santiago de Chile, which was our ninth destination in Central and South America, emphasizing the importance of long-haul flights for this developing region,” they said.
KLM is also the largest European supplier of flights between Europe and China, a vital role given the Asian giant’s growing economic power. “We started with just a handful of frequencies back in 2000, but we now operate 58 weekly flights between these major economic centres. This consolidates Amsterdam’s position as a gateway between China and Western Europe. We serve eight cities in Greater China, along with our partner China Southern,” the spokesperson said.
Despite the expansion of KLM’s routes, the company has had to be flexible in its response to fluctuations in the economy. “It’s a tougher market with more competition, and fuel prices have risen. So, we have made more seasonal adjustments to our network and fleets. This flexible approach to opening and closing routes and using different types of aircraft has made KLM stronger and bigger than ever before,” she said.
With route development, there is often a complex interrelationship between the airlines and airports. Athens International Airport (AIA), for example, makes available a portfolio of business cases to all its airlines. “Our route development is always based on two-way communication involving a great deal of exchanging views and ideas,” said Mrs Ioanna Papadopoulou, AIA director, marketing and communications.
Athens often makes suggestions based on detailed analysis of Marketing Information Data Transfer (MIDT) data, as well as its own annual passenger surveys. “The airport’s surveys are a valuable source of information to identify potential opportunities,” said Papadopoulou. “The airport’s experience over 13 years of analysing 40,000 interviews a year, offers an advantage to our development team. Even more importantly, the information allows for in-depth analysis by the airlines. They make the final decisions based on how the route fits into their developmental plans, aircraft availability, traffic potential, costs and revenues.”
The airport can also try to influence an airline’s decision by making opening discounts available under AIA’s growth incentive scheme. “It’s a risk-sharing instrument to support the airlines in their efforts to introduce new routes. These incentives offer significant discounts on landing and parking charges for up to five years to alleviate start-up costs. More than eight different growth schemes are available to airlines. Along with other innovative marketing instruments, they have won 12 Routes Airline Marketing awards over the last nine years,” she said.
AIA monitors the trends and structural changes in both the international and Greek market. In the last two years, the major complicating factor has been the dramatic slump of the Greek economy which has complicated the route development picture.
“The downturn has changed the travel behaviour of Greek consumers and we’ve seen a weakening of international Origin and Destination traffic, as well as transfer traffic via Athens, due to the tarnished profile of the city and the country. Rising fuel prices have also put pressures on airline capacity. Another pressure has come from the subsidies provided to foreign low-cost carriers by Greek regional entities to increase direct operations to regional airports,” she said.
To counteract the negative effects of the economic crisis, AIA introduced temporary and targeted pricing measures in the winter of 2011-2012, which have been updated seasonally. “The main aim is to complement the traditional incentives, which are purely growth-oriented, by rewarding the sustainability of airline capacity. The intention is to counteract traffic losses,” she said. In addition, in 2013, AIA kept all charges unchanged for a fifth consecutive year.
Despite the downturn, AIA sees significant opportunities for development. Although Europe and the Middle East are well exploited, the Americas, the Far East and Africa have great potential to provide new routes. “More than half a million passengers a year are flying indirectly between Athens and US destinations, mainly New York, Chicago, Washington and Boston. Those routes could easily accommodate direct services and benefit even more from the strategic location of Athens and the additional traffic to the US from the surrounding Balkans and Mediterranean area,” said Papadopoulou.
Similarly, there are high numbers of indirect flights from Athens to Asia, especially Bangkok, Singapore, Beijing and Seoul. “Asia, along with the Australia routes of Melbourne and Sydney, constitutes a market of 400,000 indirect passengers per year which every relevant airline could take advantage of by putting on direct services,” she said.
In Poland, Warsaw Modlin Airport has had to take different factors into account in developing its routes. Modlin was opened as recently as July 2012 and one airline, Ryanair, dominates its flight schedules. The Hungary-based low-cost carrier Wizz Air used Modlin for several months, but only as a temporary base before transferring to Warsaw Chopin Airport last summer.
Modlin’s commercial-marketing director, Piotr Lenarczyk, says the airport’s formula for route development is relatively straightforward. “We simply check where Polish people fly to and try to convince Ryanair to establish a route there. An additional factor is that the destination airport should already be used by Ryanair. If it’s one of Ryanair base airports that is even better as it’s less expensive to operate from,” he said.
“At the end of the day Ryanair makes the final decision and takes on the risk, but we give them wish list with as much data and feedback as possible about potentially unserved markets with high potential. We select airports with low-cost structures, so we don’t fight to put on routes to the biggest and most expensive hub airports.”
To date, Ryanair has operated with great success out of Modlin. When the airport opened in 2012, Ryanair had eight routes, but it soon expanded and last winter it flew to 17 European airports: Glasgow Prestwick, Brussels-Charleroi, Paris-Beauvais, Eindhoven, Milan-Bergamo, Liverpool, Stockholm-Skavsta, Budapest, Oslo-Rygge, London-Stansted, Rome-Ciampino, Bolonia, Bristol, Manchester, East Midlands, Dublin, Cork.
In addition to these 17 airports, Ryanair flew to four seasonal holiday destinations in the summer of 2013 – Chania, Palma, Trapani, Marseille, Pisa. These routes were all successful and will reappear in the schedules this summer, alongside five new destinations – the domestic Polish ones of Wroclaw and Gdansk and the international ones of Thessaloniki, Shannon and Alicante. As a result, there will be 26 Ryanair routes from Modlin this summer.
“Most of the new routes went well last summer, but Ryanair also decided to cancel several routes which were operated in summer 2013 to and from Weeze, Hahn and Bari. Load factors and yields were not satisfying so Ryanair moved the capacity to the new routes,” Lenarczyk said.
Ryanair’s confidence in new route development out of Modlin is based on the relative stability of Poland’s economy which has better resisted the global meltdown than the Greek economy. “We had no recession in 2009-2012, even though we developed more slowly and in 2014 our economy should grow by 3%. Because the financial crisis does not seem threatening to people any more, Polish people are eager to travel and willing to spend money,” he said.
Air travel has become a new habit for many Poles as low-cost airlines provide cheaper tickets and a greater variety of routes. Around 10% of passengers have never flown before. There were 25 million passengers in Poland last year and the number is rising. Lenarczyk expects growth of of 1.5 million in 2014 and a stable 0.2 million per year rise for four years after that.
“We hope to open some new routes in the summer of 2015 and we are already in talks with Ryanair about potential new ones. It’s never an easy process and it can take a long time to negotiate, especially if we want to attract a new carrier to new routes. With Ryanair the process is shorter, as they are already based here and know the market well. It’s just a matter of time before we make more announcements,” he said.
