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Airlines can make a lot of money by flying to the right places. British Airways, for
example, long-ago cemented themselves as the leader on the London Heathrow to New York
JFK route and flying between these two airports now earns them over $1 billion per year. That’s
more than any airline makes on any other route in the world. Conversely, though, airlines
can lose a lot of money by flying to the wrong places. American Airlines, for example, recently
cancelled their Chicago to Beijing flight as it was loosing them tens of millions of
dollars per year. Now, the fact that this route failed might be puzzling considering
it flew between the world’s fiftieth and the world seventh largest city. Even more,
they were flying the 787-8 Dreamliner—the smallest plane they could on this route. Nonetheless,
it was truly a financial disaster. The airline said that, in terms of annual revenue, the
route was $80 million away from their target. The truth is that deciding where to fly is
a lot more complicated than pairing up the largest cities. It’s an art that people
spend their whole lives mastering and the difference between an airline that’s good
at route planning and one that’s bad at it can be the difference between a profitable
airline and a defunct one. In 2015, the big three airlines in the US—American,
Delta, and United—launched 101 new routes. These included everything from United’s
new 30-minute regional flight between Chicago and Kalamazoo to Delta’s new transpacific
service between Los Angeles and Shanghai. Some of these 101 survived, some did not.
Of the routes that Delta launched in 2015, about 70% still fly today. There were some
big, noticeable cancellations from their 2015-launched routes including Orlando to Sao Paolo, New
York to Manchester, and Philadelphia to London. Meanwhile, American Airlines did a little
better with 76% of their 2015 routes surviving today. Still, they clearly had some expensive
failures with routes like Dallas to Quito, Miami to Frankfurt, and New York to Birmingham.
United Airlines, though, has a noticeably higher 85% of those 2015 routes still flying
today. The only four routes from 2015 that didn’t work out were Houston to Peoria,
Newark to Newcastle, Dulles to Moline, and Denver to San Jose. Now, it’s worth noting
that the survival of routes is not the one, definitive measure of how good airlines are
at route planning. Different companies might have different risk tolerances, they might
wait out a route longer, there are a lot of other factors involved, but there is other
evidence that United is good at route planning. There are a number of destinations that United
is the sole American airline to operate to. Just looking at long-haul destinations, that
includes Melbourne, Tahiti, Taipei, Chengdu, Delhi, Mumbai, Naples, Porto, and Stockholm.
In some of these cases, there might be just enough traffic to support one US airline flying
there and United got there first. In addition, there are plenty of routes that United flies
without non-stop competition like Denver to Tokyo, Houston to Rio de Janeiro, DC to Zurich,
and Chicago to Edinburgh. Many of these potentially riskier routes have survived for years so
they’re clearly good at route planning. They’re clearly good at finding the opportunities
both big and small. According to United, the two major factors
they look at when deciding where to fly are, “how many people want to go there, and how
much are they willing to pay?” These questions are easy to ask but extremely difficult to
answer—that’s why it’s people’s whole jobs. For figuring how many people want to
go to a place, the airline itself has a decent amount of data. The majority of new United
routes are to destinations already served by another one of their hubs. For example,
one of the routes that United added in 2015 was from Denver to Southwest Oregon Regional
Airport which was already served by its San Francisco hub. Given that, United already
had data on how many people flew there from Denver via San Francisco and would therefore
take a non-stop flight. United also flies to a number of places non-stop from Denver
that it doesn’t from San Francisco such as Albuquerque, Sioux Falls, and Wichita that
would now have a one-stop option to Southwest Oregon Regional Airport rather than a two
stop. For brand new destinations, though, especially long-haul ones, United doesn’t
have its own passenger figures so they have to figure out how many people want to go there
through other means. One of the great assets that travel booking sites like Expedia, Google
Flights, and Skyscanner have is that they know where people want to fly. They know which
city-pairs people search for flights between and many sell this incredibly valuable data
to market research companies and airlines. Skyscanner, for example, knows that 190,000
people a year search for a flight between Birmingham and Hong Kong, 420,000 people a
year search for a flight between Delhi and Auckland, 1.1 million people a year search
for a flight between Bangkok and Barcelona, and 1.4 million people a year search for a
flight between London and Kochi. These all represent big opportunities that airlines
have yet to act on. People are still making these trips but having to connect. Creating
a non-stop flight on any of these routes would capture a decent amount of the traffic.
The reason some of these popular routes do not have non-stop service, though, comes down
to that second factor—how much people are willing to pay. People usually pay a premium
to fly on non-stop flights, but there’s a maximum to how much extra people will pay
for the convenience. In October 2017, United launched a new nonstop route from Los Angeles
to Singapore to much fanfare. This would be the airline’s longest ever route, the only
non-stop connection between the two cities, and they expected it to do great. The problem,
though, was the competition. Currently, roundtrip connecting flights between Los Angeles and
Singapore are on sale for as little as $444. At the time that United was flying this route,
they were supposedly even less. United just couldn’t come close to the prices that others
were offering and, exactly a year after this route was launched, it was cancelled. It wasn’t
a complete failure—they ended up just adding a second frequency to Singapore from San Francisco—but
it is an example of a route that looked great on paper but didn’t work out in reality.
It was a similar reason that likely led to the cancellation of the American flight from
Chicago to Beijing mentioned at the beginning. It was just too tough to compete against the
low fares of Asian airlines and, as a result, American’s planes were crossing the Pacific
empty. In all, airlines need to figure out what people will pay for a route to figure
out if it’s profitable and also if it’s going to be the most profitable route they
can add. Part of the reason why American and Delta might not have added a nonstop flight
to Singapore is because they can make more money using the same plane elsewhere. United
essentially has now used up four of its planes to fly its two daily flights to Singapore.
They’re charging a minimum of about $800 to fly roundtrip on this 16-hour flight whereas,
from the east coast, United is also charging about $800 to fly roundtrip on their 6-hour
flight from DC to London. Airlines need to consider whether, out of a whole world of
options, they’re picking the best one when adding a route.
Beyond these two main factors, there are others involved in whether or not a route will work
financially. For example, while a certain route might work for one airline, the exact
same route might not work for another. From Australia, there are three routes to mainland
China operated by Australian airlines—Qantas from Sydney to Beijing and Shanghai and Jetstar
from Melbourne to Zhengzhou. Meanwhile, from mainland China, there are 43 routes to Australia
operated by Chinese airlines. This extreme imbalance exists because people tend to prefer
to fly on airlines from their home country especially in cases like this where the language
is different. There are far more Chinese traveling to Australia than Australians traveling to
China so, therefore, there are far more Chinese airlines flying to Australia than vice versa.
Of course there are other factors involved such as, given the lower cost of living in
China, Chinese airlines have lower labor costs and are therefore able to offer lower fares,
but when an airline is figuring out whether a route will work, the nationality and directionality
of travelers does matter. Sometimes, though, a route is launched that
just doesn’t make financial since—at least independently. Sometimes airlines launch routes
primarily to slow the advance of a competitor. For example, on September 6th, 2017, Wow Air,
the Icelandic budget airline, announced that it would start flying from Reykjavik to Dallas.
Less than a week later, Icelandair, the other major Icelandic airline, announced that they
too would start flying from Reykjavik to Dallas. About a month after that, American Airlines
announced that they would also start flying to Reykjavik from Dallas. Now, Dallas is very
much a fortress hub for American Airlines. That is, they control a huge percentage of
the market share there and they want it to stay that way. They didn’t want their customers
to start flying on Wow or Icelandair to Iceland or, more importantly, beyond to Europe. While
Iceland has seen a significant increase in tourism traffic over the past decade, there
are a few signs signaling that this route addition might have been more for competitive
purposes than because it was the best financial choice independently. The first is the suspicious
timing, announcing quite soon after the two other airlines did, and the other is that
it really doesn’t make sense for American’s one and only Iceland flight to leave from
Dallas. This requires all connecting travelers from the east half of the country to backtrack
to Dallas if they want to fly on American to Iceland. The airline has, in recent years,
concentrated most of their transatlantic flights going to leisure-oriented destinations, such
as Iceland, to their Philadelphia hub but, in this case, it was clearly most likely more
about stopping Wow and Icelandair. In this, American was successful. Both of its competitors
have since stopped flying to Dallas. While this and other similar routes might not make
money themselves, overall they’re the right decision for the company since they can force
a competitor out of the market and, in this case, passengers that might have connected
on Wow or Icelandair from Dallas to Europe would now take American’s transatlantic
flights. So, once all of that analysis happens, once
an airline decides that it’s a good idea to launch a route, it still doesn’t mean
that an airline can go ahead and start flying. Obviously, they need a spare plane. That can
either come from another route cancellation or through a new aircraft delivery. For example,
United’s new route from San Francisco to Tahiti, with relatively low demand, required
its smallest long-haul plane—the 787-8 Dreamliner. One of those only became available when a
new 787-9 was delivered from Boeing that replaced an older 787-8 on the busier San Francisco
to Munich route. Airlines also need gate space and, at some busy airports, a landing slot.
For many international routes, airlines also need government approval to begin a new flight.
There’s plenty more uninteresting bureaucracy but then, sometime, usually years after an
airline first examines whether a route will make sense, the first plane will take off
between those two airports. No matter how much work is put into analyzing whether a
route will work, reality always has unforeseen variables. The true test of whether a route
will work is actually flying the route. Once that happens, airlines will evaluate its performance.
If it’s making enough money, it will keep flying. If it’s not, it usually will not.
This is all part o f airlines’ continuous cycle of planning, launching, and evaluating
routes in order to find the few that can actually turn a profit in this notoriously financially
difficult industry. If you’re watching this video, there are
two things that you almost certainly like—documentaries and aviation. Therefore, I would imagine you
would like this documentary on Curiosity Stream about the whole process that it takes to make
an Airbus a380 wing. It’s a fascinating look at all the work that goes into producing
what is perhaps the most important element of that plane. This is one of over 2,400 documentaries
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I feel like Wendaddy has a stash of videos about planes that he made a while ago and just releases them when he doesn't have any other content to go out. They need to be secured in a safety deposit box.
One additional question: how much do code shares/airline alliances impact the routes as well? United's LAX-SIN route was discussed, but Singapore Airlines began offering non-stop service in November 2018, just as United canceled the service. Since both are in the Star Alliance, was it possible that United decided it was best to let their partners operate the route and shift their focus to the SFO-SIN route since SFO is a bigger hub?
Today is a good day.
TIL Birmingham is further south than London. As someone who lives under an hour from London, this is quite big news
Oh Look, another airplane video!!
One that I never understood was when Delta stopped SEA to HKG - Cathay started that route shortly thereafter. They’re not in an alliance so what happened there? Why? More connecting traffic coming into Hong Kong then to Seattle?