Finding new routes to operate is one of the major challenges that airlines face when looking to grow into new areas. New routes that have had little to no air service in the past, provide little to no information on how flights may perform. Airlines may have to rely on other information including vehicle traffic, population, household income, and other secondary data. That data may not be an accurate indicator of how a route may perform. Most airlines operate under one of three route strategies that they use to grow their network; however, airlines could create an “R&D Airline” that will allow them to test new routes with less risk to their financial performance.
When airlines enter new markets they are taking significant risks as they are working with a “perishable service” that has large costs attached to it. If a route does not perform to expectations, the airline has lost time, effort, and money. However, if a route performs well, an airline can grow and obtain a new source of revenue and profits. In the United States, most airlines use route strategies that can be organized into three categories.
US airlines use three strategies to develop their route networks. These strategies include major market focus, hub network expansion, and new market growth. The major market focus is primarily used by medium/large sized airlines that operate using a focus city network. These airlines include JetBlue Airways and Southwest Airlines. Both of those airlines mostly serve cities that are major markets with established records of air traffic. JetBlue primarily operates out of New York (JFK), the Long Beach/Los Angeles area, Fort Lauderdale, and Orlando. Southwest has a nationwide network that uses focus cities in major markets to connect people around the United States. JetBlue, on the other hand, has started to enter into some secondary vacation markets like Steamboat Springs and Bozeman, Montana from their New York and Fort Lauderdale hubs. This places them partially in the new market growth category.
The second category, hub network expansion, is in use by legacy carriers like Delta Air Lines, United Airlines, and American Airlines. In addition, Alaska Airlines also uses this strategy. For the most part, those airlines develop routes from one of their hubs and introduce new cities to their network by connecting them at an established hub. A feature that these airlines have is that they subcontract out some of their flying to regional airlines that fly routes that do not need the capacity of a narrowbody jet like the Boeing 737 or an Airbus A320 series jet. One interesting airport that Alaska Airlines was able to develop, using its regional carrier Horizon Air, is Santa Rosa, California. Santa Rosa is a medium-sized city that is located in the San Francisco Bay Area’s North Bay and is just outside of the Napa Valley. Since 2007, Alaska has been able to maintain flights to its hubs in Seattle and Los Angeles from Santa Rosa. Those two routes are interesting because Alaska has been able to maintain the routes for several years despite Santa Rosa’s market size and its proximity to the Bay Area. Their entry into the area has attracted American Airlines, United, and Sun Country Airlines. Alaska now operates flights to Portland, San Diego, and Santa Ana in addition to the Seattle and Los Angeles flights. The rise in popularity of the Santa Rosa/Sonoma airport can be showcased by United, which operates a San Francisco – Santa Rosa flight that is airborne for only 16 minutes!
Above R&D Airlines article photo featuring Pinal Airpark in Marana, Arizona (US) with stored airplanes by Alan Wilson on Wikimedia Commons and Flickr. Photo enhanced by FlyRadius and released under a Creative Commons Attribution-Share Alike 2.0 Generic license.
The last category includes airlines that use a focus city new route strategy to develop routes. The only airline that follows this strategy 100 percent is Allegiant Air. Spirit Airlines and Frontier Airlines have also entered into this category; however, their routes are more focused on connecting major markets. Allegiant is an airline that has followed a different strategy by mostly buying used jets which started with the MD-80 series, then the Boeing 757, and finally the Airbus A319/320 to serve vacation destinations from secondary airports. The airline mostly flies from vacation destinations to smaller cities and markets and avoids major airports. For example, the airline flies out of Orlando Sanford International Airport instead of Orlando International Airport. With this strategy, the airline has been able to effectively serve smaller markets including Bismark, North Dakota and Idaho Falls, Idaho with mainline aircraft. The cost reduction strategy of flying used aircraft and flying out of smaller airports that cost less, has allowed the airline to grow to be the ninth-largest airline based on the number of passengers served in 2018. Spirit and Frontier have followed Allegiant’s flight path and have started to serve airports and cities that are on the smaller side. JetBlue has started to test this strategy also; however, there is a focus on connecting smaller vacation destinations.
Allegiant Air’s use of low-cost airplanes and cost containment strategies has allowed them to test smaller markets with low risk. That strategy led them to be able to test airports like Idaho Falls with low risk and develop succees in those types of markets as a result.
R&D Airlines – Follow Allegiant’s Strategy
A major airline can follow in Allegiant’s steps by creating a special purpose research and development airline. R&D Airlines can be set up in the same fashion as Allegiant’s airline and have low-cost aircraft that can be deployed on test routes. The special-purpose airline could then make a deal with airports to lower fees for an introductory period. With this strategy, an airline could test new markets and have more flexibility when operating flights.
R&D Airlines can also be set up to gather important data from passengers, in addition to the purchase and passenger count information the airline is gathering from ticket sales. For example, as a condition of purchasing a ticket on R&D, a passenger may be required to fill out a survey at the end of every flight. The information from the survey will help the airline identify trends and if other destinations from that market may be appropriate. All of the data gathered from R&D Airlines will be very valuable in determining if a market can be added to the airline’s mainline or regional operations.
To allow R&D Airlines to have a better opportunity at achieving positive results, an airline will have to invest in solid marketing so that people living in the test market are aware of the company’s entry into their hometown. A special marketing team can be dedicated to R&D, which will focus on generating traffic on the routes that R&D tests.
An Airline Can Now Grow
By testing cities with R&D, airlines will be able to make better decisions on which markets to enter. With the information from the test flights, an airline will be able to gauge if a market is worth entering and which routes would work well. An airline like JetBlue, Frontier, Sun Country, or Spirit could use this strategy to expand its current network to places it has not flown to before. The risk of taking newer aircraft out of service is removed through the use of used aircraft. In addition, the airline can gather critical data that will allow them to make informed decisions on potential routes. Most importantly, an airline will be able to make route decisions that will allow them to grow.
It is time for an airline to test R&D Airlines.
Learn more about R&D Airlines on this page which has more information on the idea that can be implemented by airlines.