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CHAPTER 3
Understanding the Context
for Air Service Development
Air service development is not done in a vacuum. Before embarking on an ASD program, air-
ports and communities must understand fundamentals of the U.S. commercial airline industry,
the role of smaller communities within airline networks, and the business models of the carriers
that serve those locations.
The fundamental challenge to any commercial operation is to generate enough revenue while
controlling costs in order to earn a return on investment. Commercial airlines earn revenue prin-
cipally through passenger ticket sales. Passenger ticket revenue has to be sufficient not only to
cover the direct costs of operating the route, but also to contribute to overall network profitabil-
ity. From a passenger's perspective, the question is whether the airline provides the service
needed (flights to where the person wants to go) at the times required, at an affordable price.
Only when value, price, and costs align adequately can a market exist.
Smaller communities present particular challenges to airlines. Passenger demand is limited by the
amount of economic activity in the community. To better match the number of seats offered with
passenger demand, airlines use smaller aircraft often in those markets. Smaller aircraft help carriers
control their costs. However, there are fewer available seats to generate revenue. The difference of a
few passengers can make one market profitable and cause another to consistently lose money.
Communities argue that demand would be greater "if only the airline flew to [insert name here]"
or used a "nicer" aircraft or charged less for their tickets. These views--while understandable--
reflect a common lack of understanding about the underlying economics that drive the industry.
How do smaller communities connect to the national
aviation system?
For the most part, smaller cities in the United States are connected to the national aviation
system by legacy network carriers' hub-and-spoke systems. These carriers transport passengers
on nonstop flights from spoke cities into their hubs, and then redistribute them to connecting
flights for their final destinations. The airports in the small spoke communities include the small-
est airports in the nation's commercial air system. Depending on the size of those markets (i.e.,
the number of passengers flying nonstop between the hub and the spoke communities), the
legacy airlines may operate their own large jets or use regional affiliate carriers to provide ser-
vice, usually with regional jet or turboprop aircraft.
Figure 3.1 illustrates the regional service provided by the hub-and-spoke system that Delta
operates at Salt Lake City (SLC). This system allows, for example, a traveler to fly from Rapid City,
South Dakota (RAP), to Medford, Oregon (MFR), with a single stop. SkyWest Airlines provides
this service as a Delta Connection with 50-seat regional jets. Passengers in that market also have
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32 Passenger Air Service Development Techniques
Figure 3.1. Spokes served from Delta's Salt Lake City hub.
the option of flying with United Airlines, connecting over its Denver hub (DEN). United's
Denver to Medford segment uses 70-seat regional jets.
Hub-and-spoke These hub-and-spoke networks underscore the important role played by regional airlines in
connecting smaller communities to the national aviation network. Regional airlines provide
networks under- short- and medium-haul scheduled service connecting 635 U.S. communities with larger cities
score the important and hub airports, using aircraft that range in size from 9 to 108 seats. Figures 3.2 and 3.3 illus-
role that regional trate two such aircraft--one of Horizon's Q-400s at Kalispell, Montana, and one of SkyWest's
Brasilia Embraer 120s at Bakersfield, California.
airlines play in
Almost all regional airline passengers travel on code-sharing regional affiliates. That is, the
connecting smaller regional airlines fly on behalf of larger legacy network carriers rather than under their own name,
communities to the such as SkyWest flying as a United Express or Delta Connection carrier. The network carrier
national aviation determines the markets that these carriers operate in, along with the flight times and fares. The
experience of Independence Air and ExpressJet operating not as legacy regional affiliates but
system. under their own brand vividly demonstrates the financial and marketing difficulties that regional
airlines face when trying to operate on their own. Independence Air lasted 18 months before fail-
ing. ExpressJet's branded operations lasted only three months longer. ExpressJet returned to fly-
ing as a regional affiliate only in September 2008.
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Understanding the Context for Air Service Development 33
Figure 3.2. Horizon Airlines serves Kalispell, Montana, with a
Bombardier Q-400.
Small Communities and Low-Cost Carriers
LCCs such as Southwest, AirTran, Frontier, JetBlue, and Virgin America use a different busi-
ness model, providing mostly point-to-point service. These carriers focus on business travel in
denser markets, but tend to avoid using congested hubs, flying instead to and from secondary
airports in or near major metropolitan areas. LCCs do not operate hubs per se, although they offer
connecting opportunities for many passengers through "focus" airports like Baltimore/Washington
International Thurgood Marshall, Hartsfield-Jackson Atlanta, or Dallas Love Field.
Figure 3.3. SkyWest provides United Express service to
Bakersfield, California, with an Embraer 120.
