Understanding Airline and Passenger Choice in Multi-Airport Regions (2013)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

86 The case studies were selected through a rigorous process designed to match the characteristics of each candidate region under consideration with the need to understand the key drivers of passenger and airline choice. Ultimately, the case studies selected provide insight regarding how and why passen- gers and airlines make their choices among multiple airports in a region. An essential first step in the process was to determine a standard basis for including or excluding markets from con- sideration. The following series of considerations (“filters”) were applied to an assumed initial universe of the 100 largest U.S. population centers. Filter 1: Demographic Size of Market Regions Demographic size is among the significant differentiators among market regions. The initial analysis focused on the larg- est population centers, thus ensuring that the largest concen- trations of population (e.g., air travelers) would be taken into consideration in the selection of case studies. The top 100 population centers in the United States (Metro- politan Statistical Areas or MSAs) were identified and ranked. These MSAs constituted the initial universe of market regions to be considered. The 100 MSAs represent a population of 201 million, or 64% of the total U.S. population. Filter 2: Initial Scope of Market Region Geography The scope of each of the regions involving the top 100 MSAs was initially defined, based on a 100-mile radius from the cen- ter of the largest city of each MSA. The 100-mile radius was used to establish an initial approximation of a 2-hour drive time assumption from anywhere in the region to anywhere else in the area. However, in view of the different drive times that are likely to result in each of the different regions, the 100-mile radius was reviewed and adjusted as appropriate to reflect likely drive time differentials. (Further refinement of drive times was subsequently undertaken for each of the case studies.) Filter 3: Region Overlaps The 100 regions were reviewed to understand their geo- graphic relationship to each other, and to identify the extent of overlaps. Such overlaps were noted for consideration later regarding consolidation and/or reconstitution of regions. Filter 4: Airports Serving the Largest Market Areas The commercial service airports located within each of the 100 regions were identified. The air travel passenger traffic and air travel passenger revenue related to airline activity at the airports in each of the regions was quantified and reviewed. Filter 5: Single-Airport Regions A review of the top 100 regions was performed to identify those that have only one commercial service airport, or that have minimal air service at airports in the market region other than the one major airport. This review resulted in the identification of 25 of the largest 100 MSAs as single-airport regions, which were subsequently excluded from case study consideration. Filter 6: Region Consolidations and Reconstitutions The previously identified overlapping regions were evalu- ated to determine whether they were candidates for potential consolidation or redefinition. This review examined situa- tions where MSAs and airports were located in more than one of the defined regions. Such situations suggest the integration A P P E N D I X C Case Study Selection

87 of markets and air services, and could make it appropriate to consolidate or reconstitute market areas. Filter 7: Integration of Smaller MSAs into Major Regions To more fully reflect the true market sizes of the regions under consideration, the MSAs that are smaller than the top 100 were identified and, where appropriate, integrated into the market regions. Filter 8: Additional Regions of Interest A review of regions not included in the initial consideration through Filter 7 was performed to identify regions that should be considered as case study candidates due their potentially instructive situation. These markets were reviewed to deter- mine if their inclusion in the study would potentially provide insight into choice factors in markets that have substantially different characteristics than those in the top 100 MSAs (i.e., smaller population base, longer drive time characteristics, subsidized air service, etc.). This review resulted in the identification of 15 additional market regions of interest for inclusion in the list of case study candidates. The airports located in each of the additional mar- ket regions were also identified. Filter 9: Consideration of Results of the Literature Review The results of Task 1 of the study—literature review—were reviewed to determine if the findings provided guidance regard- ing the inclusion, exclusion, or redefinition of regions as poten- tial candidates for case studies. Filter 10: Grouping of Market Regions for Sample Diversity The preceding reviews and analyses resulted in the identifi- cation of 59 regions for consideration as potential case study candidates. These regions were sorted into five groups based on the following criteria: • Group 1: Regions with more than three large/medium hub airports, plus two or more small/non-hub airports; • Group 2: Regions with two large/medium airports plus two or more small/non-hub airports; • Group 3: Regions with one large/medium airport or two or more small/non-hub airports; • Group 4: Regions with one large/medium airport and one small/non-hub airport; and • Group 5: Regions served only by small/non-hub airports. The size classifications are based on the FAA Airport Hub Classification System: • Large = Large Hub (1% or more of annual passenger boardings in the United States), • Medium = Medium Hub (.25% to less than 1% of annual passenger boardings in the United States), and • Small = Small Hub (.05% to less than .25% of annual pas- senger boardings in the United States) and Non-Hub (less than .05% of annual passenger boardings in the United States). Filter 11: Relevancy to Study Objectives The regions were further reviewed with the objective of identifying those that would yield case studies that would be most relevant to understanding passenger and airline choice. This review required several steps. Timeframe of Review To be relevant, the selected case studies must address events and trends that occurred in the recent past, and that, although analyzed historically, are instructive in the context of the cur- rent and near-term future aviation industry and economic environment. For the purposes of the study, it was decided that events and trends that occurred since 2001 would con- stitute “recent past.” Thus, the study period was established as 4Q2002 through 2Q2011. This timeframe encompasses many of the fundamental changes that have occurred in the aviation industry that are still impacting the current envi- ronment, including traffic demand trend changes, airline industry consolidation, aviation security impacts on air travel volume, aviation fuel pricing, hub restructuring and elimi- nation, evolving and new airline business models, among others. Review and Identification of Traffic Trends The 59 regions were reviewed, with the objective of identi- fying trends in traffic that suggest that passengers and/or air- lines made significant choices in the market region during the study period. This review enabled the research team to reduce the number of potential case study candidates for subsequent review and analysis. The research team considered various approaches for the use of metrics that would indicate trends in both air travel demand and airline capacity supply in the regions and at the airports in the regions. It was decided that the metric that would be most instructive initially is onboard traffic (US DOT T-100 data series), reflecting the total number of passengers utilizing the

88 seat capacity being offered by airlines at each airport. Onboard traffic included passengers traveling in the local city-pair mar- ket, passengers connecting from one flight to another, and passengers on through-plane itineraries. This metric, used in time-series analysis, captures both airline decisions regarding changes in levels of capacity (supply) being offered at an air- port, and changes in passenger traffic (demand) that occur at an airport. Trends that are indicated at major hub airports will need to take into consideration the connecting and through traffic elements, but this need not be done until the case studies are performed. The research team performed time-series analyses of passen- ger traffic trends at each of the airports in each of the 59 regions. Each analysis reviewed trends in onboard passengers at each airport in each region, compared to U.S. total average passen- ger trends, and the trend relationships among the individual airport traffic trends in the region. The research team reviewed the time-series analyses to identify the following: • Significant changes in onboard traffic at an airport (indi- cations of increase or decrease in demand and/or seat capacity); and • Changes in market share relationships between/among airports in the region. Exclusion or Inclusion of Potential Case Study Candidates The review of onboard traffic trends provided the basis for the decision of whether to exclude or include a region as a candidate for a case study. Exclusion of a candidate was based on • No or minimal difference between U.S. traffic trends and airport traffic trends for the study period, and • No or minimal difference in traffic trends over time among the airports in the region for the study period. Inclusion of a candidate was based on • Significant difference between U.S. traffic trends and airport traffic trends, • Significant difference in traffic trends over time among the airports in the region, and • Instructive diversity regarding market size and region loca- tion in the selected list of case study candidates. This review and analysis generated a list of 21 potential case study candidates, for which the research team prepared individual profiles, as described below. Profiles of Case Study Candidate Regions Profiles provide an efficient means of evaluating, at a macro level, the geographic, traffic/service, pricing, competition, and other defining characteristics of each of the 21 candidate regions. The research team, through this evaluation, identified those regions that would likely provide the most instructive, relevant, and diverse case studies. The case studies recom- mended and selected as a result of the review of regional pro- files reflected the diversity of the market regions, while seeking to provide instructive results to as many users of the study report as possible. The research team established a standard template for the development of the 21 regional profiles. The standard template incorporated the following key information: Location—A map is provided indicating the location and general parameters of the region. This was intended to indi- cate the cities and airports that are included in the scope of the regional profile, and was not intended to provide a definition of the catchment area(s) of the airport(s) in the region. Region Overview—Description of the region in the con- text of the location map. MSAs in the Region—Identification of the Metropolitan Statistical Areas (MSAs) included in the regional profile. Airports in the Region—Identification of the airports included in the regional profile, and information regarding their traffic levels, relationship to each other and their respec- tive market positions. Geographic and/or Surface Access Issues—General descrip- tion of geographic and/or surface access issues that impact passenger choice of alternative airports. Summary of Observations—Observations are made based on the research team’s development, review, and discussion of each regional profile. These observations focus on sev- eral key areas that provide guidance regarding trends in the region, and resulting suitability of the region as a case study. Specifically • Air service environment, • Airline market involvement, • Traffic/capacity trends, • Airfares, and • Domestic Air Service Data Summary. Key data were developed for each airport in the region, and the region as a whole, for the following metrics: • Passenger traffic, based on onboard traffic for the most recent 12 months of the study period (Year End 2nd Quarter 2011)(Source: U.S. DOT T-100)

89 • Scheduled flights for October 2011 (Source: OAG) • Scheduled seats for October 2011 (Source: OAG) • Average seats per flight for October 2011 (Source: OAG) • Average airfare for October 2011 (Source: U.S. DOT O&D Survey) • Total traffic growth from YEQ4 2002 through YEQ2 2011 (Source: U.S. DOT T-100) • Passenger traffic, average fare, and total traffic growth were also provided for the United States for comparison with airport or regional data • Onboard traffic for domestic services at each airport in the region was plotted on line graphs for each quarter of the study period. This enabled a review of trends at each airport, major changes at a particular airport, and/or the potential relationship between/among trends or changes (Source: U.S. DOT T-100). • Onboard traffic for international services at each airport in the region (if the region has significant international ser- vice) was plotted on a line graph for each quarter of the study period. This enabled a review of trends at each airport, major changes at a particular airport and/or the potential relationship between/among trends or changes (Source: U.S. DOT T-100). • Average fares for domestic itineraries for travelers at each airport in the region were plotted on a line graph for each quarter of the study period. This enabled a review of trends at each airport, major changes at a particular airport and/ or the potential relationship between/among trends or changes (Source: U.S. DOT O&D Survey). • Average fares for international itineraries for travelers at each airport in the region (if the region has significant interna- tional service) were plotted on a line graph for each quarter of the study period. This enabled a review of trends at each airport, major changes at a particular airport and/or the potential relationship between/among trends or changes. (Source: U.S. DOT O&D Survey). • The percentage of market shares for domestic traffic of each airline at each airport in the region was established. This enabled a review of the market position of each airline at each airport for the most recent period of the study period. (Source: U.S. DOT T-100). • The percentage of market shares for international traffic of each airline at each airport in the region (if the region has significant international services) was established. This enabled a review of the market position of each airline at each airport for the most recent period of the study period (Source: U.S. DOT T-100). Profiles were prepared for each of the following 21 market regions and provided to the panel for review and comments: • Metro New York City, • Los Angeles Basin, • Metro Chicago/Milwaukee, • South Florida, • San Francisco Bay, • Southern Arizona, • Metro San Diego, • Southern Gulf Florida, • Greater San Antonio, • Central Florida, • Southwest Ohio/Northern Kentucky/Indiana, • Greater Cleveland, • Western Carolina, • West Central Virginia, • New Orleans, • Coastal Carolina, • Northern Gulf Coast, • Central Montana, • Rio Grande Valley, • Interior Southern Michigan, and • Central Northern Wisconsin.