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

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1 S U M M A R Y The objective of this research is to assist airports and their stakeholders to better under- stand the factors that drive airline service decisions and passenger choice in multi-airport regions. To accomplish this objective, the panel and the research team developed a scope of work and search approach that focus on the objective of informing the airport community regarding the interaction of choice factors that drive the decisions of airlines and passengers. These interactions reflect the relationship between supply (airline decisions to provide air service) and demand (air traveler decisions on which airport and airline to fly), but are complicated by the extent and nature of airport and airline options within a region. Each market, region, and airport is unique. In addition, each airline is unique, with some common business plan features but different capabilities and approaches to the markets they serve. Each individual consumer makes a discreet choice regarding where, when, and how he or she will book, purchase, and travel by air. Accordingly, a research approach has been developed for this study that uses a revealed preference approach, with a focus on the inter- relationships of airline and passenger choice factors, and the characteristics of multi-airport regions that affect those choices. The research team selected five regions, which represent a cross-section of instructive examples, as case studies: Los Angeles Basin, San Francisco Bay, Western Carolina, Northern Gulf Coast, and Central Wisconsin. Each of these regions was analyzed regarding how vari- ous choice factors appear to have influenced passenger trends and airline decisions in the region. The combination of quantitative analysis and related research resulted in insightful case studies, with lessons learned and the guidance obtained. The case studies are presented in Chapter 6. Recent events and trends have impacted each airline’s perspective on, and approach to, implementing its business plan and deploying air services, including the following: • The use of airline aircraft in the terrorism events of September 11, 2001, and the subsequent imposition of extensive passenger security screening and border controls caused an instanta- neous drop in the demand for air transport. • Rising and fluctuating oil prices caused higher fares in some markets and service reductions in price-sensitive markets and on long-haul domestic routes. • Numerous bankruptcies, acquisitions, mergers, downsizings, and other actions were taken by airline managements as they tried to weather the storm. • The financial crisis of 2008, and the ensuing Great Recession, further depressed the demand for air travel, resulting in additional consolidation of the industry. • Airlines focused on balancing capacity with demand on a market-by-market basis to achieve the goals of greater efficiency, high load factors, pricing power, and a return to profitability. Understanding Airline and Passenger Choice in Multi-Airport Regions

2At the time of this writing, airlines continue their cautious approach regarding the addition of capacity on existing routes or start-up of new services. Decisions on capacity expansion are now made with ever greater analytic and strategic consideration. Regions with multiple airport options pose additional choices to both airline decisionmak- ers and air travelers. The research undertaken and the case studies performed through this study reveal the nature of these choice factors—some of which have widespread applicability and others that are unique to each situation. The research and case studies yielded the following key findings (described in greater detail in Chapter 7): • Airlines prefer to concentrate services at as few airports as possible in a market; • Vigorous competitive response is likely if an incumbent airline feels threatened; • Niche services at alternative airports need business model compatibility and good surface access; • Niche and ultra-low-cost carriers tend to be more opportunistic in airport choice; • Large carriers have the resources to serve more than one airport in a region if needed; • Airfare parity can balance out other differences among airports; • Convenient, nearby hub airport will prompt traffic leakage from areas served by smaller airports; • Long and difficult drive to a major airport invites the choice of inferior service at nearby smaller airports; • City-pair service advantages can overcome drive time concerns; • Balanced services at multiple airports can create a competitive environment; • Small airports can retain less price-sensitive local travelers through convenience; and • Airline service reliability concerns prompt travelers to use airports with more flight frequency. The research, case studies, analyses, and reviews of airline and air travel trends performed in this study lead to a series of interrelated conclusions about passenger and airline choice in multi-airport regions. The most significant conclusions and issues relate to the effects of airline industry maturation, the resulting evolution of specialized airline business models, and the maturation of the U.S. air travel market. Airlines are averse to risk and place a high value on maintaining a careful balance of capacity, demand, and sustainable pricing. Expan- sion of air services must meet very high suitability tests in relation to an airline’s expansion strategy and competitive requirements. The reduction in the number of airline hubs has been a major aspect of airline industry maturation and consolidation. Fewer hubs result in a need for a smaller aircraft fleet and less overall capacity in the network, resulting in fewer hub ser- vice options, especially for smaller communities and smaller airports in multi-airport regions. Static or reduced air service levels at smaller airports in a region will also fuel greater traffic leakage to an alternative airport, especially if the levels of service are significantly higher at the alternative airport, and if the drive time and ground access are reasonable. The net effect is fewer air travel options for air travelers. Passenger choice options are increasingly circum- scribed by airline decisions regarding where and how to serve markets with multiple airports. The study also raises fundamental issues for those who seek to improve air service to U.S. communities, especially small communities or at small airports in multi-airport regions. Some conclusions are applicable to most, if not all, multi-airport regions, while others are only rel- evant to regions with similar characteristics. The study confirms the conclusion that each com- bination of market, airport, and airline circumstances in a region is unique, but that several key considerations, such as the following, are important for air service development success: • The importance of recognizing and understanding the business model that is driving each air- line’s choices, and how a region, a community, and an airport fit (or do not fit) into those choices;

3 • The performance of detailed analysis and service-specific evaluation to support the air service business case to a particular airline; • Robust and focused involvement of community interests in the support of air service develop- ment, with the airport operator in the lead; • High priority by smaller airports regarding public information efforts in the local market to ensure that local residents and businesses understand the services that are available at the local airport, and the relative convenience of using the local airport; • Provision of support for the introduction of new entrant airline services as a means to develop- ing services in underserved markets and improving the competitive environment in a region or at an airport; • Provision of the most efficient airport operation possible, consistent with the requirements of public interest and services; and • Institution of educational outreach programs for stakeholders on trends in the domestic air travel market and the impact of these trends on airline and passenger choice. In their totality, these conclusions and issues present a changed landscape for communi- ties, airports, airlines, and air travelers, and the need for alternative air service strategies by airport operators and their stakeholders.