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4Air travel markets are comprised of many different demand characteristics that, in the aggregate, result in opportunities for airlines to provide air services at airports that are properly situated to access the markets and equipped to handle airline operation. In the simplest model, air passengers decide where they wish to fly and then choose an acceptable flight that oper- ates from an acceptable airport. Passengers then travel by sur- face transportation to the airport where the selected flight will depart, transition from the surface transportation portion of the trip to the aviation portion of the trip, and commence the air journey. More commonly, air travelers located in, or planning to fly to, a region will have multiple airport options and substan- tial airline competition, making choices much more complex. Multiple airports in a region, each with different levels of air service, quality of terminal/landside facilities and services, and customer service quality compete with each other. As airports compete for air service and traffic, they seek to maximize their share of the regional market, or âcatchment area.â The interplay of airline choice factors, such as network competition, pricing strategies, levels of service, and customer affinity programs, among others, contribute to this complexity. Multi-airport market regions are commonplace in the United States, as they are in many countries, especially in competitive air transportation environments. Understanding the types of multi-airport systems, the factors affecting airline choices as to what airport(s) to serve, and the factors driving passenger decisions regarding the use of airline services is essential to understanding how and why airlines and passengers make their choices in multi-airport regions. Research Objectives The objective of this research is to assist airports and their stakeholders to better understand the factors that drive air- line service decisions and passenger choice in multi-airport regions. To accomplish this objective, the ACRP panel and the research team developed a scope of work and research approach that focuses on the objective of informing the air- port community regarding the interaction of choice factors that drive the decisions of airlines and passengers. These inter- actions reflect the relationship between supply (airline deci- sions 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. Detailed analysis of these complex relationships at the micro level of individual airline/passenger discreet choice would be a massive undertaking, and not likely to generate findings and guidance that would be useful to airport man- agement and stakeholders. Indeed, as will be presented in this study, much detailed investigation of passenger choice factors is already available in the existing research literature, while very little is available regarding airline choice factors (especially in the context of regions with multiple airports). The panel and the research team agreed that greater utility will result from the identification and description, at a macro level, of the key choice factors that are involved, and the pre- sentation of an analysis that enhances the understanding of their interrelationships. Research Approach Each market, region, and airport is unique. In addition, each airline is unique, with some common business plan fea- tures but different capabilities and approaches to the markets served. Each individual consumer makes a discreet choice regarding where, when, and how he or she will book, pur- chase, 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 interrelationships of airline and passenger choice factors that have been demonstrated by events and trends, and the characteristics of multi-airport regions that affect those choices. C H A P T E R 1 Background
5 Demand, Supply, and Choice The demand for air travel is generated by individual deci- sions by individual consumers. In each market, that demand is manifested through the booking of reservations, the pur- chase of tickets, and the completion of travel. The markets involve multiple city-pair combinations, made more complex by the presence of multiple airports serving individual or proximate markets in the regions of origination and destina- tion. The choices are further complicated by the levels and prices of services offered by multiple carriers in each region and, potentially, at each airport. These individual consumer choices, when aggregated for a region or an airport, constitute market demand for air service. Underlying this demand are the macro-economic forces of volume (population) and buying power (household or dis- posable income), as well as the business, tourism, or other business development forces prevalent in the region. Within this aggregation of market demand, segmentation occurs based on the purpose of the travel: business, business com- bined with leisure, or leisure. The nature of a regionâs market demand for air service determines how each airline will view that region in the context of its unique business model. The greater the market demand (size and buying power), the greater the opportunity the market presents to airlines whose business model fits the service opportunity. Airlines serve markets by providing air service to specific airports, con- sistent with their business plans, at levels that, in the aggre- gate, are intended to satisfy overall consumer demand in the market. However, the level and quality of service provided by a particular airline at a particular airport will be based on a combination of factors relating to the airlineâs business plan objectives, priorities, capabilities, and perceptions of the mar- ket environment. Thus, demand in each market, as well as the relative level of service to be offered for that demand, will be viewed by each airline, and for each airport, in a different light. See Exhibit 1-1. The presence of multiple airports and multiple airlines in a region suggests that more choices are available for con- sumers, and increases the likelihood of more competition and lower fares. However, the competitive environment in a region may not be as vigorous as one would expect from the multiplicity of airlines and airports. Competition occurs on a trip-by-trip and city-pair level. Although there can be aggregated benefits to broad competition among airlines (especially network carrier services), the supply side of the demand/supply relationship in air travel occurs primarily on a city-pair itinerary basis. Airline industry conditions also impact how airlines view multiple airport regions. Industry consolidation, capacity constraint, high variable costs (i.e., fuel), and other circum- stances coming out of the Great Recession have resulted in an unprecedented close relationship between airline seat capacity and passenger air travel demand. At the time of this writing, airlines, through sophisticated revenue, inventory, and pricing management systems, are achieving historically high average load factors. They are also exhibiting great care when adding capacity on existing routes or starting service on new routes. Decisions on capacity expansion, while always made with care, are now made with greater analytic and strategic consider- ation. This has especially been the case in small markets, and in markets where multiple airport options are available to airline decisionmakers. Airline decisions on levels of service and airport choice, in turn, impact the choices that become available to air travelers. Although the demand for service may be present in a region (or part of a region), airline decisions regarding where ser- vice should be provided can constrain or expand the options available to air travelers and the service, price, and airport choices involved. Accordingly, this study approaches the issue of passenger and airline choice by analyzing trends in capacity, traffic, and pricing at each airport in a region, and in the region as a whole, to indicate the choices that airlines have made, and how those choices are impacting passenger choices. This focus on air- line choice, and the considerations involved in those choices, enables a better understand of resulting passenger options and choices, and indicates how both airline and passenger rela- tionships among these factors impact the efforts of airports and communities to improve air service. The research team undertook an extensive analysis (described in detail in Chapter 6) of the following five regions, as shown in Exhibit 1-2, which represent a cross-section of instructive examples: 1. Los Angeles Basin, 2. San Francisco Bay, Indicated Market Demand Service Performance Passenger Air Travel Airline Service Airline Service Decisions Exhibit 1-1. Market demand and airline service relationships.
6time-series basis to identify trends, tendencies, and interven- ing events. Additional research was conducted to understand how each regional market, and the airports within it, were impacted by trends and changes. Interviews with airport and airline representatives were conducted. 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. 3. Northern Gulf Coast, 4. Western Carolina, and 5. Central Wisconsin. Each of these regions was analyzed regarding how various choice factors appear to have influenced passenger trends and airline decisions in the region. Those choice factors were linked to several activity and performance metrics, and analyzed on a Exhibit 1-2. Multi-airport regions selected for case studies.
