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

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12 Notwithstanding the individual considerations involved in each traveler’s unique choice, the literature and industry expe- rience indicate that there are common factors that strongly influence such decisions. Researchers and practitioners have analyzed these common factors, including how and why pas- sengers decide which airport to use when they have options available from which to choose. As the industry has evolved over the past 30 or more years of deregulation, the choices presented to consumers have changed often. An airline that operated at an airport in a region may have ceased operations at that airport, or funda- mentally restructured its network, causing it to move its flight operations elsewhere or not offer the city-pair services it once did. Hubs have come and gone as airlines have pursued differ- ent strategies to become or remain profitable. Relationships with regional airlines have developed and changed signifi- cantly over time, as have airline fleets. Airports themselves have changed significantly over time. Infrastructure improvements, highway accessibility improve- ments, more parking options, access by light rail, availability of Internet access, variety and quality of concessions, airline lounges, and security considerations are all factors that can influence whether a traveler opts to use one airport or another. But fundamentally, the following two key choice factors domi- nate the research and the literature: • Air service quality (availability, frequency, capacity, and routing); and • Price (airfare, taxation, and ancillary fees). Passenger choice factors relate to both the demand and supply perspective. Because demand cannot be satisfied unless adequate supply is offered in the market, airline consider- ations regarding types and levels of service are fundamental to the options available for passenger choice. The provision of service by an airline requires a significant commitment of resources, taking into consideration such factors as the com- petitive environment, the strategic fit of the multi-airport market to the carrier’s system, and the revenue potential of the multi-airport market resulting from providing service at one or more airports in the market. Chapter 5 addresses the considerations involved in airline choice in greater detail. In making an air travel choice, the airline customer will evaluate travel options through various sales channels (air- line web sites, third-party web sites, corporate travel desk, leisure market wholesalers, and travel agents.) This evalu- ation will disclose the service options (carriers, frequency, and schedule—including airport(s) available to the desired travel destination). Once a determination of service options is made, fare comparisons can be made. Consideration also may be given to airline frequent flyer programs or other loy- alty program preferences. Exhibit 4-1 provides a simplified depiction of these choices, with an unprioritized listing of key choice factors. The primary drivers of airport choice in a multi-airport market are generally understood to be price, air service qual- ity, airline/alliance loyalty, and airport ground access. The lit- erature review supports this. Air travel consumers will also consider other factors such as parking availability and cost. Although airport service quality and customer service stan- dards impact the travel experience, and to a lesser degree airport choice, these generally are not seen as primary determinants in selecting between airports in a multi-airport market in the United States. The passenger choice factors evident in the literature review include airfares, flight frequency, accessibility, nonstop flights, airline loyalty programs, previous experience at an airport, airport capacity constraints, group travel, aircraft type, and flight time. Coupled with each of these factors is the matter of trip purpose (leisure or business), which may be the single largest determinant of airport choice.1 C H A P T E R 4 Passenger Choice Factors 1 Trip purpose is the most important “leakage variable” for modelers of airport choice behavior. Most models provide separate estimates for business and lei- sure travelers given they are often different choice sets. The other leakage vari- ables are shown to have no, or minimal, effect according to Suzuki et al. (2003).

13 Researchers also have come to understand that travelers do not weigh these factors in isolation of each other. Recently, researchers have moved toward analyzing factors in “bun- dles” according to the trade-offs passengers face. How these factors interact with each other may be a matter of individual mental calculus. The remainder of this chapter summarizes the findings of the literature review in this regard. Airfares Airfares are known to have a direct influence on whether passengers opt to choose among flight alternatives. All things being equal, passengers tend to prefer flying from an airport in which they can obtain a less expensive airfare for their trip. For example, Suzuki et al. (2003) reported that an estimated “31% of travelers in the Des Moines International Airport service area leak to larger airports to take advantage of lower fares and more convenient airline services.” It also is generally agreed that airfare is a more important consideration for leisure passengers than for business flyers, because fare is often reimbursed by the business passenger’s employer. Still, researchers have found that even business travelers can be quite price-sensitive.2 Other researchers have found that women, individuals traveling in a group, and high-income earners are less sensi- tive to fares than are men, individuals traveling alone, and low-income earners, respectively. Flight Frequency Passengers generally prefer to use airports in which they have greater flexibility in departure and arrival times, and they value multiple flight frequencies. This is more pronounced with business travelers. Related to flight frequency, some passengers have shown a demonstrated preference for large airports, based on the notion that they have more options for reaching their desti- nation in the event of a problem (e.g., if the passenger missed a flight, the passenger can get another flight later that same day). Given a choice between two airports in competitive avi- ation zones, passengers may rank additional flight frequen- cies above access time. However, this may not be true in less competitive areas. Flight frequency is much less important for passengers traveling to small regional airports. In one study on small community airport choice behavior, the authors found that both leisure and business travelers rank flight frequency relatively low, although business travelers still tend to value this variable slightly higher (Zhang and Xie, 2005). Accessibility In general, accessibility refers to the extent to which pas- sengers can get to the airport from their residence or business location. There are multiple dimensions to accessibility. Length of Time It Takes to Travel There by Surface Transportation (Vehicle or Rail) Access time is an important factor affecting choice behav- ior of both business and leisure passengers. Studies indicate that passengers are highly sensitive to this choice variable, and that even relatively small changes in access time, such as a 5-minute reduction, can induce noticeable shifts in air travel demand at an airport and for the airlines serving that airport (Ishii et al., 2009). One study found that business travelers tend to be less will- ing to drive long distances to get to an airport and are gen- erally willing to trade increased airfares for less travel time (Hess & Polak, 2005). Another study found that on average, passengers were willing to pay an extra $68 to avoid 1 hour of travel time (Warburg et al., 2006). However, the benefit of reduced access time can be offset by a passenger’s experience with individual airports (Windle and Dresner, 1995). That is, a poor experience at an airport, however defined, can cause passengers to choose a less convenient airport. Assessment of Travel Time Reliability on Ground Access Mode Choices Travel time reliability is an important factor of mode choice because lower travel time reliability results in a greater likelihood of missing an outbound flight, and imposes a Exhibit 4-1. Passenger choice steps. 2 Zhang and Xie (2005) found “that 60% of leisure passengers and some 45% of business passengers ranked ticket price as the most important factor.”

14 potentially high travel cost on the travelers. Because of uncer- tainty in access time, travelers must build in a “safety margin” (the difference in time between a traveler’s preferred airport arrival time and the expected arrival time), which effectively adds a type of cost. Business travelers place a higher value on their ground access safety margin than do leisure passengers (Tam et al., 2011). However, travel cost was found to be more important than reliability if the cost of one mode was much higher than that of an alternative. Light rail options (such as the Hong Kong Airport Express) are generally perceived to have “high travel time reliability.” Alternative Modes of Access (e.g., Bus) Alternative modes of access to an airport are often consid- ered an important element in attracting passengers. However, passengers may value those alternatives quite differently, based on their perceptions of travel time reliability and service quality. Some consumers will value low travel cost offered by bus trans- portation, but passengers with long-haul trips are less likely to use buses due to the unreliability of travel time perceived by departing air passengers. The size of the traveling group also can affect access mode choice decisions. Large groups will opt away from using airport express services and buses. Access Cost Researchers have defined access costs in various ways and found different levels of interest. One found that “access time and travel delay, together, make up the main non-air-time cost associated with a flight option” (Ishii et al., 2009). Another found that business travelers are willing to pay additional costs to ensure that they make their outbound flights, noting “depart- ing air passengers, particularly those traveling for business, are willing to pay a higher cost for accessing the airport than for their daily travel” (Tam et al., 2011). Nonstop Flights Nonstop flights remove the additional uncertainty or vari- ability associated with missing a connecting flight at a hub airport. In particular, business travelers are more interested in nonstop flights than connecting flights, if given a choice, and are willing to pay a premium to do so. One researcher deter- mined that on average, passengers are willing to pay, “about $69 more for a nonstop flight itinerary relative to a connect- ing flight itinerary” (Warburg et al., 2006). That same study found that “business travelers stay away from connecting flights, even after controlling for flight times (which includes connection times).” In contrast, leisure passengers are more willing to trade lower airfares for the “inconvenience” of con- necting service. Frequent Flyer Memberships Passengers in general “prefer airlines with which they are frequent flyers” (Warburg et al., 2006). This “loyalty effect” is greater for travelers who have some elite standing with an airline’s frequent flyer program compared to standard- or medium-level members. However, this factor by itself has only a marginally significant effect on airport choice decisions. Aircraft Type Researchers have found that passengers’ perceived prefer- ence for one aircraft type over another (e.g., preference for jets over turboprops) exerts relatively little effect in airport choice decisions. One study found this to be true regardless of whether the passenger was traveling for leisure or business (Zhang, 2005). Another study determined that “business trav- elers prefer itineraries with standard jets relative to propeller or regional jets, and interestingly, also to wide body jets” and that this was even more pronounced with frequent travelers (Warburg et al., 2006). Airport Service Quality The research literature does not address whether the qual- ity of airport services (i.e., ease of use of the airport, level of terminal concessions and services, etc.) is a factor in passen- ger decisions. Nonetheless, airport operators have increasingly taken steps to improve airport services. Several considerations are involved in such decisions, including the desire to increase non-aeronautical revenue, and improve the image of the air- port within the community, etc. Whether such improvements in airport services significantly affect passenger choice among airports is not clear because such an analysis would require equivalent value among all other significant passenger choice factors and specific evaluation of airport service quality as a definable variable. Although there is little doubt that air trav- elers prefer, and in some cases (i.e., business travelers) place a value on quality of facilities and services at airports, there is not yet an indication in the research literature regarding how that value relates to other valued considerations (i.e., price and quality of air service).