The recent award of routes between the US and Tokyo's Haneda airport, especially the one between Haneda and Minneapolis St Paul (MSP) to Delta Air Lines, illustrates why airlines want the routes they do, what routes they get and consequences for fares — and those paying those fares.
Consider five factors:
1. Airlines' choice of routes
Airlines are usually able to choose the routes that fit their strategy. Decisions are based on a number of reasons including where customers and potential customers want to fly to and from and what locations will complement the carrier's existing business.
This means considering the market at both ends of the route as well as passengers' final destinations. It also means considering cost.
It is a huge investment to establish an airport base so any expansion of services at an existing base will lower a carrier's unit costs while opening a new base of operations can be costly.
However, different airports do charge substantially different fees.
2. Busy airports
There is more demand for slots at some airports — Heathrow, for example — than there are slots available so access will be restricted either by price or regulation.
Slots at Haneda are limited and in high demand because it is only about 10 miles from central Tokyo while Narita, which is commonly used by many long-haul airlines, is nearly 40 miles away.
3. Sustainability of routes
A route has to yield the revenue or indirect benefits that a carrier expects. Routes can even be net earners because some airports actually incentivise carriers — usually to gain the footfall necessary to justify rents for the retail space. Airports that are more in demand such as Heathrow are in the happy position of being able to charge higher rents so carriers at these airports generally need to generate more revenue per passenger. This inevitably means potential for a greater supply of premium class passengers who provide the higher margin business which subsidises the lower fares at the back of a plane.
Demand for business class seats will vary by route. Nashville, Tennessee and San Jose, California have approximately the same population but a direct service between London and San Jose is more likely to succeed because the technology start-ups in Silicon Valley are more likely than Nashville to attract business class traffic.
4. Onward connections
Some routes, such as Minneapolis St Paul are attractive not because of point-to-point traffic but because of their position as hubs for high volumes of connecting traffic. Delta was awarded the Haneda route to ensure access to Asia from the central North of the US. Although American could demonstrate demand from its proposed route from DFW to Haneda, the Government did not judge the marginal increase in total traffic to be as beneficial to the economy as access to Asia from another region.
Flying to a hub isn't enough in itself. Virgin Atlantic failed several times to establish a route between London and Chicago's O'Hare, a well-established hub, because of its then lack of US partners, a challenge which carriers such as United do not face.
5. External factors
When new routes are launched there will always be short-term incentives such as introductory offers.
By the same token external factors such as terrorist attacks or political instability can adversely affect demand for a route.
If passengers need short transfer times between arrival of flight and arriving at a business meeting in Canary Wharf, London City Airport is going to look more attractive than Stansted.
Customers are willing to pay more to fly to well-positioned airports.