Airlines' revenues are not any of our business. Or are they?
OAG's recent report on the annual revenues per route on the one hand reinforces what we all suspect, namely that business traffic is what generates revenue. And although revenue is not in itself sufficient for profit, it is certainly necessary and the most important ingredient.
Our chart shows just how important LHR-JFK is to British Airways. It alone accounts for about 6% of the carrier's revenue. The chart also shows how important Heathrow is to the world's carriers — five of the 10 routes involve Heathrow. No other airport features more than twice.
What do these routes have in common?
1. High traffic does not necessarily mean high revenue.
The most travelled city pair involving a European airport in OAG's report of the world's 20 busiest routes is Dublin-Heathrow in 14th place. The only other city pairs involving a European airport are Heathrow-New York in 16th and Heathrow-Schiphol in 19th place.
2. Short-haul v long-haul
Sydney-Melbourne is the only short-haul route in the list of highest revenue city pairs. Frankfurt to Berlin may be high frequency and popular but, as Richard Branson noticed a long time ago, the real money is in long-haul.
3 Business routes generate the most revenue.
This last point is what many would dismiss as a "no brainer" but knowing the relative importance of different routes to a carrier's strategy is a handy piece of information when choosing carriers or negotiating route deals.
For example, LHR-JFK might generate a lot of revenue for BA but it is by no means the only way to get between London and New York. A quick check of the four carriers on the route — AA, BA, Virgin and Delta — shows that Delta is growing the most quickly at 13% per annum. Growth to create extra capacity often means relative bargains for buyers.
Business travel will always raise the RPKs. After all business travellers make decisions closer to the time of travel and are not time or destination-driven but make their decisions on the basis of client need. That need is what economists like to term "inelastic" demand.
Price is not a deal-breaker when corporates decide to fly — the fare level only matters when selecting among the various suitable alternatives.
Airlines, as we all know, make their money from their business travellers, even those that don't fly at the front of the plane. It's therefore no surprise that the busiest long-haul business route in the world is also the most lucrative. For those who use oneworld and BA it brings into sharp focus the importance of BA's Heathrow slots — it has the most routes and the best schedule.
The big question is the dearth of any major European alliance carriers and major European hub airports from the list. Star may claim Singapore-Heathrow but Frankfurt, Schiphol and CDG are notable by their absence.
Could those be the sources of long-haul bargains?