This video was made possible by Curiosity Stream. Watch thousands of documentaries for
free for 30 days at the link in the description. Airlines can make a lot of money by flying
to the right places. British Airways, for example, long-ago cemented themselves as the
leader on the London Heathrow to New York JFK route and flying between these two airports
now earns them over $1 billion per year. That’s more than any airline makes on any other route
in the world. Conversely, though, airlines can lose a lot of money by flying to the wrong
places. American Airlines, for example, recently cancelled their Chicago to Beijing flight
as it was loosing them tens of millions of dollars per year. Now, the fact that this
route failed might be puzzling considering it flew between the world’s fiftieth and
the world seventh largest city. Even more, they were flying the 787-8 Dreamliner—the
smallest plane they could on this route. Nonetheless, it was truly a financial disaster. The airline
said that, in terms of annual revenue, the route was $80 million away from their target.
The truth is that deciding where to fly is a lot more complicated than pairing up the
largest cities. It’s an art that people spend their whole lives mastering and the
difference between an airline that’s good at route planning and one that’s bad at
it can be the difference between a profitable airline and a defunct one.
In 2015, the big three airlines in the US—American, Delta, and United—launched 101 new routes.
These included everything from United’s new 30-minute regional flight between Chicago
and Kalamazoo to Delta’s new transpacific service between Los Angeles and Shanghai.
Some of these 101 survived, some did not. Of the routes that Delta launched in 2015,
about 70% still fly today. There were some big, noticeable cancellations from their 2015-launched
routes including Orlando to Sao Paolo, New York to Manchester, and Philadelphia to London.
Meanwhile, American Airlines did a little better with 76% of their 2015 routes surviving
today. Still, they clearly had some expensive failures with routes like Dallas to Quito,
Miami to Frankfurt, and New York to Birmingham. United Airlines, though, has a noticeably
higher 85% of those 2015 routes still flying today. The only four routes from 2015 that
didn’t work out were Houston to Peoria, Newark to Newcastle, Dulles to Moline, and
Denver to San Jose. Now, it’s worth noting that the survival of routes is not the one,
definitive measure of how good airlines are at route planning. Different companies might
have different risk tolerances, they might wait out a route longer, there are a lot of
other factors involved, but there is other evidence that United is good at route planning.
There are a number of destinations that United is the sole American airline to operate to.
Just looking at long-haul destinations, that includes Melbourne, Tahiti, Taipei, Chengdu,
Delhi, Mumbai, Naples, Porto, and Stockholm. In some of these cases, there might be just
enough traffic to support one US airline flying there and United got there first. In addition,
there are plenty of routes that United flies without non-stop competition like Denver to
Tokyo, Houston to Rio de Janeiro, DC to Zurich, and Chicago to Edinburgh. Many of these potentially
riskier routes have survived for years so they’re clearly good at route planning.
They’re clearly good at finding the opportunities both big and small.
According to United, the two major factors they look at when deciding where to fly are,
“how many people want to go there, and how much are they willing to pay?” These questions
are easy to ask but extremely difficult to answer—that’s why it’s people’s whole
jobs. For figuring how many people want to go to a place, the airline itself has a decent
amount of data. The majority of new United routes are to destinations already served
by another one of their hubs. For example, one of the routes that United added in 2015
was from Denver to Southwest Oregon Regional Airport which was already served by its San
Francisco hub. Given that, United already had data on how many people flew there from
Denver via San Francisco and would therefore take a non-stop flight. United also flies
to a number of places non-stop from Denver that it doesn’t from San Francisco such
as Albuquerque, Sioux Falls, and Wichita that would now have a one-stop option to Southwest
Oregon Regional Airport rather than a two stop. For brand new destinations, though,
especially long-haul ones, United doesn’t have its own passenger figures so they have
to figure out how many people want to go there through other means. One of the great assets
that travel booking sites like Expedia, Google Flights, and Skyscanner have is that they
know where people want to fly. They know which city-pairs people search for flights between
and many sell this incredibly valuable data to market research companies and airlines.
Skyscanner, for example, knows that 190,000 people a year search for a flight between
Birmingham and Hong Kong, 420,000 people a year search for a flight between Delhi and
Auckland, 1.1 million people a year search for a flight between Bangkok and Barcelona,
and 1.4 million people a year search for a flight between London and Kochi. These all
represent big opportunities that airlines have yet to act on. People are still making
these trips but having to connect. Creating a non-stop flight on any of these routes would
capture a decent amount of the traffic. The reason some of these popular routes do
not have non-stop service, though, comes down to that second factor—how much people are
willing to pay. People usually pay a premium to fly on non-stop flights, but there’s
a maximum to how much extra people will pay for the convenience. In October 2017, United
launched a new nonstop route from Los Angeles to Singapore to much fanfare. This would be
the airline’s longest ever route, the only non-stop connection between the two cities,
and they expected it to do great. The problem, though, was the competition. Currently, roundtrip
connecting flights between Los Angeles and Singapore are on sale for as little as $444.
At the time that United was flying this route, they were supposedly even less. United just
couldn’t come close to the prices that others were offering and, exactly a year after this
route was launched, it was cancelled. It wasn’t a complete failure—they ended up just adding
a second frequency to Singapore from San Francisco—but it is an example of a route that looked great
on paper but didn’t work out in reality. It was a similar reason that likely led to
the cancellation of the American flight from Chicago to Beijing mentioned at the beginning.
It was just too tough to compete against the low fares of Asian airlines and, as a result,
American’s planes were crossing the Pacific empty. In all, airlines need to figure out
what people will pay for a route to figure out if it’s profitable and also if it’s
going to be the most profitable route they can add. Part of the reason why American and
Delta might not have added a nonstop flight to Singapore is because they can make more
money using the same plane elsewhere. United essentially has now used up four of its planes
to fly its two daily flights to Singapore. They’re charging a minimum of about $800
to fly roundtrip on this 16-hour flight whereas, from the east coast, United is also charging
about $800 to fly roundtrip on their 6-hour flight from DC to London. Airlines need to
consider whether, out of a whole world of options, they’re picking the best one when
adding a route. Beyond these two main factors, there are others
involved in whether or not a route will work financially. For example, while a certain
route might work for one airline, the exact same route might not work for another. From
Australia, there are three routes to mainland China operated by Australian airlines—Qantas
from Sydney to Beijing and Shanghai and Jetstar from Melbourne to Zhengzhou. Meanwhile, from
mainland China, there are 43 routes to Australia operated by Chinese airlines. This extreme
imbalance exists because people tend to prefer to fly on airlines from their home country
especially in cases like this where the language is different. There are far more Chinese traveling
to Australia than Australians traveling to China so, therefore, there are far more Chinese
airlines flying to Australia than vice versa. Of course there are other factors involved
such as, given the lower cost of living in China, Chinese airlines have lower labor costs
and are therefore able to offer lower fares, but when an airline is figuring out whether
a route will work, the nationality and directionality of travelers does matter.
Sometimes, though, a route is launched that just doesn’t make financial since—at least
independently. Sometimes airlines launch routes primarily to slow the advance of a competitor.
For example, on September 6th, 2017, Wow Air, the Icelandic budget airline, announced that
it would start flying from Reykjavik to Dallas. Less than a week later, Icelandair, the other
major Icelandic airline, announced that they too would start flying from Reykjavik to Dallas.
About a month after that, American Airlines announced that they would also start flying
to Reykjavik from Dallas. Now, Dallas is very much a fortress hub for American Airlines.
That is, they control a huge percentage of the market share there and they want it to
stay that way. They didn’t want their customers to start flying on Wow or Icelandair to Iceland
or, more importantly, beyond to Europe. While Iceland has seen a significant increase in
tourism traffic over the past decade, there are a few signs signaling that this route
addition might have been more for competitive purposes than because it was the best financial
choice independently. The first is the suspicious timing, announcing quite soon after the two
other airlines did, and the other is that it really doesn’t make sense for American’s
one and only Iceland flight to leave from Dallas. This requires all connecting travelers
from the east half of the country to backtrack to Dallas if they want to fly on American
to Iceland. The airline has, in recent years, concentrated most of their transatlantic flights
going to leisure-oriented destinations, such as Iceland, to their Philadelphia hub but,
in this case, it was clearly most likely more about stopping Wow and Icelandair. In this,
American was successful. Both of its competitors have since stopped flying to Dallas. While
this and other similar routes might not make money themselves, overall they’re the right
decision for the company since they can force a competitor out of the market and, in this
case, passengers that might have connected on Wow or Icelandair from Dallas to Europe
would now take American’s transatlantic flights.
So, once all of that analysis happens, once an airline decides that it’s a good idea
to launch a route, it still doesn’t mean that an airline can go ahead and start flying.
Obviously, they need a spare plane. That can either come from another route cancellation
or through a new aircraft delivery. For example, United’s new route from San Francisco to
Tahiti, with relatively low demand, required its smallest long-haul plane—the 787-8 Dreamliner.
One of those only became available when a new 787-9 was delivered from Boeing that replaced
an older 787-8 on the busier San Francisco to Munich route. Airlines also need gate space
and, at some busy airports, a landing slot. For many international routes, airlines also
need government approval to begin a new flight. There’s plenty more uninteresting bureaucracy
but then, sometime, usually years after an airline first examines whether a route will
make sense, the first plane will take off between those two airports. No matter how
much work is put into analyzing whether a route will work, reality always has unforeseen
variables. The true test of whether a route will work is actually flying the route. Once
that happens, airlines will evaluate its performance. If it’s making enough money, it will keep
flying. If it’s not, it usually will not. This is all part o f airlines’ continuous
cycle of planning, launching, and evaluating routes in order to find the few that can actually
turn a profit in this notoriously financially difficult industry.
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