Market expansion is one of the most pertinent ways to judge the general health of an industry. When times are hard businesses batten down the hatches and hang on. When times are good they look to market growth to bring higher profits and prosperity.
Despite a playing field that is far from level in terms of the degree of state ownership and the level of deregulation in different markets, the airline business is no exception to this rule of thumb. New route development remains fundamental to a carrier's success, whether it is undertaken in partnership with others or alone, and the leading airlines in particular know the dangers of standing still for too long.
It is reassuring therefore to note that this survey demonstrates substantial activity over the past two years, with some 88 carriers having launched 534 major new international routes between April 1993 and April 1995.
However there are signs that the dynamism of the market may be on the wane rather than on the increase: a year on year comparison of April 1995 over April 1993 shows a 27 per cent decline in new launch activity, with just 86 new routes being notified in the six months to April 1995 compared to 102 in the same period for 1994, and 118 in 1993.
America in the lead
North American carriers recorded the highest number of route startups at 304 or 56.9 per cent, followed by 101 launches (18.9 per cent) in Europe; 63 routes (11.8 per cent) in the Asia-Pacific region; 38 in Latin America and the Caribbean; and 18 in the Confederation of Independent States. The Middle East and Indian subcontinent trailed behind with just eight new routes and Africa - where the effects of regional deregulation has yet to be felt - had two new routes.
A further increase in route activity is likely in Europe as airline managers gain confidence and experience with operating in a deregulated market. The opening up of routes to third countries, for example through a open skies deal with the US, would also boost new route opportunities.
The survey reveals a direct correlation between the level of market activity and the degree of competition and deregulation in different parts of the globe. The fact that US and European carriers had a combined 76 per cent share of new routes during the period is no coincidence and can largely be attributed to liberalisation and deregulation.
Asia-Pacific's poor performance despite its high growth rates can be explained away partly by the tendency to add capacity on existing routes, and to develop secondary regional destinations which fall outside the minimum capacity level cutoff adopted by this survey. The Asian flag carriers also have more mature international route networks than their US counterparts. However those factors alone cannot account for the vast difference in market activity: some blame must be attributed to the region's restrictive bilaterals and the lack of a single air transport market, which muzzle an airline's ability to respond to market demand.
The carriers that are most likely to launch new routes are also most likely to cancel them. Overall success rates were relatively high, with just 152 routes - 28.5 per cents of routes launched - discontinued within two years. However US carriers discontinued the largest number of routes: 125 in total or some 42 per cent of those launched.
European carriers abandoned just 14 routes, a 13.9 per cent cancellation rate, and Asia-Pacific carriers five routes (7.9 per cent). The CIS had a high rate of abandonment - seven routes or 38.9 per cent - but all of these were by Aeroflot and reflected the instability in Russia. None of the routes launched in Africa, the Middle East or the Indian subcontinent over the two years had been cancelled by April 1995, while South American carriers cancelled just one route. The large number of route transferrals from Osaka/Itami to Kansai in November 1994 and a handful of other airport changes were not counted as route cancellations.
To produce this survey, Reed Travel Group Market Analysis isolated over 500 international routes on which carriers planned to begin new scheduled services between April 1993 and April 1995.
Smaller routes were eliminated by imposing a minimum one-way capacity level of 1,358 seats a week, equivalent to around four weekly Boeing 747 flights or a daily flight by a 200-seater such as the Boeing 757. For the route to be included in the listing, this level had to be reached in at least one of the five Iata scheduling seasons covered in the two years.
Even after eliminating marketing ploys such as ghost flights - the listing of multiple connecting flights through major hubs under separate flight numbers - the big seven US carriers led the field in new route development, launching nearly 54 per cent of the new international routes in the period. They also accounted for close to 80 per cent of all route cancellations, underlining the aggressive profit-led nature of the US industry where underperforming routes are withdrawn on a regular basis.
Though some of the US routes in the survey were of a seasonal character, the vast majority were not. One third of American Airlines' new flights were deleted after one or two seasons. Only a few, such as Boston-St Thomas and Boston-Port au Prince, are purely seasonal. However, seasonal stop/
starts, predominantly to the Caribbean and leisure destinations in Central America, accounted for 29 per cent of US carriers' new routes.
Access to markets
The importance US carriers place on access to Europe is also evident - 31 per cent of their new routes from the US, including code-shares, were transatlantic flights. US expansion in Asia-Pacific remains restricted by bilateral disputes over fifth freedom rights in particular.
American Airlines' strategy of Latin American expansion was clearly reflected by numerous new routes to the region, targeting the leisure markets of the Caribbean and the business markets of South America. In Europe the carrier withdrew services in a number of secondary markets and shifted capacity to major cities.
Both Continental and Delta relied heavily on expansion through codesharing and marketing alliances. Continental began codeshares with SAS, Alitalia and Continental Micronesia, while Delta signed intercontinental agreements with Varig, Virgin Atlantic, Sabena, Singapore Airlines and LOT. Delta also developed its Canadian network, following the US-Canada Open Skies accord, and launched some seasonal routes to the Caribbean and Central America.
Northwest laid the emphasis on developing its partnership with KLM over the Atlantic and markedly strengthened its presence in Asia-Pacific with 20 new services. Similarly United added to its European links through its codeshare agreement with Lufthansa and expanded in the Pacific using route authorities to the new Osaka/Kansai airport. Both carriers also added some Canadian services. Meanwhile USAir route changes reflected the alliance with BA. Changes were made to USAir's Canadian services and the carrier launched several services to Paris.
The general trend for TWA was to pull out of marginal European markets such as Scandinavia, Benelux and Switzerland and refocus resources on stronger destinations such as Paris, Italy and Greece. TWA lost some routes to other US carriers after entering Chapter 11 bankruptcy protection and is still having difficulties re-establishing itself in the marketplace.
In Europe, British Airways was by far the most active, having launched 25 new routes during the period, just six of which were discontinued. However many were as a result of the takeover of Dan-Air, and three routes to the US were added as part of wet-leasing arrangements under the USAir-BA partnership. BA led the field in franchising, putting its flight code on 10 new services offered by TAT, Deutsche BA and Maersk.
As a group, the UK carriers were most active. Virgin Atlantic launched seven new services, including three codeshares, ranking joint third in Europe with Air France and after Lufthansa. British Midland bolstered the UK camp with another three route launches and Air UK registered two, bringing total UK new routes to 37. It is difficult not to attribute this high level of activity to the more liberal UK market.
In contrast German carriers launched just 13 routes (Lufthansa nine, LTU four). Including Air Inter, Air France Group achieved 11. The opening of Paris/Orly was a boost to development in France with BA, Air France and British Midland launching services to London/Heathrow, Air UK going into Stansted and Air Liberté initiating service to Gatwick. Air Inter also added services to Madrid, Amsterdam and Oporto in 1994-5.
Low level in Asia
For a region whose market is growing twice as fast as Europe and the US, Asia-Pacific showed a very low level of new route activity. Japan Airlines led the field with 15 new routes, of which just two were discontinued within the two years, plus four launched by subsidiary Japan Asia Airways.
Eva Airways and Asiana underlined the strength of the independent second force Asian carriers by respectively launching nine and seven new routes, though each had abandoned one by the end of the period. Asia-Pacific is the only region in which carriers such as Asiana and Eva, which enjoy the backing of powerful private conglomerates, are starting significant numbers of major new routes with large capacity aircraft. Korean Air followed close on the heels of its rival Asiana by adding six new routes, while Thai International logged five.
Much of Asia's route development revolved around three major factors: the launch of direct services between China and South Korea; the improvement in trade between Japan and China, leading to China Eastern, JAL and All Nippon starting new routes between the two countries; and the opening of the new airport at Osaka/Kansai. With no curfews, a longer runway and better ATC access Kansai accounted for 16 new routes, excluding 22 airport moves from Osaka/Itami with some significant capacity increases.
Elsewhere, Air Canada and Canadian Airlines International launched six and three new destinations respectively and the Brazilian carriers, buoyed perhaps by the success of the Real currency initiative, started 17 new routes of which Varig and Transbrasil each had eight. Aeromexico and Mexicana launched four routes apiece, while Aeroejecutivo launched two US services from Monterrey.
In the CIS the picture was dominated by the uncertainty at Aeroflot Russian International Airlines, which started eight routes but had discontinued seven of them by April 1995. ARIA has alternately stopped and restarted routes in line with the general unpredictability in Russia, and after it successfully secured a return of the assets held by would-be breakaway carriers Russian Airlines and Gold Star.
All the carriers formed from the breakup of the former Aeroflot and serving international routes after November 1993 are still operating. However only Transaero's Kiev-Moscow is truly a new route. The other seven new CIS airlines - Air Moldova, Armenian Airlines, Azerbaijan Hava Yollari, Belavia, Orbi Georgian Airways, Ukraine Air and Uzbekistan Airways - took over routes previously operated by Aeroflot.
While the maximum number of route launches by any carrier in Africa, the Indian subcontinent and the Middle East was just two, none were abandoned. El Al had two new routes while Qatar Airways' new service from Doha to Dubai was a reminder of the threat to Gulf Air from startups in its owner states. Emirates also continued its rapid expansion from Dubai with two new destinations.
The low level of route development in Africa reflects the traditional problems of lack of investment and low market demand.
The survey confirms the North American carriers as the undisputed leaders in aggressive CRS marketing, particularly with regard to the presentation of codeshares, ghost flights and changes of gauge. They have perfected this to the point where they will routinely change schedules by as little as a minute to gain a competitive edge by being the first carrier on a route out of a destination.
While codesharing is an undisputed global trend, carriers do not always clearly indicate when a codeshare is involved - though the use of double designators is simple enough - and this makes many of them difficult to identify. However outside the US, the number of new routes added through new codesharing partnerships was surprisingly low. If codeshare flights are deducted there were 462 'genuine' new routes, 236 of which are operated by the big seven US carriers. The growth of codesharing by North American carriers was particularly evident, however - one in five new routes by the big seven were codeshares, predominantly with European carriers.
US carriers added 49 codeshare routes, or 68 per cent of the total for all the regions, and aggressively listed codeshare flights with foreign partners as their own. For example, United shows new flights beyond Frankfurt as a result of its alliance with Lufthansa, while Northwest shows new flights via Amsterdam. This contrasts sharply with the European practice, where carriers such as Lufthansa and KLM tend to mark codeshare flights merely as onward connections. Change of gauge also remains largely a US practice, with United and American accounting for 12 out of a total 13 new change of gauge flights.
The US also tops the bill for the controversial practice known as 'ghosting'. Attempts to gain a clear picture of new route developments were initially hampered by ghost flights which effectively duplicate scheduling information. This growing industry trend makes it very difficult to get an accurate picture of how many aircraft are actually in the sky. In the European Union the code of conduct for CRSs lays down specific display criteria for connecting and codeshare flights, but in the US there are no display rules and ghosting is rampant.
The lack of an industrywide standard for the correct marking of flight information enables a carrier to clutter US CRS screens with numerous online connections, pushing rivals' flights further down the screen. Alternatively, they can ensure that connecting flights via their major hubs get priority display by allocating a different flight number to each final destination. The latter practice means that each connection appears as a separate 'ghost' flight even though the main flight leg is the same.
The industry currently has a standard Iata agreed format for transmitting flight information - the Standard Scheduled Information Manual (SSIM) - but this needs to be vigourously enforced. The addition of another field to the SSIM to identify duplications would also help keep pace with marketing techniques such as codesharing and ghost flights. Easily accessible and accurate information would also simplify the task of airline, airport and air traffic control planners who need to know the exact number of flights being operated.
Haunted by ghost flights
For the purposes of this survey the ghost flights had to be manually extracted to allow an accurate listing of the top 534 international route launches. The main culprits were the big seven US majors - Delta, United, American, Continental, TWA and Northwest accounted for a total of 311 of 520 'new' routes in the original analysis. Iberia also ghosts several South American flights routed through its Miami hub.
These flights all appeared to be new launches, but they existed previously and were simply packaged differently under new flight numbers. When ghost flights were excluded, another 29 airlines appeared in the listing of the 534 highest capacity new routes.
British Airways adopts a similar practice by putting its flight numbers on services operated by partner carriers such as TAT and Deutsche BA, though technically the flights are new to British Airways' network.
Marketing techniques are increasingly dominating the need to provide accurate scheduling information, and while the US carriers are the unrivalled masters of CRS marketing, the danger is that without stricter regulation the trend will become global. Codes of conduct on how information can be displayed need to be standardised and industry standards of transmitting schedules data should be upgraded and made compulsory.
The substantial number of new routes being launched indicates that the aviation industry remains keen to exploit new opportunities. However the US carriers dominate. Airlines from other regions are being held back by caution caused by economic uncertainty and the lack of exposure to open markets. The rest of the world clearly has a long way to go before it can achieve the aggressive, market-led approach to route development taken by the US airline industry.
The degree of market regulation plays a major part in defining what is possible. Moves towards deregulation on the major inter-continental routes, and within the Asia-Pacific region, will be required before the airlines of Europe and Asia-Pacific can boost their new launch activity substantially.
Source: Airline Business