Airline Network Trends

Airline Leader

New aircraft technology creates opportunities for smaller airports as city pairs proliferate. The number of unique city pairs has roughly doubled in the past 20 years to over 18,000, according to IATA. If this trend continues, the number of city pairs will exceed 25,000 by 2027. That is 7000 new routes over the space of the next ten years - almost two per day.

  • The number of unique city pairs has doubled in the past 20 years, reaching over 18,000, and is expected to exceed 25,000 by 2027.
  • Low-cost carriers (LCCs) are transitioning to larger short-haul aircraft to meet demand and improve operational economics.
  • Twin-aisle aircraft are increasingly being used on short-haul routes, leading to changes in airline network development strategies.
  • New generation aircraft like the Boeing 737 MAX and A320neo are blurring the gap between single-aisle and twin-aisle aircraft, opening up new city pair opportunities.
  • Smaller airports can sustain longer routes through the deployment of smaller single-aisle aircraft, creating new connectivity options.
  • Airlines are using new generation aircraft to stimulate demand and enter new markets, with examples including British Airways' London Heathrow-Austin route and Norwegian's transatlantic connections.

As the industry develops there has been a general upgauging across multiple markets as they show maturity. Across Europe, the US and Latin America low-cost carriers (LCCs) are already transitioning to larger short haul equipment to meet demand and deliver better operational economics.
The Asian LCC market, while is still in its infancy compared to other parts of the world is quickly catching up and following a similar trend.
There is also increasingly a greater overlap between the operations of twin aisle and single aisle aircraft types. This is not new, but is an accelerating trend. The use of twin aisle on short haul operations, that is routes less than 2000nm, has increased by 26% in six years, according to Airbus.
Whether this has been driven by capacity constraints, cargo requirements or simply demand, it is fundamentally changing the way airlines are approaching network development strategies.
Similarly, while twin aisle aircraft are used more often on routes less than 2000nm than single aisle types are on the routes longer than 2000nm, the arrival of new generation aircraft like the Boeing 737 MAX and A320neo will blur that gap as the extended range and enhanced efficiency of the aircraft opens up new city pair opportunities.
When it comes to making network decisions, airlines have traditionally been risk averse. It is a major risk (and expenditure) to put an aircraft in a new market unless there is sure analysis behind the decision. But new generation aircraft in both the short and long haul markets are offsetting that risk element through a step change reduction in operational costs
For example, Norwegian has used its 737 MAX-8s to open up new single aisle trans Atlantic connections linking Norway, Scotland, Northern Ireland and Republic of Ireland with the greater Boston and New York markets.
These are all brand new city pair links that have translated the successful basic principles of the short haul LCC model into the long haul market, particularly utilising smaller airports like Newburgh's Stewart International Airport, 97km north of downtown Manhattan, and Theodore Francis Green State Airport in Providence, Rhode Island.

LCCs with A321neo orders

Airline Orders
AirAsia 100
Cebu Pacific 32
easyJet 30
IndiGo 20
JetBlue 60
Lion Air 65
Norwegian 30
Pegasus Airlines 18
VietJet Air 31
Wizz Air 110

At over 5500 km (almost 3000nm), the Bergen-Newburgh route is the longest currently flown by the new 737 MAX-8. In fact all of Norwegian's transatlantic routes are longer than 2000nm. The launch customer for the aircraft, Lion Air in Indonesia, also initially scheduled the aircraft on Denpasar-Jinan, a distance of over 5000km and Denpasar-Chengdu, around 4500km, albeit it has subsequently rescheduled the aircraft onto shorter routes.
Elsewhere, Malindo Air has used the 737 MAX-8 on longer sectors such as Kuala Lumpur-Lahore, while Southwest Airlines will deploy the aircraft on transcontinental US domestic routes such as Baltimore-Los Angeles and Baltimore-San Diego from the final quarter of 2017.
In Europe, WOW air is taking advantage of Iceland's location to fly A321s into points Eastern Canada and USA, including a noteworthy additional European connection for Pittsburgh, while leisure carrier Primera Air is using its new A321neoLRs to launch service from Birmingham, London Stansted and Paris CDG to Boston and New York from summer 2018, with service to Toronto expected to follow.
Suddenly small and medium-sized airports across the globe can now realistically sustain longer routes through the deployment of smaller single aisle equipment. Norwegian is a clear innovator as it grows its long haul low cost strategy to become a global player, while Primera Air's transatlantic ambitions are based on solid historic travel data highlighting the true demand for its flights. But both airlines' strategies are reliant on the new generation airliners rolling off the production line.
Route decisions are based on a range of different parameters that also differ between individual airlines and the destinations under consideration. There can be a fine line between securing the rewards of first mover status and balancing the risk involved in being first to market or instead placing an aircraft in an established market (either own or a competitor) where data shows clear demand to support the additional capacity.
British Airways (BA) has recently shown the clear value of first mover status and the role new generation aircraft play in the process with its London Heathrow-Austin Bergstom International route, the only nonstop transatlantic connectivity from the Texas state capital, now considered one of the world's major centres for the tech industry. This is a route that has been born from advancements in aircraft technology and one which BA and airport officials acknowledge would not have been economically viable before the UK carrier introduced the 787 into its fleet.
BA has significantly stimulated demand on the London-Austin city pair, growing O&D demand estimates by over 50% between the year ahead of its Mar-2014 launch (Mar-2013 to Feb-2014) and the last 12 months (May-2016 to Apr-2017), handling 97,500 passengers in 2014, 124,500 in 2015 and 130,500 in 2016, according to the UK Civil Aviation Authority (CAA).
The route started with a 787-8, growing to a daily service from May-2014. In winter 2015/2016 strong demand saw a 777 deployed on the route and from Jul-2016 it has been exclusively flown by a 787-9. Over this period BA has built its market share of this growing market from less than 10% to over 67%.
Its success has now brought competition to the market with Norwegian adding its own three times weekly London-Austin route from Mar-2018, albeit flying from Gatwick airport in the UK capital.
This mirrors BA's decision to introduce its own flights from London Gatwick to Fort Lauderdale and Oakland International, two markets that Norwegian has developed from the UK capital and could perhaps suggests a little more about the airlines reasoning behind the route selection.
The trans Atlantic market may be in maturity, but there remains opportunities for new city pair connectivity, mainly driven by the advancements in aircraft technology taking some of the risk (and costs) out of flying.
Since BA launched Austin, regular first scheduled links to Europe have also been secured from Hartford (Aer Lingus to Dublin and Norwegian to Edinburgh); Newburgh (Norwegian to Belfast, Bergen, Dublin, Edinburgh and Shannon); New Orleans (BA to London and Condor to Frankfurt); Providence (Condor to Frankfurt in 2015 and 2016 and now Norwegian to Belfast, Bergen, Cork, Dublin, Edinburgh and Shannon) and San Jose (British Airways to London and Lufthansa to Frankfurt).
Noticeably absent from that list are the US majors which appear more fearful of local markets and are instead focusing their growth on feeding their hubs and the safety of their bilateral and multilateral partnerships. For example, American Airlines has added Amsterdam and Rome to its network from Dallas and Barcelona from Chicago; in 2017 Delta Air Lines has added Dublin from Boston; Berlin, Glasgow and Lisbon from New York; London from Portland and United Airlines has added Munich from San Francisco.
Ultimately route decisions come down to a mix of the true business case for each service, the confidence or previous experiences of the carrier and perhaps a tint of strategic reasoning. But, when it comes to new markets airlines will seek as much support as possible through incentives and marketing support and that is what could win new connectivity.

Annual Transatlantic Seat Capacity Between Europe - USA

Year Seats
2007 6,8004,431
2008 70,333,838
2009 64,460,362
2010 65,534,075
2011 68,170,365
2012 66,488,447
2013 66,620,236
2014 70,494,184
2015 74,368,629
2016 79,754,696
2017 84,959,617

Back in autumn 2015, before Aer Lingus confirmed its plans to be the first carrier since 2008 to serve Bradley International Airport in Hartford, Connecticut from Europe, it was also exploring Los Angeles, Miami and Newark. However, its final selection of the 'Gateway to New England' would certainly have been swayed by the substantial subsidy/revenue guarantee that was on offer to entice a European carrier to serve the airport.
When Louis Armstrong New Orleans International Airport secured the return of BA's link to London in summer 2017 (it previously served the US city as a fuel stop on a three times weekly London Gatwick-Mexico City route flown with a Lockheed L1011 TriStar up to the early 1980s) it was one of a number of airports across the US and the rest of the world competing for BA's capacity.

Two-Way Summer Seat Capacity Between London and Austin

Season British Airways (BA) Norwegian (DY)
Summer 2014 85,600 0
Summer 2015 89,896 0
Summer 2016 98,180 0
Summer 2017 93,744 0
Summer 2018 74,736 50912

New Orleans had been pursuing a key hub link to Europe for a number of years having been among the leading US cities by regional population not to be directly linked to Europe by regular air connectivity. These included the likes of Indianapolis International, Kansas City International and Memphis International, all major population centres without nonstop connectivity to Europe.
These airports are now pushing harder than ever to secure new services and will be able to take some comfort from the success of the likes of London-Austin and London-New Orleans potentially using these experiences, booking curves and market stimulation data as a benchmark for their own pitches.
The strength of serving a major European hub means that services into US markets which have limited alternative European connectivity can manage to have between 60% and 70% of traffic connecting at the hub to other destinations, helping complement local traffic flows.
There is always a major risk entering any new market and that can clearly be seen in BA's long haul strategy and its decision alongside New Orleans to add flights from London to Fort Lauderdale and Oakland International. The airline confirms both markets had been on its radar, but Norwegian's own operations on the routes had proven "an appetite for direct flights".
But, entering an established market can also deliver its own challenges to an airline. BA would have had to carefully consider all aspects of the operation - minimum frequency, flight schedule, slot availability, corporate travel demand, network feed, market split, seasonality, directional demand, among other factors.
As the LCC business model matures across the globe and long haul low cost operations grow, it is clear that network carriers are adapting their business strategies to boost competitiveness.
Over the past decade, as consolidation and network restructuring has occurred, most notably in the US but also in other regions, balance sheets have strengthened and many network carriers are better financially positioned to withstand the increasingly competitive environment.
New dimensions to the ever changing competitive landscape of the network carriers versus the growing LCC market segment, are also being underpinned by digitalisation and technological developments. And a new generation of short and long haul aircraft is contributing to the fragmentation of international networks and will drive significant new network opportunities.