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Connecting the dots

It’s just after 6 AM, and a wide-eyed Dolly Parton impersonator is gripping the microphone and welcoming fliers to Boston’s gate C36 for the inaugural JetBlue flight to Nashville. The festivities include free biscuits and Dunkin Donuts coffee to fuel the mood. Passengers (including off-duty employees excited to join the merriment) hear from airline execs on the ground and inflight where a drawing for free flights and True Blue points keep the party atmosphere going.

After landing, the aircraft receives a traditional water cannon salute before parking at gate B6. It so happens this is the airline’s identifier, and many airports like to give JetBlue this gate number.

This is the story of a typical inaugural flight, often a party mood for eager travelers and aviation fans. Aboard JetBlue’s Nashville flight, one couple was flying their fifth inaugural with the airline because they find them “so much fun.”

Launching a new flight takes intense forecasting from an airline’s route planning and revenue management teams. Airport executives and city leaders often lobby airlines for service. Consultants may help to develop proposals to explain why an airline can perform well in a certain market. Occasionally, cities offer incentive packages and airport usage fee discounts to lure airlines, too.  

The Calculus of Fares

Full planes don’t always translate to profitable flying. While exploring origin and destination numbers (the number of passengers that travel between specific city pairs as recorded by the Department of Transportation) is important, the mix of fares an airline can sell per flight is equally important.  Fares for mostly leisure travel to many cities in Florida may not be as high as flights to business hubs. Routes with limited competition yield higher fares, which become a gold mine for airlines.

Airlines must take into account the opportunity cost of using the same aircraft to fly another, more profitable route. JetBlue (and other airlines) may have been eyeing Boston to Nashville flights for awhile, but if a plane can be more effectively used to earn a better range of profitable fares on another route, that’s where it goes.

Overall domestic capacity is shrinking following a round of recent airline mergers, and cities are vying for airline attention. The reduction in hubs and money-losing flights to and from those hubs correlate to the airline industry’s record profits.  Airlines don’t have unlimited fleets and must manage their resources to maximize profits for shareholders. That may not inspire you while you’re jostling 200 fellow passengers to board a flight or folding yourself in half aboard a smaller regional jet.

In the case of regional jets, flights might be packed full, but the airline knows it can use its larger planes more efficiently elsewhere or offer greater frequency in a market with smaller planes. Plus, by offering fewer seats, an airline can sometimes secure a higher monetary yield per seat.

Don’t forget about cargo. For example, flights between many US cities and Lima, Peru are known for carrying large amounts of cargo, which are impressive money makers for airlines. Most recently, Delta upgraded its aircraft to a Boeing 777, one of the company’s largest, to offer greater cargo capacity.

Despite all this sophisticated planning, some airlines operate flights as a status symbol or to flex their economic muscle. Flights to, from, or between New York or London are often the first to showcase new airline products because of the importance of being present in those competitive markets. Malaysia Airlines has operated its most elaborate aircraft, the Airbus A380, to London Heathrow for many years, despite weak demand, to be competitive.

Back to Nashville and Dolly Parton. Arriving passengers are treated to JetBlue gift bags, Starbucks coffee, and welcome celebratory cake to the tune of a local band. Brand awareness for the “new airline in town” grows for JetBlue as others take note of the hubbub at gate B6. The hard work of city leaders and airline network planners is now complete. Passengers have a new route, and the presence of JetBlue injects competition into the local market.

The airline business is certainly one of complexity, and occasionally inexplicable actions, but at the end of the day, it’s a well-oiled machine that serves passengers and shareholders alike with a network of flights chosen for maximum value.

By Ramsey Qubein