A Community Flights Case Study:
AIRPORT LOAD FACTOR-A Strong Factor in Air Service Growth

In a recent case study of seven mountain/ski oriented airports conducted by Community Flights, there was a strong correlation between a prior years load factor and the ability of the airport to retain and grow air service or to loss air capacity the following year. High Flight Occupancies seem to be a strong factor in air service growth.

% of ski airports with a loss or growth of air service based on prior year LF%*

       2012                                         2013                                  2013
Performance                             Growth %                         Loss %
<65% LF                                          16.60%                             83.40%
65%-69% LF                                   68.75%                             31.25%
70%> LF                                          77.78%                             22.22%

While the above shows flight occupancy is not an absolute indicator of air service development, the results do indicate that communities that facilitate a stronger load factor, will trend to generate more flight revenue and appear to have greater opportunities for sustaining or growing air service in subsequent years/seasons.

Maximizing flight revenue and minimizing flight costs in general remain the main objective of the airlines. Focusing on gaining incremental traffic via leakage recapture and more local and visiting passenger capture increases flight occupancies and more often than not increases flight revenues. This helps your community strengthen your flight service in the eyes of the airlines, AND often makes future flight acquisition more possible.

*Airports looked at in the case study: Montrose (MTJ), Aspen (ASE), Vail-Eagle County (EGE), Hayden-Steamboat Springs (HDN),  Jackson Hole (JAC), Gunnison-Crested Butte (GUC), Sun Valley (SUN)

An airport by airport look at the effect of the prior year load factor in the December – March / April – May / June – September / Oct – Nov seasons on the next years seat capacity, are what are represented by the above chart results. These results are cumulative of all four quarters on a percentage basis.

Other Factors There are other factors, other than prior year/season load factor, that reflect the year over year schedule capacity changes, chief among them is total revenue produced on the flights and with community incentive payments. All of the communities in the case study have some level of revenue guarantee incentive with the exception of Aspen who tends to have the highest average airfares in the competitive set. (Aspen offers a significant marketing incentive to the airlines in order to acquire air service).

Incentives can push a financial loss on a flight route to a profit. This will skew the schedule capacity results as it regards some situations where  lower load factor flights see a sustaining or growing of air service. In most of these instances, without the financial incentives, the community wouldn’t produce overall flight revenues that were at a profitable level and would therefore likely see air service capacity losses.

Its about overall capacity profitability. Another important factor to consider with these ski airport market results is that even with revenue guarantees, many of the airlines are looking at overall capacity during the season (Revenue Guarantee Flights and Non-Revenue Guarantee flights). The airlines are measuring the totality of the revenue guarantees and projected flight revenues they believe will be produced against what frequency and capacity level they think they can operate all their flights profitably. For example if the revenue guarantee flights operate profitably but the non-revenue guarantee flights operate at a loss due to too much capacity in the market, the airlines will self-discipline the capacity either in the current year or the following year by lowering capacity on the non-guarantee flights to get the overall capacity to a place of profitability for all of their flights.

(In the case of revenue guarantee flights they will raise the guarantee as part of the profitability equation if they feel from prior performance not enough total revenue for all their flights will be driven).

Incentives/Revenue Guarantees don’t trump airline profitability. What this means is that while incentives/revenue guarantees can  obtain for communities, an opportunity for air service from a new market, your ability as a community to attain and sustain an overall increase of air service capacity or new market service, rests with how the profitability equation works with the airline on an “All Encompassing” air service basis.

If a community increases air service and the air service with the airline inclusive of the incentives, makes all the flights profitable, the community can possibly see a sustaining or growing of air service in the following year. If the capacity increases do not lead to a “Complete Air Service Flight” profitability net of all the flight service (Both revenue guarantee/incentive and non-incentive flights) the following year the airline(s) will self-discipline capacity thru reductions of the non-revenue guarantee flights (If the revenue guarantee flights are not reduced), to get to a capacity level they think will help them achieve their profitability goals.

Attaining higher load factors, as seen by the chart, appear in general terms to help drive stronger profitability and therefore year over year growth in air service capacity. This makes sense as typically, although not always, higher load factors will increase operating flight revenues. Lower load factors, on the other hand, typically drive lower revenues and are more likely to drive reductions of air seat capacity.

INCENTIVES TYPICALLY CAN IMPROVE THE PROFITABILITY EQUATION ONLY SO MUCH AND ARE LIMITED IN THIS IMPACT!

Authors Note: Typically incentives and/or revenue guarantees just produce a community opportunity of air service. It is the actual air service performance that will dictate continuance or growth of air service. Communities should only add service they believe can succeed on a profitability basis without negatively impacting incumbent service and the overall airline service profitability if they desire air service sustainability or growth.

Strong air service load factors can lead to growth in air service. Communities looking to sustain and grow air service flights should first and foremost put a focus on ACTIVELY supporting increasing their flight load factors. Communities should also know how well their load factors compare with the national average. In a shrinking air service flight environment, out-competing and out-performing your competition can be a key determiner of who sustains and grows air service and who loses air service. While all communities should look to maximize their load factors due to the economic value they receive from increasing the number of their visiting guests, the additional need to retain your flights and possibly grow your air service capacity, dictates that an active effort to maximize load factors should be a priority focus of your community.

NOTE: “A visiting guest that can’t get to your community can’t spend money and positively economically benefit your community!”

Need help with leakage recapture & incremental passenger capture? Contact Community Flights at scott@communityflights.com / 970-759-3559. We have a successful track record in passenger leakage/capture programs.