INDIRECT TRAFFIC

THE KEY TO SUCCESSFUL

NEW ROUTES?

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Contents
3 Introduction

4 Indirect traffic flows

5 Indirect route opportunities

6 New routes

7 Indirect and new routes compared

8 Conclusion
 Introduction

The role of indirect

routes in route planning
Airport Strategy & Marketing was the world’s first route development
consultancy and we have been supporting the aviation industry for more
than 20 years.

In that time I’ve seen the industry undergo incredible advancements

in the ways that airlines and airports identify and develop successful
routes. One of the ways we’ve always assisted our clients is by
considering indirect routes in their future route planning.

The logic is clear – if a critical mass of passengers are flying indirectly

from point A to point B, launching a direct route will capture some of
this traffic and is likely to lead to a success. Using this rationale we’ve
helped numerous airports create new routes, notably Aerostar Airports
which we assisted in securing routes from San Juan to Scandinavia
and the UK; some 28,000 passengers had previously been flying using
indirect connections through US hub airports to the UK.

Behind the numbers

However, what exact role do indirect routes play in the airlines’ thinking?
As a consultancy it’s our role to explore the facts and ensure our clients
and the wider aviation industry have access to the most accurate
information that enables them to make solid business decisions.

To do this we sifted, sorted and analysed thousands of data points on

global indirect flows throughout 2015 alongside new routes to create
this special report – and we think the results are illuminating.

David Stroud
Managing Director
ASM

Indirect traffic – the key to successful new routes? 3

 Indirect traffic flows
As we set out to examine the relationship between new and indirect routes, the first
key statistic to analyse is how much of the world’s traffic is indirect, by both passenger
numbers and revenue.

Perhaps surprisingly, there is less correlation between capacity and revenue than one
might expect. While just 27 percent of the total traffic is indirect, it accounts for 43 per
cent of all aviation revenue.

Although some of this can be accounted for because more expensive long-haul traffic
accounts for more indirect flows, it also indicates that there are significant revenue
opportunities in these unserved or underserved routes.

This adds weight to the theory that indirect routes can be great opportunities for
airlines. As the below data shows, the total revenue potential is compelling.

Total traffic proportion Total revenue proportion

Total passengers – 1.3 billion Total passengers – $337.3 billion

27%

Direct Direct 43%

Indirect Indirect
57%
73%

But where is this indirect traffic flowing? Next we looked at the traffic between regions
where the indirect traffic accounts for more than 50 per cent of total passengers.

Regions % indirect traffic

North America – Western Europe 56.04%
Far East – Western Europe 60.59%
North America – South America 61.27%
Central Asia – Western Europe 67.87%
South America – Western Europe 69.59%
Southeast Asia – Western Europe 73.25%
Asia Sub-Continent – Western Europe 76.69%
North America – Southeast Asia 93.45%
Asia Sub-Continent – North America 95.31%

Indirect traffic – the key to successful new routes? 4

 Indirect route opportunities
So what are the specific indirect routes from across the world with the largest potential
by volume?

We examined both unserved and underserved markets, and discovered a host of

possible opportunities for airlines on routes under 10,000 km.

In the top ten underserved markets alone there are more than 2.6 million passengers
currently taking indirect routes. Some of the potential for direct additional routes, as
expected, was between traditional routes such as New York – Tel Aviv where the total
market is vast and indirect opportunities account for the smaller proportion.

However on other routes such as Jeddah – Manila the indirect market size dwarfs the
current direct market at more than 2.6 times higher.

Meanwhile there was also significant capacity travelling on routes with no direct service
with 1.8 million passengers travelling between these airport pairs. One route alone had
more than 200,000, from Ho Chi Minh to Los Angeles.

Top unserved markets

Less than 10,000km

Airport pair 2015 indirect

market size
Ho Chi Minh – Los Angeles 219,957
Fuzhou – New York (JFK) 197,812
Vancouver – Delhi 189,669
Toronto – Manila 183,214

Top underserved markets

Less than 10,000km

Airport pair Indirect market size Direct market size

Jakarta – Jeddah 400,320 468,396
Tel Aviv – New York 315,220 460,434
Bangkok – Paris 299,984 193,659
Bangkok – London 269,451 371,284

Indirect traffic – the key to successful new routes? 5

 New routes
Over the same period as we captured the indirect flights data, we also
examined what new flights have been launched and how has this affected
the global aviation landscape.
ASIA
EUROPE
AMERICAS
+5.92%
+3.63%
+2.21%

+8.63%
+7.95%
+0.63%
BOSTON
+9.21%

+1.42%
+7.68%
5 PACIFIC
TIANJIN

3 DUBAI 4
LOS ANGELES
DOHA
BANGKOK

- 0.71%
AFRICA
- 0.09%

+9.85%
+10.63%
1
+4.32%
+4.41%

SYDNEY
Top five new routes by capacity
% new capacity AUCKLAND
% new departures
% new seats/departure

New routes statistics* ASM Clients’ Route Successes

Route: Cartagena – Lima

Airline: LATAM Airlines
Start: Spring 2016
Frequency: 4 x weekly

Route: Ras Al Khamaih – Kozhikode

Airline: Air India Express

26.1m 2,023 299 Start:

Frequency:
Spring 2016
4 x weekly
new capacity new routes airlines
Routes: San Juan – Stockholm,
Copenhagen, Oslo and
London Gatwick
Airline: Norwegian
Start: Winter 2015/2016
Frequency: 5 x weekly

Route: Brussels – Tenerife

Airline: Brussels Airlines
* Based on a sample of schedule data sourced from Start: October 2015
Sabre MI (ASM used criteria to produce a sample Frequency: 2 x weekly
of data for testing).

Indirect traffic – the key to successful new routes? 6

 Indirect and new routes
compared
To draw some conclusions from the data we then examined the total new capacity
against the total and indirect passenger volume over the same period.
New capacity (2016)

New capacity (2016)

150,000 150,000

100,000 100,000

50,000 50,000

0 0
0 10,000 20,000 30,000 40,000 0 10,000 20,000 30,000 40,000

Total volume of passengers (2015) Volume of indirect passengers (2015)

Surprisingly we found little correlation. Despite the huge volumes of passengers

travelling indirectly airlines did not appear to be developing their new routes based on
potential indirect traffic.

Additionally, we charted the average sizes of indirect markets for new routes, additional
capacity and reductions, which revealed some interesting data. Firstly, the market size
for new routes was smaller than expected, with airlines more likely to amend existing
routes than launch new routes. Secondly low-cost carriers were found to have a smaller
threshold due to stimulation impact they bring.

Average volume of indirect passengers

Type of change Leisure airlines Low cost airlines Mainline airlines

Cancelled 6,692 7,590 13,638
Changed 7,218 6,290 13,480
New 5,068 7,615 14,701
No Change 2,381 4,397 11,839

However, we then looked at the link between new routes and yield and fare, where a
much stronger correlation was evident.
New capacity (2016)

New capacity (2016)

150,000 150,000

100,000 100,000

50,000 50,000

0 0
0.00 0.10 0.20 0 250 500 750
Yield on indirect market (2015) Average fare in market (2015)

Indirect traffic – the key to successful new routes? 7

 Conclusion
What’s clear from this data is that the expected correlation between indirect market
size and new routes did not materialise, while yield offered a much better method of
understanding how airlines will choose their next routes.

As the discrepancy between total indirect volume and total indirect revenue indicates,
there are significant high-yield routes which the airlines appear to be targeting, rather
than considering passenger numbers alone.

This could potentially mean that airports and destinations need to rethink their strategy
when discussing new routes with airlines.

It also proves that the right interpretation of available data can be a critical success
factor in securing new routes.

How ASM can help

As a consultancy at the forefront of route development, data such as this confirms
our need to constantly analyse and review how airlines develop routes, so we are re-
engineering our approach to business cases to better aid our clients.

Important to remember ASM’s next steps:

1 Airport and airlines think
differently!
2 Airports want the prestige of a
new route
3 Airlines consider they are serving
markets whether through a direct
route or indirectly through their
hubs and airline cooperation
4 Airlines spend more time
tweaking their network than
expanding
5 Airport passenger growth can
occur from frequency growth to
connecting hubs
6 How do you get the attention of
the airline?
7 The sunk costs of a new route
for an airline are larger than
increasing a frequency
Use of data clustering/profiling to place clients better
in airline decisions
Addressing the competitive position of our client
airports in airline decisions
Maximising impact when we have time with an airline
Helping our clients provide better presentations using
data from Sabre and TravelSky
Forecasting and stakeholder partnerships
Looking deeper than just indirect market size
Get under the skin of what drives a route opportunity
Adaptation of our route development process
How we speak to airlines? We keep learning and
adapting to give more success
If you want to know more about how ASM can help you
to develop your conversations with airlines, and ensure
your offering resonates with their needs now and into the
future, we would be happy to help.
Give Alex Cooper a call on +44 798 940 0953 or email
alex.cooper@asm-global.com to find out more.

Indirect traffic – the key to successful new routes? 8