Profitability of one route in a network is difficult to calculate objectively and is not of much use. A network's value is much more than the sum of its parts (the individual routes).

Sure, something like the NE Shuttle is primarily O&D, where most passengers don't care what kind of network the airline has. But even then, you have to consider the value of the DCA and LGA slots -- i.e., what flights are NOT being flown in order to fly between LGA and DCA (i.e., what is the opportunity cost?)

On the flip side of this discussion, the use in looking for least profitable routes (e.g., to cut costs) can be overused. If TWA, which has been continuously losing money, decided to drop all routes except LAX-JFK, would they stay in business? Maybe so, but I doubt it. For one thing, FF miles would be practically useless on a one-route airline.

Incidentally, TWA has just added a 5th LAX-JFK, after recently adding a fourth.

I've heard that AA's SJC to AUS route is the most profitable due to the last minute business people travelling on these non stop flights.

Any two large population centers will have lots of traffic---this does not mean it is the most profitable. A good example is Dallas and Houston. This is where Southwest got their start. This city pair generates many flights but not high profits.

American has announced new non-stop service between San Jose and CDG and TPE. Reasons cited for the TPE run is currently over 60% of their bookings are in business or First on a similar run. They will be using aircraft with a very high ratio of business/First to coach. This looks like a cash cow to them.

Yes, full airplanes don't equal profits.

Thats an easy question. Minot, ND to anywhere. One of Northworst's monopoly cities. If it were not for their $194 RT 14 day advance purchase special to MSP, there would not be a fare less than $362...(non fare-war fares). And every flight I've been on has been full or nearly full on those crappy old DC-9s. And if you have to purchase a fare on less than 7 days notice, plan on shelling out about $1500 or more. Remember, you have no choice... unless you count amtrak or driving.


[This message has been edited by travelcoupons (edited 10-25-2000).]

Especially when the whole front cabin is occupied by employees. UA!!

If airline behavior is consistent with the models I teach students (in intermediate microeconomics), then airlines should equalize their rate of return on invested capital across all routes they serve. If one route is consistently more profitable than another, then airlines should invest more in the more profitable route (bigger planes, more frequent service) at the expense of the less profitable route.

There are exceptions to this rule. If an airline has monopoly power in a certain market (and no other airline can credibly threaten to enter the market), then rates of return will be permanently higher in that market. Also, rates of return should be higher in slot-controlled airports (LGA, JFK, DCA, ORD in the US) since there are barriers to entry. Similarly, when governments restrict the number of carriers or flights serving a particular market, we expect profits to be higher.

You are all wrong. It's anything mainland to HNL. http://www.flyertalk.com/forum/smile.gif

Re your second paragraph, this would be true at a restricted airport in which sub-leasing is prohibited. However, at slot-controlled airports in the U.S., airlines can (and do) lease their slots to other airlines.

So, if you are an incumbent airline with slots, you have capital invested in the slot (even if you got it for free, you could lease it out). Fares collected are higher than an identical route/airport without slots, but the rate of return is the same since the investment is greater.

Same goes for a new airline, or for an existing airline wishing to expand service at a restricted airport. You lease slots and charge fares high enough to provide the same industry-wide rate of return on the higher capital needed for the restricted airport.

[This message has been edited by JS (edited 10-27-2000).]

That route also connects two major business centers in high-tech. This is a logical kind of route to have high volume. Some US/Canada examples are IAD/YOW (politics), YYC/IAH (oil), and ORD/YWG (commodities). One that surprises a lot of people is BNA/LAX (music).

was told recently by a former SFO-based UA marketing exec that ORD-HKG was one of UA's "most profitable" routes after taking into account all related costs (landing fees, fuel, etc...)

I am not an economist, so please bear with me. I think that the microeconmic theory would be consistent with actual practice if the airlines could move thier resources (planes, people, equipment etc) easily from one route to another. If LAX-JFK is more profitable than LAX-SEA, the airline should move resources from LAX-SEA to LAX-JFK. However, I would think that the airline must also take into account the benefits that accrue from having an extensive route network. Many airlines have tried to just serve the highly profitable routes (MGM Air etc.), but they have failed because travelers (especially high paying business travelers, but also fare conscious leisure travelers) prefer airlines that have a complete route network that can get them from point A to point B, as well as as from B to C. I would think this is part of the theory behind code sharing, as more recently, the airline alliances. United doesn't serve every city on this planet, but through code shares and alliances, they can now "say" they serve many more destinations.

As such, I am not sure if airlines could really equalize their rate of return across all thier invested capital. This would be the "peanut butter" rate of return, where rate of return is equally spread across the whole route. I am sure each airline has a low profit routes that they would love to stop serving, but that they continue due to competitive pressures. The majors would probably want to exit a route where WN enters (and drops ticket prices http://www.flyertalk.com/forum/smile.gif), but can't because that route is maybe a feeder route etc.

just my $.02.

I would venture to say that NRT-JFK is also one of the most profitable international routes in the world with a very high-ratio of premium class passengers. One of the reasons why UA keep flying their old 744OPs with 36F seats and over 120C seats must be that they manage to get those seats full with revenue passengers particularly on weekends. After all, come this sping, DL will be flying non-stop JFK-NRT and AA will be joining this route in 2002. Can you think of any other international routes where all top 5 US carriers will compete? I am also told that JFK-NRT runs generate tons of cargo revenues as well.

Although it seems (sadly) that these frequent widebody (for the most part) flights are always full, I would have to disgree with you that they make airlines that much money. I say this based on the fact that airlines downgrade their level of comfort and service to Hawaii because so many of the passengers our traveling on award tickets or upgrades.