1. Route Planning and Evaluation
Given a fleet plan, the process of route planning and evaluation involves the selection by the airline of which routes should be flown. The route selection decision is both strategic and tactical. It is an essential component of an integrated network strategy or “vision” for the airline, which must decide whether to focus on short-haul or long-haul services, domestic or international operations.

2. Route Planning and Evaluation
At the same time, the characteristics of the selected routes will affect the types of “products” the airline offers to travelers. For example, an international route network will likely lead to a decision that business- and first-class products should be offered in order to be competitive.

3. Route Planning and Evaluation
The distance or “stage length” of the selected routes will also affect the airline’s cost structure, as longer routes will likely be flown with bigger aircraft that have lower unit costs per seat and per ASK.

4. Route Planning and Evaluation
Route planning can also be a much shorter-term tactical process, as unexpected route opportunities often present themselves to the airline with changes to the market environment. For example, the bankruptcy of another airline, a withdrawal from a route by a competitor, or a newly negotiated bilateral agreement with another country can lead to new route opportunities that must be acted upon within months or even weeks.

5. Route Evaluation Issues
Economic considerations dominate route evaluation, especially for airlines operating in competitive environments with a profit maximization objective. These evaluations of the potential for a route to be profitable can be performed at a very high level (like “top-down” fleet planning) or at a more detailed level of assessment.

6. Route Evaluation Issues
Perhaps the most important inputs to any route evaluation are forecasts of potential passenger and cargo demand (as well as expected revenues) for the proposed route.

7. Route Evaluation Issues
For a given route, O-D market demand is likely to be the primary source of demand and revenues, but far from the only source. In airline hub networks, traffic flow support to the new route from connecting flights and other (non-local) O-D markets can make the difference between expected route profitability and loss.

8. Once a forecast of the total O-D market demand (per period) for the route in question has been generated, an equally important step is the estimation of the market share that the airline can expect of this total demand.

9. The airline’s own market share of total
forecast demand will depend on its frequency share in the market, the path quality
of its planned services (non-stop versus connecting flights), as well as its planned
departure times. To the extent that the competitive marketplace will allow differences to
be maintained, relative prices and service quality can also have a significant impact on
expected market share of total demand.

10. Route Planning and Evaluation
The fundamental economic criterion for evaluation of a planned route is its potential for incremental profitability in the short run, given the opportunity cost of taking aircraft from another route.

11. However, in route planning (as in fleet planning) a number of practical considerations can be just as important as the outcome of the economic evaluation. The technical capability to serve a new route depends on availability of aircraft with adequate range and proper capacity. The performance and operating cost characteristics of available aircraft in the airline’s fleet will in turn have a substantial impact on the economic profitability of the proposed route. If the route involves a new destination, there will be additional costs of establishing the required airport facilities and sales offices, along with staff relocation.

12. airline’s market share and route profitability.
Regulations, bilateral agreements and limited airport slots can also impose constraints
on new route operations, to the point of non-profitability. For example, while a new route
to Hong Kong might appear to be a viable option for the airline, the availability of landing
slots only at undesirable arrival and departure times will have a negative impact on the
airline’s market share and route profitability.

13. to be unprofitable in the short run.
In some cases, strategic considerations might be used by an airline to proceed with the
initiation of service on a route despite a negative outcome from the economic evaluation
of expected route profitability. Given the political and other uncertainties of international
bilateral agreements and route opportunities, the airline might focus on the longer-term
competitive and market presence benefits of entering a new route even if it is expected
to be unprofitable in the short run.

14. Route Planning Models
Demand, operating cost and revenue forecasts are required for the specific route under consideration, perhaps for
multiple years into the future. An estimate of the airline’s own market share of total
demand is also critical, based on models of passenger choice of different airline and
schedule options. Both the forecasts of future demand and market share will depend to a
large extent on the presence and expected response of competitors to the planned route
entry.

15. “Route profitability models” have been developed both by some airlines and by software
vendors for purchase by airlines. These are computer models designed to perform such
route evaluations based on detailed inputs that include demand forecasts, operating cost
estimates, and planned frequency and schedule of operations for the airline using the
model. The objective such models is to allow airlines to select routes to maximize total
airline profits, given a set of candidate routes and estimated demands, subject to fleet and
capacity constraints.

16. These models have proven to be useful in comparing alternatives, but airlines must
recognize that the profit estimates generated by the models are entirely dependent on the
accuracy of future demand and revenue estimates, the allocation of operating costs to
each route, and assumptions concerning expected market shares. A major shortcoming of
even the most sophisticated airline profitability models is a very limited ability to integrate
competitive effects.

17. Route Planning and Evaluation