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4.2 Cash flow management

Routes and networks are developed in line with the strategic objectives of each airline. Destinations, frequency, and capacity are the primary considerations.

LCC’s will generally develop their route network based on the profitability of individual routes between airports. Prior to launching a new route they will have compiled detailed modelling and analysis to gather information on the economics and financial aspects of the route.  This will include passenger forecasts, ticket revenue, ancillary revenue, airport charges, fuel, and a variety of other costs. They will have their own route performance targets and criteria to meet prior to beginning a service. In the early days of LCC’s, they typically flew to secondary airports where they could negotiate favourable airport fees. Over time, many LCC’s have moved to primary airports. Whereas they previously avoided primary airports, route economics and market conditions have changed to the point where they can operate profitably. The exception to this is slot constrained airports and airports without much slack in capacity.

FSC’s will also complete a business case for each route they operate but they will tend to take a wider view. Airlines operating out of large hubs, such as London Heathrow, Dubai International, and Atlanta will use their networks to provide both point-to-point and origin-destination. They may be prepared to operate some unprofitable short-haul routes if they feed passengers and revenue into the profitability of the network as a whole.

Frequency and timing are important determinants in route and network planning. VFR and leisure passengers are less sensitive to frequency and timing than business passengers. In either case, a poorly timed flight with insufficient frequencies may not attract sufficient load factors and yield to survive. As an extreme example, a mid-afternoon flight once a week would not be attractive to business passengers.

Airlines also need to be aware of the costs of operating from different airports. At large slot-constrained airports, such as London Heathrow, it can be difficult to secure a favourable slot without either purchasing or leasing a slot. Airlines are prepared to pay a premium to access slots at large airports.

A further consideration for airlines is when operating to cities with multiple airports. They must decide whether to serve each airport or concentrate on one. If serving more than one, they need to consider if they serve the same markets. Perhaps one favours business travellers over leisure, or one is a hub airport whilst the other may be more suitable for point-to-point.

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