AA Drops Burbank - Analysis


#1

Earlier this week AA announced that they were dropping service to Burbank (KBUR). articles.latimes.com/2012/jan/09 … s-20120110

They currently fly BUR-DFW 2x a day using MD-80 aircraft.

Many on the internet have asked why they are dropping this route rather than ONT-DFW. I will use FlightAware Airline Insight data to sort of explain why and then use other reasoning from my airline experience to explain why BUR is going but ONT is staying.

First of all, these are two great routes to compare because their stage length is almost identical and they are operated by the same equipment. ONT-DFW is 4x MD-80. They offer the only non-stop service on either of these routes.

First let’s look at median fare.
BUR: $243
ONT: $233

so the internetters are right, fares are a little higher at BUR.

Then look at loads:

BUR: 84%
ONT: 89%

So, since the aircraft and stage length is the same, we can simply multiply fare x LF to get a good proxy for RASM:

BUR: $243 x .84=$204.12
ONT: $233 x .89=$207.37

So, despite having lower average fare, ONT actually produces more revenue due to higher loads. This is actually rare in the airline industry these days.

Here’s some other stuff from Insight: In the BUR-ZFW market (includes DFW and DAL) AA has 69% market share (WN carries about 13% and US about 12% over connections) while from ONT they have 53% (WN and US each carry about 18% over connections). However, airline decisions aren’t usually made from a market share standpoint anymore.

Another point, ONT-DFW is contributing over twice as many passengers to the DFW hub than BUR. The more passengers a given route can contribute to a hub the more efficient that hub becomes as more onward connections become viable. As you can see in the DL hubs in CVG and MEM and the F9 hub in MKE, as you pull spokes from a hub, the remaining spokes become harder and harder to maintain due to the lack of feed. Pulling BUR hurts DFW less than pulling ONT.

Finally, there’s the issue of costs at the station. With twice as many flights and over twice as many passengers, the costs at ONT are able to be spread across more passengers. Now, some of the total costs there are somewhat variable like labor (which is currently outsourced at BUR), but many are probably similar at ONT and BUR - for example the leases on their counter and gate space. In bankruptcy, AA can walk away from these leases. By the nature of its scale, ONT is a more efficient station to operate from than BUR.

Just thought I’d go through a quick outline of how these types of decisions are made and the types of numbers they’d be looking at. Obviously they have better numbers than we do (a big one they’d look at is the types of connecting flows that BUR and ONT provide at DFW).