Airline's Looking for a Piece of These In-Demand Airports

In the real estate market, location is key. But location is also a key factor for airlines trying to serve a broad base of customers. For airlines, the best locations are the most conveniently located or busiest airports. But competition for these locations is hot, and airlines must fight hard to ensure they have the best routes to offer.

London Heathrow Airport
Perhaps one of the most in-demand airports in the world, London Heathrow provides airlines access to the business passengers who are streaming out of the financial capital that is London. Additionally, Heathrow serves as an entrance for U.K. tourism, and can serve as a connection for flights to other European cities.

Since Parliament blocked the expansion of Heathrow in 2010, slots have become hot commodities, as airlines try to get into this market.

Among the most aggressive moves for Heathrow slots has been Delta Air Lines' (NYSE: DAL  ) purchase of a 49% stake in Virgin Atlantic. The $360 million purchase gave Delta and its SkyTeam alliance access to Virgin's valuable Heathrow slots.

For Delta, the Heathrow slots were more than just about the airline's London presence. To fully realize the value of Delta's New York JFK International presence, the airline needed to offer more service between New York and London. In addition, these Heathrow slots have helped build out Delta's network by offering passengers more options through connections, and even a new direct flight from Seattle to London.

Tokyo International Airport
Also known as the Haneda Airport, Tokyo International provides a prime location for airlines looking to capture the Japanese business travel market. Tokyo International has a central location for downtown Tokyo, while Narita International Airport is around 58 kilometers away.

Officials are now trying to decide how to divide up additional slots at Tokyo International. Here, Delta Air Lines and United Continental Holdings (NYSE: UAL  ) are in a closely contested battle to decide which carrier gets more slots.

Delta is looking to move many of its flights using Narita International back to Tokyo International after the Atlanta-based carrier was largely ousted from Tokyo International in 1978, due to overcrowding. Delta is also the only major U.S. carrier without a Japanese partner. A slot gain for Delta here would be a major plus for its network.

United Continental also has a major reason to want in on Tokyo International. Despite being the world's largest airline, United Continental is still looking for its first slot at the airport not obtained through a partnership.

Billy Bishop Toronto City Airport
Unlike London Heathrow and Tokyo International, the Toronto City Airport, often referred to as the Toronto Island Airport, is a fairly small airport. But making up for its size is its prime location. Situated on the Toronto Islands, deplaning passengers can literally walk into downtown Toronto -- a major convenience when compared to the taxi ride for passengers using the larger Toronto Pearson International Airport.

Privately run Porter Airlines is pressuring the city of Toronto to permit an extension of the airport's runway, and lift the existing ban on jet aircraft. After that, Porter intends to fly Bombardier C Series jets from the airport.

But larger Canadian carriers Air Canada (TSX: AC.B  ) and WestJet (TSX: WJA  ) also want a piece of the airport if Porter's proposal is approved. Air Canada already operates a small number of Bombardier Q400 Turboprops out of the Toronto City Airport for flights to Montreal, but the airline would like to add larger jets, if permitted. WestJet also wants to operate jets out of the airport, but would prefer to use Boeing 737s (which comprise much of its existing fleet) rather than buy new Bombardier C Series jets, like Porter plans, and Air Canada is likely to do.

Investors should keep an eye on this political airport showdown, as a success here would allow better airport service by Air Canada, WestJet, and Porter, while also pushing Porter into a larger national airline role.

Location, location, location
While airlines like Southwest have built business models around cutting costs by using less popular airports, many business travelers are willing to pay a premium to use more centrally located airports. When supply and demand for slots are factored in, airlines are in a constant fight over which carriers can get slots at which top airports.

Investors should watch to see which carriers are successful in which areas, in order to get a feel for expansion plans, corporate strategies, and potential future route networks.

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  • Report this Comment On October 13, 2013, at 8:36 AM, Tyeward wrote:

    " For airlines, the best locations are the most conveniently located or busiest airports. But competition for these locations is hot, and airlines must fight hard to ensure they have the best routes to offer".

    I agree with most of this article, however I do not agree with that statement. For airlines, the best locations are the best O&D markets. The traditional O&D market is usually an upward bound metro area with high mobility (JFK for example). Cities with large financial institutions are another great example of O&D. Travel and tourist regions are great as well, however with those, you have to worry about economic ebb and flow since that traffic is mostly based off of expendable income.

    One of the things you want to avoid in a major O&D market is allowing too much connecting traffic to get in your way. The more connecting traffic you have, the less seats available to cater to the local market and the less money you will probably make. That has to be a very delicate balance. If an airline could have a station hub that is geared towards the O&D market and have a seperate connecting hub that could still turn a profit, that would be a pretty good idea for an airline to take under consideration. If the merger between American and USAirways goes through after the trial, I would expect to see JFK and PHL be a perfect example of that theory.

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