Aer Lingus A321XLR e1560871227393
On Monday, Aer Lingus announced it plans to serve Indianapolis with its new A321XLR. This route is 5,983km or 3,717 miles.
A few questions arise from this news. Is this a good market? Is this the optimal aircraft? And, of course, a combination of both those questions.
The Market
Let’s start with the market. The news release talks about Eli Lilly and investments—all good, but that is insufficient to make the route work. There has to be more to it than that.
The I-92 (APIS) data shows that Indianapolis is not a significant traffic center. This data source tracks all traffic – it is a census, not a 10% sample like the US DoT. The Department of Homeland Security owns this data.
It also appears that whatever traffic there is, some use Canadian airlines. For perspective, IND (Indianapolis Airport code) ranks #58 for US outbound traffic, just behind Anchorage.
The following chart shows the potential for traffic from IND is thin.
Notice that Dublin does not appear because there is no such route yet. Europe offers some potential by simplifying the data into regions rather than airports.
Europe is seasonal
What is clear, though, is that Europe-bound traffic is not a steady monthly activity. However, it’s not all that bad, because the market is growing as the following chart illustrates.
A Dublin hub
Using Dublin as the distribution point for traffic from and to Europe looks reasonable. But how much traffic behind IND will select that spot as a gateway? Aer Lingus is advertising attractive fares to draw that traffic. An important question will be how long the airline can sustain these fares to create the market. Fortunately, Aer Lingus is part of the IAG Group and has access to resources.
As the following map shows, traffic from IND will have to learn new markets.
A thin market?
In a final IND chart, it seems like IND is a thin market. There is some market risk here to consider. An air service analysis by Indianapolis regional leaders found an average of 545 people travel from Indianapolis to Europe daily. The APIS data does not show that, perhaps because traffic flows over other hubs and counts there rather than at IND.
The Aircraft Choice
How about the aircraft? Selecting the right aircraft offsets risk. Aer Lingus will deploy an A321XLR. We have looked at this aircraft before and like its potential. Airbus has a lot riding on this model. The A321neo family is popular because of its variants and the ability to select the optimal version for both short and long-haul markets.
Aer Lingus says its “A321LR will have 16 seats in Business Class and 168 seats in the economy cabin.” The 184 LR seats could suggest what we might expect on the XLR.
Key Metrics
If Aer Lingus can achieve breakeven at 65%, it only has to sell 120 seats per flight. Another if: if 545 people fly from Indianapolis to Europe daily, Aer Lingus must win 22% of that traffic to its service. A key metric in its favor is that the Aer Lingus flight over Dublin is likely to offer shorter travel times than using a large US airport hub. Saving travel time is a huge feature.
A321LR Guidance
No operational data is available on the XLR, but we have some data on the A321LR from Skailark that provides guidance. For example, the average margin for JetBlue and Air Transat that use this aircraft across the Atlantic is 8.4%. This looks pretty good and suggests that Aer Lingus might only have to invest in the route for a short while. That means the airline has to win over 22% of the market, have the traffic to achieve breakeven, and then raise fares slightly to price in or extract the value of shorter travel times offered. In short, it looks do-able.
Summary
Opening new markets comes with inherent risk. However, this risk can be managed by carefully weighing the combination of the current market, growth potential, and the cost of the new service. While nobody is talking about it, the new Dublin-Indianapolis route might have some guarantees from both Indianapolis and Ohio. IAG knows this game very well since it has support from Maryland for the British Airways flight to Baltimore. This would considerably derisk the Dublin-Indianapolis route.
Aer Lingus appears to be using the right aircraft to manage risk further. So, in summary, the new route looks worth the risk.
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