Airline Service Development: Airports & DMOs Incentives

Gavin, an aviation expert with extensive experience from British Airways to consultancy for United Airlines, American Airlines, and Qantas, examines how airports and tourism boards can effectively support air services development through targeted incentives. His insights draw on years of industry experience and board-level involvement, including roles at SATA International and advising Visit Portugal on air connectivity. He explains that the support provided by airports typically centers on discounts on charges and fees, while destination marketing organizations (DMOs) focus on co-op marketing campaigns designed to boost route demand. In an increasingly competitive aviation market, both airports and DMOs are continuously seeking methods to encourage carriers to serve new or underserved routes, knowing that the business case for an airline to launch a route relies on long-term vision rather than immediate profitability.

Airports have a direct commercial interest in incentivizing airlines to add new services, as their revenues are not solely derived from landing fees but increasingly from non-aviation sources such as retail, food and beverage, and other terminal services. By offering discounts on published charges—for instance, reducing landing fees to zero for the first year, 75% in the second year, and 50% in the third—airports aim to stimulate carrier entry on new routes. This approach represents an upfront sacrifice in revenue in exchange for increased passenger traffic and subsequent spending in the terminal. The strategy is based on the expectation that higher passenger numbers will boost overall revenue through a combination of aviation and non-aviation income streams.

For tourism boards, the emphasis is on creating and supporting a robust marketing campaign that helps generate demand for a new route. Government agencies must balance the amount they invest in promotional activities with the anticipated multiplier effect that increased tourism can bring to a destination’s economy. This involves carefully crafting co-marketing campaigns, where the tourism board may, for example, contribute 50% of the marketing costs for a route. Such campaigns focus on presenting the route to key source markets and are designed to demonstrate that increased tourist arrivals will benefit the destination through enhanced spending in the service economy, job creation, and higher tax revenues. To do this effectively, DMOs often develop an investment matrix that ranks routes based on strategic importance, potential passenger numbers, frequency of flights, aircraft size, and seasonality. This matrix ensures that funding is targeted toward routes with the highest potential impact, rather than offering a blanket incentive to every airline.

The combined support from airports and tourism boards is meant to share the inherent risks associated with launching new routes. Airlines typically expect the first year of operation to result in losses due to startup costs, with break-even reached in the second year and profitability in the third. With incentives generally representing no more than 5% of a route’s operating costs, the support acts as a catalyst, providing carriers with the reassurance that their partners are committed to the route’s long-term success. This collaborative approach helps forge a strong partnership, ensuring that both the carrier and the supporting entities have a shared interest in the route’s development and success.

Ultimately, these incentive strategies are not one-size-fits-all but must be tailored to the specific market conditions, regulatory frameworks, and economic priorities of each destination. The collaborative model of shared risk and targeted investment lays the foundation for sustainable air service development that benefits all stakeholders involved.

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