Airline ‘natural’ share and is it fair?

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Given the dramatic change in airline domination in many US hub cities over the past decade, can there be such a thing as ‘natural’ market share? Tom Bacon thinks not

Frontier Airlines announced a major new schedule this past summer – including tremendous growth at Denver, Colorado, where they are based. Most of the new Denver flights are competitive with United Airlines that operates a major hub in Denver, and which has dominated the airport for decades. So, in response to Frontier’s announcement, United President Scott Kirby used the term ‘natural share’ to signal that they would fight Frontier for share in Denver: Kirby vows United will achieve its ‘natural share’ in the city.

For decades, airlines have used a share-based model to predict demand across their flight schedules. The ‘fair share’ formula called QSI (Quality of Service Index) has historically been based on relative attractiveness of the schedule of one carrier versus its competitors. The fair share typically accounts for frequency of service (a high frequency schedule can expect a higher share), aircraft type (both the size of the aircraft and its customer preference are factored in), and type of service (nonstop, through, connect, double connect).

The ‘fair share’ formula called QSI, or Quality of Service Index, has historically been based on relative attractiveness of the schedule of one carrier versus its competitors

Airlines use QSI to forecast their share of traffic in any single market. An airline with one-third the non-stop frequency but with smaller aircraft may be expected to achieve only a quarter of the market, for example. QSI is a helpful tool for schedule planning and also a benchmark used for sales performance.

Of course, fares also play a role in shares. Sometimes, QSI is used to predict revenue shares as opposed to traffic shares recognising that different airlines have different pricing strategies. An airline that consistently offers a lower fare can be expected to achieve a higher percentage of traffic but not necessarily more revenue than its relative schedule would predict.

When United refers to ‘natural share,’ what is it talking about? Is it the QSI traffic share? Or the QSI-based revenue share? Of course, United isn’t talking about either of these!

Defying the norm

Basically, United believes that Frontier simply shouldn’t be in many of these markets. If United is the only large hub operator in Denver – and dominates most markets – then other airlines should not serve smaller markets out of Denver. Competitors shouldn’t pick such fights against United in Denver – a hub market where UA:

  1. Has the most flights,

  2. Has invested heavily; and

  3. Where frequent flyers are prevalent

United’s benchmark isn’t based on actual schedule but on possible schedule – it’s based on an overall vision that competitors should generally concede United’s dominance. In most markets dominated by one carrier, competitors do, in fact, limit their service to a ‘niche’ position.  Frontier appears to be defying this norm!


Power play

The US airline industry has recorded record profitability over the past few years in part due to new ‘capacity discipline’, or caution about adding capacity faster than demand growth. A corollary of capacity discipline is that each airline should only serve markets where it has clear strengths relative to the competition. 

On the other hand, Southwest Airlines, Spirit Airlines and Frontier Airlines have each proven that there is a significant role for non-hub airlines in many large hub cities. These three non-hub carriers generally operate point-to-point schedules – sometimes with relatively high frequency. They do not need to time flights for banks or connections. This schedule strategy gives them a cost advantage as well as allows them to time their flights for peak travel times. And local nonstop passengers don’t have to compete with connect passengers for seats. There is nothing ‘natural’ about United being able to serve all passengers equally well out of their hubs.

The bottom line

To put it bluntly, there is nothing ‘natural’ about airline market shares; it is a concept that requires proof in a marketplace of diverse competitive strengths. It is more aspirational than analytically defensible. In actuality, market shares in many hub cities have changed dramatically in the past decade, demonstrating there is no ‘natural’ share. United/Continental’s share in Cleveland has fallen from over 60% (combined Continental/ExpressJet) to closer to 25% – what is their ‘natural’ share in this former hub city?  United suggests it has a ‘natural share’ in Denver but even here shares have been changing dramatically even before Frontier’s proposed growth. United’s share in Denver was once 65%; it is now 42%. Southwest’s share at Denver has increased from zero to almost 30% in ten years.

I fear ‘natural’ share is not a robust concept in the airline industry

What I expect is that United will be very aggressive – in pricing, in scheduling, in marketing – against Frontier in its new Denver markets. And I expect some of the new markets to work well for them and some to fail and be relatively short-lived. But, despite United’s assertion, I fear ‘natural’ share is not a robust concept in the airline industry. Airlines are pursuing a variety of strategies; as they seek to meet customer needs in different ways, shares will continue to be dynamic.

Tom Bacon has been in the business 25 years, as an airline veteran and now industry consultant in revenue optimisation. He leads audit teams for airline commercial activities including revenue management, scheduling and fleet planning. Questions? Email Tom or visit his website

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