During a September-2021 Airlines Confidential podcast (via Gary Leff’s View from the Wing,) former Spirit Airlines CEO Ben Baldanza told an interesting story about the airline industry’s systematic approach to reckon if potential new routes are economically feasible:
For the most part, airlines rely on data—required and reported by the Bureau of Transportation Statistics—on ticket purchases that show the number of people flying a given route and what price. For example, New Orleans, which is home to one of the largest Honduran populations in the U.S., has not had direct service to Honduras. Spirit Airlines will therefore analyze data from Sabre Market Intelligence for 2019 showing O&D (Origin and Destination) traffic between New Orleans and Honduras.
Sometimes, though, there’s no data on historical demand on a route, such as when Spirit Airlines was considering service to Armenia, Colombia. There hadn’t ever been a U.S. carrier flying into the airport, so there wasn’t available traffic data Spirit could access. Instead, Spirit looked at telephone data and migrant remittance statistics to get a sense of ties between the U.S. and the Latin American city. Spirit studied the frequency with which people were calling friends and relatives, and how much money and how frequently money was being remitted as a reliable metric to determine if the new route was viable.
Spirit Airlines relies heavily on leisure bookings, especially visiting friends and relatives (VFR) traffic. In the absence of historical yield data for a route being considered, Spirit used fund transfers to Latin America as a stand-in variable.
A surrogate metric or proxy metric is exactly that—a substitute used in place of a variable of interest when that variable can’t be measured directly or is difficult to measure. For example, per-capita GDP is often a proxy for the standard of living, and the value of a house is a stand-in for the household’s wealth. Freight tonnage is often a proxy for economic activity.
Idea for Impact: Relying on intuition for sound decision-making isn’t sustainable, so folks need a systematic approach to making those decisions. To help overcome inherent biases with what can’t be measured, use meaningful proxy and surrogate metrics in your decisions.