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Azul: From Point-to-Point To Hub-and-Spoke  
User currently onlineC010T3 From Brazil, joined Jul 2006, 3703 posts, RR: 19
Posted (5 years 4 months 3 days 18 hours ago) and read 6259 times:

It was all a fallacy! Neeleman’s Azul promised point-to-point services, but ended up establishing a hub. These are some quotes from least year I collected:

Because most Brazilian flights require passengers to change planes at hubs, Neeleman's airline, Azul — which is Portuguese for Blue — will appeal to higher-end travelers by offering more nonstop flights.

Azul's strategy is to operate a mixture of 106-seat Embraer 190s and 118-seat Embraer 195s on point-to-point routes that will bypass congested hubs in Brazil.

Initially backed by $150 million in funding from Brazilian and U.S. investors and slated to begin service in January, 2009, Azul will offer direct flights—a relative rarity in the Brazilian travel industry—between some 25 Brazilian cities, allowing passengers to bypass congested hubs.

Azul will target high end travelers by offering more non-stop flights.

Here you see, the latest destination map:

Big version: Width: 494 Height: 518 File size: 30kb


Why was the point-to-point strategy so emphasised, when it never became a reality?

32 replies: All unread, showing first 25:
 
User currently offlineRobffm2 From Germany, joined Dec 2006, 1117 posts, RR: 0
Reply 1, posted (5 years 4 months 3 days 18 hours ago) and read 6243 times:



Quoting C010T3 (Thread starter):
allowing passengers to bypass congested hubs.

How congested is Campinas?


User currently onlineC010T3 From Brazil, joined Jul 2006, 3703 posts, RR: 19
Reply 2, posted (5 years 4 months 3 days 17 hours ago) and read 6178 times:



Quoting Robffm2 (Reply 1):
How congested is Campinas?

VCP wasn't congested, but it's becoming. The problem is the terminal that has neither jetways nor a large quantity of parking spaces.


User currently offlineLuke From United Kingdom, joined Apr 2005, 181 posts, RR: 0
Reply 3, posted (5 years 4 months 3 days 17 hours ago) and read 6167 times:

Airlines flying point to point will still tend to have 'focus cities'. This doesn't necessarily indicate a significant hub and spoke strategy as such. Even P2P airlines will still want to gain from the economic benefits of concentrating services at certain airports, and often initially, only one airport. Think economy of scale savings on ground handling, ops management staff, advertising etc. It also makes the operations side of things much more manageable compared to thinly spreading routes across the entire country.

User currently offlineIncitatus From Brazil, joined Feb 2005, 4014 posts, RR: 13
Reply 4, posted (5 years 4 months 3 days 14 hours ago) and read 5981 times:



Quoting C010T3 (Thread starter):
It was all a fallacy! Neeleman’s Azul promised point-to-point services, but ended up establishing a hub. These are some quotes from least year I collected:

I guess the strategy is whatever takes them to a successful IPO: Low-cost and high-end at the same time, point-to-point and hub network.

Their network decisions have been mostly poor.



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User currently onlineC010T3 From Brazil, joined Jul 2006, 3703 posts, RR: 19
Reply 5, posted (5 years 4 months 3 days 14 hours ago) and read 5968 times:



Quoting Incitatus (Reply 4):
Their network decisions have been mostly poor.

I agree. Their early marketing and advertising strategies were all directed to stealing passengers from other carriers, but they ended up establishing a hub in a small airport, where they have to develop the market almost from scratch. That's a good thing, but to rely exclusively on that is very risky, not to mention costly.


User currently offlineGreenair727 From United States of America, joined Jan 2007, 568 posts, RR: 0
Reply 6, posted (5 years 4 months 3 days 13 hours ago) and read 5897 times:

Blatantly absent on their route map is CGH or GRU--is that because the Sao Paulo market is served instead by VCP for them? Is it effective (especially in traffic)?

User currently offline2travel2know From Panama, joined Apr 2005, 3580 posts, RR: 4
Reply 7, posted (5 years 4 months 3 days 13 hours ago) and read 5866 times:

Also absent from Azul network are PLU and BSB.


I don't work for COPA Airlines!
User currently offlineSKYYBLUE From , joined Dec 1969, posts, RR:
Reply 8, posted (5 years 4 months 3 days 12 hours ago) and read 5804 times:

It looks as if they are establishing themselves at their main "focus city" to gain recognition. I think it's the same thing he did at B6. They made JFK into their main hub and then branched out. Azul has 70+ aircraft on order, I'm sure you'll see more point-to-point flying in the near future.

User currently onlineC010T3 From Brazil, joined Jul 2006, 3703 posts, RR: 19
Reply 9, posted (5 years 4 months 3 days 12 hours ago) and read 5792 times:



Quoting Greenair727 (Reply 6):
Blatantly absent on their route map is CGH or GRU--is that because the Sao Paulo market is served instead by VCP for them? Is it effective (especially in traffic)?

Well, they try to make up for that absence by offering free bus shuttles to various points throughout the state of São Paulo, a costly endeavour IMHO:

Big version: Width: 559 Height: 183 File size: 24kb


User currently offlineGreenair727 From United States of America, joined Jan 2007, 568 posts, RR: 0
Reply 10, posted (5 years 4 months 3 days 11 hours ago) and read 5748 times:



Quote:
free bus shuttles

hmmmm...pretty innovative. is either Terminal Barra Funda or Shopping Eldorado in Central SP or a central business district?


User currently onlineC010T3 From Brazil, joined Jul 2006, 3703 posts, RR: 19
Reply 11, posted (5 years 4 months 3 days 10 hours ago) and read 5712 times:



Quoting Greenair727 (Reply 10):
hmmmm...pretty innovative. is either Terminal Barra Funda or Shopping Eldorado in Central SP or a central business district?

No, Terminal Barra Funda is an important connecting point between trains, subway and buses. Shopping Eldorado is just a mall with an adjacent train halt.


User currently offlineLipeGIG From Brazil, joined May 2005, 11438 posts, RR: 58
Reply 12, posted (5 years 4 months 3 days 10 hours ago) and read 5712 times:
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Quoting Greenair727 (Reply 6):
Blatantly absent on their route map is CGH or GRU--is that because the Sao Paulo market is served instead by VCP for them? Is it effective (especially in traffic)?

That's a common assumption here, that all traffic from CGH or GRU comes from São Paulo city itself.
Azul in fact is proven this is wrong. By flying out of VCP to many markets that in fact G3 and JJ don't want to offer non stop there (it should obligate them to offer flights from 3 different airports, something not smart or profitable when you deal with a hub strategy), Azul is managing to attract people that use to travel to São Paulo in the past to fly.
We can see that São Paulo airports (GRU ahead) is the one with a drop in movment that could be connected to VCP increase in traffic.

Quoting C010T3 (Thread starter):
It was all a fallacy! Neeleman’s Azul promised point-to-point services, but ended up establishing a hub. These are some quotes from least year I collected

It's what all airlines promises, and in the end, they focus on establish one hub to take some advantages in terms of maintenance and crew. They in fact have a good idea to offer something different with the focus on VCP, and their results so far are being very good with the 77% average load last month, about 10 points higher compared to TAM and almost 20 better than Gol.
And it would happen to any airline offering real alternatives (i.e. if one airline come and hub at CNF or GIG).

Quoting Incitatus (Reply 4):
Their network decisions have been mostly poor

Yes, but they balance their network very well. They do not try to just go to a market with 1 flight a day, but rather, they run on a diversified schedule.
The advantage is that they will be able in the future to replace for example SDU-VCP that runs with 80-90% loads with people willing to pay more for the same seat, to fly for example SDU-VCP-CGB or SDU-VCP-MGF
Every new destination, considering the high load factor, brings better yields to the old routes, which is very smart. Azul surprised me on that.

Other airlines we saw, just tried to create a flight with 30% load, then increase to 40%, 50% and only by reaching 80%, tried to manage yields.



New York + Rio de Janeiro = One of the best combinations !
User currently offlineIncitatus From Brazil, joined Feb 2005, 4014 posts, RR: 13
Reply 13, posted (5 years 4 months 3 days 2 hours ago) and read 5522 times:



Quoting LipeGIG (Reply 12):
Yes, but they balance their network very well. They do not try to just go to a market with 1 flight a day, but rather, they run on a diversified schedule.

I did not say they have a bad network now. They have made many mistakes and the current network is the result of fixing some of those mistakes. They are using a large market approach of coming in with 4/5 departures a day in a single route that can't really support that many seats. Then a couple of months into flying it they have to cut back. Brazil is not a fiercely competitive domestic market, so in my view they are wasting ammo. They should go for a less dense network with more nonstop markets and fewer frequencies in each one.

Quoting C010T3 (Reply 9):
Well, they try to make up for that absence by offering free bus shuttles to various points throughout the state of São Paulo, a costly endeavour IMHO

Free is not smart! The bus network is smart.

Quoting LipeGIG (Reply 12):
Other airlines we saw, just tried to create a flight with 30% load, then increase to 40%, 50% and only by reaching 80%, tried to manage yields.

Both strategies may lead to unprofitable flights. The difference is that Azul may end up axing 80% load factor departures because the fares paid don't cover the operating costs.



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User currently offlineLuisKMIA From United States of America, joined Apr 2007, 106 posts, RR: 0
Reply 14, posted (5 years 4 months 2 days 19 hours ago) and read 5041 times:

The current bi-monthly issue of Airliners magazine has Neelman on the cover and obviously an in-depth article on Azul. The airline has a very ambitious growth plan, and I think focus cities will start looking like hubs in the future, assuming they give TAM and GOL a stiff challenge.

Luis
KMIA


User currently offlineLipeGIG From Brazil, joined May 2005, 11438 posts, RR: 58
Reply 15, posted (5 years 4 months 2 days 14 hours ago) and read 4632 times:
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Quoting Incitatus (Reply 13):
Both strategies may lead to unprofitable flights. The difference is that Azul may end up axing 80% load factor departures because the fares paid don't cover the operating costs

Agree, but what help them is the plane. The E-Jet is just perfect for mostly departures, and makes the difference. Of course, also means less revenue on rush hours, but i believe the fact they obtain higher loads on off-peak, makes such profit come easier.

Quoting LuisKMIA (Reply 14):
The current bi-monthly issue of Airliners magazine has Neelman on the cover and obviously an in-depth article on Azul. The airline has a very ambitious growth plan, and I think focus cities will start looking like hubs in the future, assuming they give TAM and GOL a stiff challenge

Very ambitious, but seems that the challenge imposed to TAM and GOL, is real and strong.



New York + Rio de Janeiro = One of the best combinations !
User currently offlineSKYYBLUE From , joined Dec 1969, posts, RR:
Reply 16, posted (5 years 4 months 2 days 14 hours ago) and read 4606 times:

Does Azul already have their LiveTV system up and running? Has anyone here tried them out yet?

User currently offlineNeo From Brazil, joined Jan 2001, 672 posts, RR: 6
Reply 17, posted (5 years 4 months 2 days 1 hour ago) and read 4482 times:

I think that that is rather impossible to build up a network mainly with P2P without a primary hub operation like VCP. As Lipe pointed out, a considerable part of GRU/CGH paxs comes people from central/northern SP state that need to drive all theway to SAO to take their flights. Now they can do it from VCP, wich for many is more convenient.

As for the network we should see more P2P flights later on, and also the development of focused cities in North and Northeast like SSA/REC, MAO...

Current P2P routes:

VIX-SSA-VIX
NVT-POA-NVT

One think I'm not sure is how will Azul implement in SDU. Probable services are SDU-VIX, SDU-SSA, SDU-POA.... but is not like there are slots available to create a second hub there..besides we are already seeing congestion issues with all the new flights created recently. Not sure if they will carry an further expansion or simply use SDU to attract pax from their network. Ex.. NVT-VCP-SDU, CGR-VCP-SDU, MGF-VCP-SDU and so on.

Quoting LipeGIG (Reply 12):

Quoting Incitatus (Reply 4):
Their network decisions have been mostly poor

Yes, but they balance their network very well. They do not try to just go to a market with 1 flight a day, but rather, they run on a diversified schedule.
The advantage is that they will be able in the future to replace for example SDU-VCP that runs with 80-90% loads with people willing to pay more for the same seat, to fly for example SDU-VCP-CGB or SDU-VCP-MGF
Every new destination, considering the high load factor, brings better yields to the old routes, which is very smart. Azul surprised me on that.

Other airlines we saw, just tried to create a flight with 30% load, then increase to 40%, 50% and only by reaching 80%, tried to manage yields.

I think it was indeed a wise decision to start with more than 1 flight a day and offer more options, perhaps it was a bit much in some routes, but as they add new destinations it's easier to balance/adjust daily offers within the network.

As for the yields I totally agree with Lipe.. very interesting strategy.

Rgs,

Neo


User currently offlineJetblueguy22 From United States of America, joined Nov 2007, 2797 posts, RR: 4
Reply 18, posted (5 years 4 months 2 days ago) and read 4446 times:
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Quoting Luke (Reply 3):
Even P2P airlines will still want to gain from the economic benefits of concentrating services at certain airports, and often initially, only one airport.

Its similar to WN. They like to consider themselves "hubless" but you could very well say they have hubs in MDW, DAL,BWI.
Blue



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User currently offlineBaron95 From United States of America, joined May 2006, 1335 posts, RR: 8
Reply 19, posted (5 years 4 months 1 day 15 hours ago) and read 4261 times:



Quoting C010T3 (Thread starter):
It was all a fallacy!

For crying out loud. The airline has been operating for just a short few months with a tiny fraction of the fleet on order. Give them time. The only sensible approach is to develop P2P with one focus city at a time. Obviously when the incipient network and fleet can only support ONE focus city, that ONE focus city looks like a hub.

Obviously they are learning what frequency and yields work best. It is not a *mistake* per se to experiment and adjust. The mistake would be if they were obstinate and tried to hang on to unprofitable frequencies like RG used to do.

I'd say, all and all, not a bad start. Limited, of course, but not bad.



Killer Fleet: E190, 737-900ER, 777-300ER
User currently offlineLipeGIG From Brazil, joined May 2005, 11438 posts, RR: 58
Reply 20, posted (5 years 4 months 1 day 15 hours ago) and read 4256 times:
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Quoting SKYYBLUE (Reply 16):
Does Azul already have their LiveTV system up and running? Has anyone here tried them out yet?

Not yet, there's no satelitte service for LiveTV in South America.

Quoting Neo (Reply 17):
One think I'm not sure is how will Azul implement in SDU

I don't know also, but i do not expect them to get so many slots at SDU. I expect they need to get some slots and launch services at GIG.

Quoting Neo (Reply 17):
I think it was indeed a wise decision to start with more than 1 flight a day and offer more options, perhaps it was a bit much in some routes, but as they add new destinations it's easier to balance/adjust daily offers within the network

But the fact is that, like NVT, the demand it's not NVT-VCP but also NVT-SDU, NVT-SSA, and in the future, why not, NVT-BSB.



New York + Rio de Janeiro = One of the best combinations !
User currently offlineIncitatus From Brazil, joined Feb 2005, 4014 posts, RR: 13
Reply 21, posted (5 years 4 months 1 day 15 hours ago) and read 4252 times:



Quoting Baron95 (Reply 19):
It is not a *mistake* per se to experiment and adjust.

Launch VCP-VIX with four frequencies per day was not a mistake? One of many.

Many domestic routes can cost 10 to 20 thousand dollars per departure. No startup company goes on experimentation at that rate. Venture capital is dear.



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User currently onlineC010T3 From Brazil, joined Jul 2006, 3703 posts, RR: 19
Reply 22, posted (5 years 4 months 1 day 14 hours ago) and read 4236 times:



Quoting Baron95 (Reply 19):

For crying out loud. The airline has been operating for just a short few months with a tiny fraction of the fleet on order. Give them time. The only sensible approach is to develop P2P with one focus city at a time. Obviously when the incipient network and fleet can only support ONE focus city, that ONE focus city looks like a hub.

I'm sorry, but to operate from a city that can only support one small fraction of that kind of operation and to rely a lot on connecting traffic is not establishing a focus city, not here, not in Mars. VCP is not only an operational hub, it has become a passenger connecting point for Azul.


User currently offlineLipeGIG From Brazil, joined May 2005, 11438 posts, RR: 58
Reply 23, posted (5 years 4 months 1 day 13 hours ago) and read 4196 times:
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Quoting Incitatus (Reply 21):
Launch VCP-VIX with four frequencies per day was not a mistake? One of many.

Many domestic routes can cost 10 to 20 thousand dollars per departure. No startup company goes on experimentation at that rate. Venture capital is dear

You Could be right, but with more services, they got every time they launch a new route more capacity to attract people from VIX and require them to pay a premium. You can check that they are now selling the last seats, and they got a real premium.

Quoting C010T3 (Reply 22):
VCP is not only an operational hub, it has become a passenger connecting point for Azul

On this regard , i agree 100% with you. They manage to attract people from São Paulo, they begin to offer bus service to more destinations, as well as they got connections. This mix fills any hub!



New York + Rio de Janeiro = One of the best combinations !
User currently offlineHardiwv From Brazil, joined Oct 2004, 8780 posts, RR: 49
Reply 24, posted (5 years 3 months 4 weeks 1 day 6 hours ago) and read 4002 times:



Quoting Greenair727 (Reply 6):
Blatantly absent on their route map is CGH or GRU--is that because the Sao Paulo market is served instead by VCP for them? Is it effective (especially in traffic)?

VCP has managed to capture some traffic from Sao Paulo city (see info above about transportation from sao Paulo city to VCP) but the focus has been VCP (Campinas area) which so far had very poor air connections.

Campinas (VCP) is an important and relatively wealthy city and also has a major catching area. Campinas (VCP) is the 10th richest city in Brazil, the 3rd most important research and development centre of Brazil, and produces 1/3 of Sao Paulo's GDP! Azul has basically all the VCP market for itself. I found this move very smart considering both GRU and CGH are difficult to reach for many pax living outside the city of Sao Paulo.

Azul has also developed a hub outside the usual airports (GRU, CGH, GIG, BSB) and therefore has avoided structural problems related to these airports. The VCP area O&D market also becomes exclusive for Azul.

Quoting LipeGIG (Reply 12):
That's a common assumption here, that all traffic from CGH or GRU comes from São Paulo city itself.

Azul has opened up a major market in Sao Paulo state, mainly Campinas region. This was a very intelligent move.

Quoting Neo (Reply 17):
Current P2P routes:

VIX-SSA-VIX
NVT-POA-NVT

NVT-POA is doing very well and the route operates twice daily and loads are always high. As mentioned by Lipe, Azul's loads in general are very strong and above TAM and GOL.

NVT has seen its flights more than double: from 6 daily (3 TAM + 3 GOL) to 12 daily flights (3 TAM, 4 GOL and 5 AZUL). Last Saturday GOL started NVT-GRU-GIG-BEL-MCP which is perfect for international connections in GRU.

Rgs,


25 Post contains images C010T3 : And now we have more spokes!
26 Neo : I assume VCP-VIX-SSA is doing well also as JJ has just announced it will cancel their "awful" late night GRU-VIX-SSA flight... guess AD can be blamed
27 Incitatus : The largest cities missing are Belo Horizonte, Brasilia and Belem. Somebody at Azul must have accidently deleted from the spreadsheed of potential de
28 Hardiwv : I think CGB (Cuiaba). CXS (Caxias do Sul) and GYN (Goiania) will come first. Rgs,
29 C010T3 : You mean CXJ.
30 Neo : In fact, AD is going first to underserved markets that are often are served by only one or 2 companies. CGB, GYN and CXJ are good examples. I think a
31 LipeGIG : Neo, they have to balance always their network. You wont see a lot of destinations north of VCP at same time because they know the need to balance it
32 Hardiwv : You are correct. As you said, markets such as NAT, LDB, MGF, CGB, GYB, CXJ, XAP are all strong candidates for future VCP routes in which the airline
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