If airlines are in trouble, why are planes so full?

Airlines are expert people packers


 

If airlines are in trouble, why are planes so full?As passengers shove their way onto planes these days, you can practically hear the grumbling thought: in these recessionary times, shouldn’t everyone be staying home and giving me some leg room? High end restaurants and stores are empty, why aren’t the planes?

In fact, airlines are operating with record high load factors – averaging in the mid eighty to ninety percent range. Blame that middle seat you’re stuck in on the highly sophisticated management systems that are now employed by most airlines. There have been a lot of questionable decisions in the last decade, but one thing the airlines have excelled at is refining revenue and capacity management systems that are the envy of many other industries. Just our luck.

Take off eh.comAirlines have a highly perishable product, so it is essential to get the most revenue out of each flight before it departs, or the sales opportunity is lost forever. They began by segmenting their flights into different categories. The highest category – such as business class – would have the fewest restrictions, hence the highest price. The more restrictive the fare, the lower the price, as in the case of a seat sale. To make sure they maximize their revenue and sell the most seats in the in the highest classes, the airlines developed highly sophisticated computer models to control pricing.

The systems are based on probability formulas which predict demand for a flight. They punch in all the variables — historical data (how did the same flight do last year?), seasonality, time of departure, present booking trends, competition, economic data and market input from the field – and segment the flight revenue opportunity accordingly. It is far from being an exact science, but armed with this information the revenue analysts can quickly determine how well a flight is progressing and take the appropriate action to optimize revenue.

If a flight is not performing well, most likely more seats will be made available in the lower, more restrictive, classes which are of course less expensive. And to further stimulate sales, it may be necessary to introduce a seat sale. What is happening in the present economic climate is that the higher yielding business market has contracted significantly, which means that the seats allocated to that segment are not being sold.

To try to make up for this shortfall the revenue management people have to allocate more seats in the lower classes. Unfortunately, you have to sell a lot more of these seats to generate the same amount of revenue. That is why the airlines are pushing to fill every single seat – they need to make up the difference. Even with a completely full flight, the airline likely isn’t making money, but at least they are losing less.

Revenue and capacity management go hand in hand. When an airline does not think it can stimulate enough demand at the right price, it reduces capacity. This can be done in two ways – both of which are longer term strategies since reassigning aircraft, crew, slots and published schedules cannot be accomplished overnight. The airline either cancels certain flights, or puts smaller aircraft on a route which will at least maintain their schedule integrity and prevent competitors from picking up their valuable unused airport slots.

When times are good and business people are travelling, there is not the same pressure to have full flights. In the present environment, the only way the airlines can survive is to have their revenue management systems working flat out to fill the flights with as much revenue as possible. And that means selling almost every seat.


 
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If airlines are in trouble, why are planes so full?

  1. yes-all very true but its easy to fill seats but if the flight loses money every time sooner or later the crucnh comes..just ask Air Canada-if they have big seats sales in the summer-traditionally the time they are supposed to make money what are they going to dol in October on?

  2. Perhaps if regulatory red tape were cut, airlines would have less trouble making profits.

    Imagine if the airport fee were at cost and union regulations were eliminated. All an airline would have to do is maintain aircraft according to safety standards and pay for fuel and staff at competitive rates. The consequent cost reduction would allow airlines to lower prices while maintaining higher profits. Demand would increase, airlines would hire more people, and everyone would be able to travel more.

  3. Perhaps if regulatory red tape were cut, airlines would have less trouble making profits.

    Imagine if the airport fees were at cost and union regulations were eliminated. All an airline would have to do is maintain aircraft according to safety standards and pay for fuel and staff at competitive rates. The consequent cost reduction would allow airlines to lower prices while maintaining higher profits. Demand would increase, airlines would hire more people, and everyone would be able to travel more.

  4. Perhaps if regulatory red tape were cut, airlines would have less trouble making profits.

    Imagine if the airport fees were at cost and union regulations were eliminated. All an airline would have to do is maintain aircraft according to safety standards and pay for fuel and staff at competitive rates. The consequent cost reduction would allow airlines to lower prices while maintaining higher profits. Demand would increase, airlines would hire more people, everyone would be able to travel more, and without the pressure to cut losses airlines could fly flights with less passenger-packing.

  5. Sad but true. An empty seat does not earn any money…just look at ryanair, I think they have the best business model, espeically tailored for the global recession and the brilliant boeing 737 performs pretty well too on a very tight schedule.

  6. In 2001, before the 9/11 attacks, I went to Australia and the plane was probably 3/4 full. Me and my friend got an entire middle row to ourselves, plenty of sleeping and leg room. That 18 hour flight was so much more bearable. I was so impressed.

    Today, 11 years later, every plane I go on is packed right to the brim and there is no empty seat, and legroom has been completely removed on most flights–yet the airliners are in trouble we keep hearing on the media. Sigh.

    Airliners need to move back to comfort and quality, and get rid of half the seats on these aircraft.