Scheduled flight cost models

[Donkey497]

Folks,

I may be barking up the wrong tree here, but I've been doing a fair amount of transatlantic flying recently, all of it in Y class as it's been for business. What has puzzled me is the prices that I have paid have made little if any sense.

I appreciate that the factors which influence the costs of a flight will include the current costs of fuel, crew costs, airframe finance & maintenance charges, overheads and airport landing & navigation charges as well as the odd premium for flights which are at prime vacation periods at either end. The price I have paid for using the exactly the same flights on the same days from EDI to IAH on a regular basis have ranged from under £400 to over £1300.

However, doing some digging recently I came across some information that the cost model for transatlantic flights is based on filling the business and first class zones at full fare, this being expected to cover all costs of the flight. The fares that are then collected for economy class are then effectively the profit for each flight.

Looking historically, maybe the first ten or so years of these routes would have been predominantly business travel, but I cannot see how this cost model, if true, can be legitmately applied today in the LoCo operator environment. Surely it would make more sense (& perhaps more profit) to rework the cost model based on 2/3 economy class take-up (with a premium economy layout), combined with a 1/3 business and first class take-up. Flat rate for each ticket class and stand by tickets, regardless of day of travel & duration of stay. Fair enough, add a premium for peak periods, but this should be a reasonable figure and should be easily understood from the ticket / booking service.

I know that many companies (except banks & Governments, who are really only spending our money anyway) have a blanket ban on using business & first class across the Atlantic due to the costs of business and first class on this route & this might be a way to reduce these costs to a reasonable level, thus allowing an expansion of the number of business seats on each flight, increasing revenue possibilities for the airlines.

Anyone got any comments?

[TartinTon]

It's all to do with a dark art called Revenue Management. Basically, airlines have teams of people whose job is to make as much revenue from each departing flight as possible. They do this by monitoring historic demand patterns, current trends and competitor activity and then using a combination of mathematical modelling and judgement decide how many seats to sell at what fare on each flight. Things have become more complicated recently with the advent of so much revenue being derived from ancillary revenues that airlines can afford to fly some pax effectively for "free" assuming that there will be revenues still derived from inflated taxes, baggage, meals, seating, drinks, check-in, air for breathing etc etc. although the only airline I can remember where you could actually "buy" a free seat was Ryanair.

Airlines have to make a decision as to whether they can generate more revenue on a club cabin of , say, 70 pax versus 135 economy seats (based on a 48 inch pitch vs 32 inch pitch)

It's a difficult balancing act and can explain why there is a such a wide variation in fares charged at different times of the year, day of the week etc.

Of course, some airlines get it right and some get it drastically wrong.

As a general rule, you can look at any of the major European airlines as getting it right at the moment as they all seem to be declaring profits against a background of fuel cost being some 40-60% higher than the previous year which would seem to suggest they are managing to get their costs under control while passing on some of the fuel increase through higher fares and/or ancillaries.

A good example of an airline who got it wrong would be Maxjet.

[VS-LHRCSA]

One of the key factors of the Low Cost Model is aircraft utlisation. These carriers basically fly their aircraft as much as they, to a schedule that suits the airline, to mostly secondary destinations.

A Low Cost Carrier would not be able to use utilisation to get the edge over legacy carriers on long haul routes because the utilisation would basically be the same.

Airlines such as Zoom are giving it a pretty good try by offering a basic on board service, with extras to be charged for (eg seat selection) and seem to be making some headway but they are the only example I can think of an airline with a focus on an economy service that actually makes money (or does it?).

Personally, I believe the only way to make money with long haul is either high yield or high density.