23 Oct Airline Business

Interior seating configuration

Usage of seats first, business, economy
Livery branding purposes
Linear Route System cost advantage
Hub & Spoke network revenue advantage (more option for consumers serve more
peope!
"utiates productivity in terms of utiity, abour production and fue costs
Incement weat#er
$ongestion vs more efficient under Linear
%fter dereguation everyone went to #ub and spoke
&ecomes going after t#e ma'imi(e revenue approac# rat#er t#an minimi(ing costs
$#oosing a #ub a! centra geograp#y wit# natura fow of air traffic
Hubs on t#e outskirts ) *orks as internationa gateway (Lisbon funne traffic frm S%
bra(i into +urope!
,ot t#at good as domestic
b! financia #ub and popuation (London insurance and banking center!
+tc -oronto vs montrea more #ig#er paid e'ecutives in -oronto w#o can afford to fy
bi(cass
.rankfurt & /aris financia centre of 0ermany and .ranc#
%msterdam c#eap gateway for 1 freedoms
(23 43stop for non traffic purpose (etc fue! 53rig#t to transport traffic 63 rig#t to take
traffic back 73% to & (dropoff and pickup! to $ 135 & 6 freedom toget#er!
c! ta'es abour aws
Ireand Ryanair etc
d! airports preferaby a city wit# ony one airport, don8t want a ow cost carrier going to
a secondary airport sucking away traffic (2 airport in %tanta and /#iy!
and cost of airport services
e! weat#er a city not disrupted by turbuent conditions (w#ic# cd cause s#utdowns!
f! competition eve w#o is currenty t#ere and w#et#er t#ere is potentia room for
deveopment many airports are aready congested and ack e'tra capacity to give to new
entrants
etc9 some incumbents mig#t #ave #ig# market s#are and t#us difficut for new entrants to
disodge t#em
/erformance monitoring & +vauation side9
&enc#marking against competitors to see reative performance
.ig#t profitabiity anaysis micro eve (every city)pair! and macro eve (every city
invoved in! done via #istorica anaysis of 2)4 caendar year compare mont# on
mont# performance
#ard to break out data because some cities are feeding your ot#er routes (some
cities ook cui but t#ey are #eping ot#er cities!
#ard to aocate costs on :oint routes
smaer aircrafts ook ike not producing revenue but t#ey are (ie ow fares but
generay ess competition in t#is range so sti can make significanty w#en no
competitors!
) "et#odoogy of price setting
Revenue ma'imi(ation via price differentiation
Look at passenger market segmentation
0ood is an intermediate good consume for t#e purpose of anot#er good (#oiday or
business trip! no one fies for t#e sake of fying3
,o onger fair to say bi( from arge corporation ; wiing to pay since some reay arge
corps #ave bargaining power to negotiate< farm out trave to agencies to pressure airines
into giving t#em perks ike fre= mies or c#eaper seats
Large amount of revenue generated by a sma proportion airines wana take care of
t#ese guys roadwarriors w#o fy every week
.re=uent fier perks board first, free baggage, free pickup services, ounge access and
food<i=uor
*#y se beow cost9
Subsidise by ucrative routes
$over fi'ed costs (since seat empty anyway! ie in a ow demand season ot#erwise
panes fy empty
+ngage in predatory pricing to win competition and drive t#em out
) $ompetitor comes in u wi ose traffic if you do not price)matc#
) If > and ? #as same costs but > owers price beow cost, I #ave to matc#
) If > #as ower costs and ower price, even if im osing I sti must matc#
Soution ot#er t#an owering
) Hope #e fis up inventory t#en you bao t#e overspi (since #e is fu up!
pricing and demand very dependent on broad economy growt#@ Recessionary@
-errorism and war@ S%RS@
Aemand is derived, ficke, uncertain cycica, directiona and #ig#y segmented
a t#is wi c#i demand for trave
%irines earning more via anciary fees ie everyt#ing ese (aa carte pricing food,
drink, baggage, c#ange fees etc!
.rom 437bi in 4BBC to 4431bi in 4B22
D$#eap enoug# to say p#uket I8 go %irasiaE
&ig guys cannot compete wit# L$$ in domestic market (65F cost adv3!
&ig probem esp since big guys re= domestic mkts to feed t#eir internationa markets
AGH #aven8t got any airine under anti)trusts aws because9
Iirutay impossibe to prove 5 t#ings for unawfu monopoisation
23 pricing beow cost
43 reasonabe ikei#ood of successfuy driving
53 you wi en:oy recoupment of s#ort term oss
2 and 5 are probems #ow to estb cost of particuar seat in particuar market since cost
(variabe and fi'ed components! depends on w#en you make t#e revenue and sae of
fig#t definition of cost (variabe or fi'ed@ Iariabe =uite sma or does it mean fuy
aocated costs!
$ourts #ave a toug# time identifying eve of costs
Intangibes competitors don8t reay wanna take you to court
Reputation of airines ,ort#west %ir ) go after competitors by doing batanty anti)
competitive t#ings
Large airines don8t go after eac# ot#er (bec eac# #ave strong baance s#eets and a ot of
capita!
Sandwic# fre=uency fy wit#in 27mins (before and after! of its departure to force it out
) %dvantage is t#at at#oug# t#is is unawfu monopoi(ation, very #ard for courts
to get you3
%t t#e ast minute seat wort# a ot to passenger but wort# very itte to aircraft9 Aiemna
$ountervaiing fear t#at t#ey mig#t not se inventory
Revenue "anagement
Gb:ective of optimi(ing tota rev by seing diff bocs of capacity at #ig#est possibe price
$apacity)conotroed discount fare structure pp monitoring demand and atering si(e of
eac# fare bucket depending on ups n downs in actua vis)J)vis pro:ected demand on eac#
fig#t
/ricing ook at #istorica data of #ow muc# was unsod
Say 27F unsod so :ust offer some #uge discount ) K2LL seats for 2BF
,ow n't 2BF at 4LL
&ucket 59 K5CL at 2BF
Hig#er and #ig#er prices t#e coser to fy date3
) eac# custer< buckets of seats (I buit in wit# restrictions!
) ,on refundabe for super c#eap seats and minimum stayover period (bec I don8t
want a bi( traveer buying t#at seatM!
) -ry to pus# out conditions t#at stop buinsess traveer consuming my c#eapo seats
) ? fare ) K4LBB
0ame se a of inventory &U- I wana make sure I ma' t#e business seats (#ig# cost
ones!
"anager #as discretion to open up buckets if saes are sow or cose buckets if ses out
too fast
,eed someone to watc# competitors see if need ad:ustment to pay t#e game
*ant to avoid spoiage and spiageM
Spoiage seat doesn8t get sod spare capacity
Spiage fu cap suc# tt ur #ig# seat go to anot#er competitors
Nuite impossibe to ac#ieve bot# (t#at8s t#e goa!
Usuay one wit#out anot#er
*#y cannot offer same price@ &ecause if we fy a few times a day eac# fig#t #as
different demand ) Gffering same price woud mean ma' out capacity in good timesots
but empty fig#ts ot#erwise on redeye fig#ts etc
AG+S ,G- "%>I"IO+ R+I+,U+
.at pricing won8t sove probem of differing demands #owever differentia pricing wi
aeviate it3
*#y do airines overbook@
-#ey can se a seat twiceM P if one person doesn8t s#ow up, its empty and t#ey can rese
%gain a =uestion of ooking at #istorica data
&aanced against bumping peope off, offering t#em a bribe, and bumping off t#e
peope w#o are owest fares pp and t#e non)oya fyers3
$annot advance notice of fares probem of cousion
Sti goes on airines enter fares on fri nig#t, by "onday wi know if ot#ers wi matc#
Responsive to economy and competitors cose c#eap buckets if economy is goodM