Implications of seat assignment flexibilization for airline revenue management

Abstract

This paper aims to prompt the airline industry to explore a new way of using existing airline cabin layouts that improves profitability and comfort. The century old paradigm, that passengers take a seat for an entire flight, is a way of utilizing airliner cabins that heuristically means poor comfort for most passengers and low financial returns (Return on Invested Capital – Weighted Average Capital Cost industry wide of −2.3 per cent (2013) and −1.2 per cent (2014), and EBIT of 3.5 per cent (2013) and 5.1 per cent (2014) of revenues Earnings Before Interest and Tax) – Source IATA). The author shows the benefits of allowing a place-exchange market to operate during flights. This market proves to be a superior value extraction tool and opportunity for airlines, which can substantially increase their profits by enabling widespread comfort to their customers. As a consequence, airline economics are greatly improved. As a corollary, this dramatically increases the amount of viable routes.

Appendix: Survey results

The below survey results were obtained in long-haul flights of over 12 h in duration. The surveyed passengers were chosen randomly near the beginning and end of flight to avoid bias of sleeping passengers. Passengers were interviewed after disembarkation. Most passengers were seated at the aisle, which we do not consider to affect the statistical values.

Flight duration 12 h
Rome–Buenos Aires. Predominantly night flight
Sample: 50 passengers selected from seats and aisles. Load factor est. 99 per cent
Open to exchange places to lay down during long flight
Yes	48 per cent	24
No	32 per cent	16
Not sure	18 per cent	9
Accepted extra cost for being allowed to lay down for 2 h in a suitable place
Average	28 per cent
Min	0 per cent
Max	60 per cent
Of those that accept exchanging place, would passenger lay down in any place of any size, provided it is suitable to sleep
Yes	54 per cent	13
No	46 per cent	11
Flight duration 13 h
Buenos Aires–London. Half day/half night flight
Sample: 40 passengers selected from seats and aisles. Load factor estimate 90 per cent
Open to exchange places to lay down during long flight
Yes	53 per cent	21
No	28 per cent	11
Not sure	20 per cent	8
For those accepting place exchange, accepted extra cost for being allowed to lay down for 2 h in a suitable place
Average	30 per cent
Min	5 per cent
Max	50 per cent
Of those that accept exchanging place, would passenger lay down in any place of any size, provided it is suitable to sleep
Yes	67 per cent	14
No	33 per cent	7
In flight: Flight duration 13 h
Madrid–Buenos Aires. Night flight
Sample: 30 passengers selected from seats and aisles. Load factor 100 per cent
Open to exchange places to lay down during long flight
Yes	53 per cent	16
No	40 per cent	12
Not sure	7 per cent	2
For those accepting place exchange, accepted extra cost for being allowed to lay down for 2 h in a suitable place
Average	23 per cent
Min	7 per cent
Max	40 per cent
Of those that accept exchanging place, would passenger lay down in any place of any size, provided it is suitable to sleep
Yes	63 per cent	10
No	38 per cent	6
Totals
Pax	120
Open to exchange places to lay down during long flight
Yes	51 per cent	61
No	33 per cent	39
Not sure	16 per cent	19
For those accepting place exchange, accepted extra cost for being allowed to lay down for 2 h in a suitable place
Average	27 per cent
Min	0 per cent
Max	65 per cent
Of those that accept exchanging place, would passenger lay down even in a constrained place, provided it is suitable to sleep
Yes	61 per cent	37
No	39 per cent	24
Summary
	Percentage pax to lay down	Extra price	Potential revenue increase if space use 1:1 ratio with Economy.	Potential profit increase based on curr. 7 per cent EBITDA
Total	51 per cent	27 per cent	14 per cent	97 per cent

1. These results are not surprising, when one compares the extra price of 27 per cent to what some passengers pay for Business Class which is often a premium between 100 per cent and 500 per cent