7/15/12

How airlines could make more money

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How airlines could make more money

The post-departure seat map in First and Business Class of UA863 from SFO to SYD on June 19, 2012 (courtesy of united.com). Even as most flights are packed these days, some planes still take off with plenty of vacant seats, including in First and Business Class, effectively losing the airlines hundreds of thousands of dollars. Offering lower lastminute fares on undersold flights seems a logical solution, and carriers do it sometimes, but those attempts are utterly insufficient. Let’s look at a recent international flight — most U.S. airlines give away free upgrades on domestic routes to fill their premium cabins. I picked a United Airlines flight on a route with traditionally heavy demand in
nicholaskralev.com/2012/07/03/how-airlines-could-make-more-money/ 1/8

the plane had to go to Sydney to pick up all those passengers. much of that revenue comes from connecting traffic. I’ve been watching that route for several months while helping clients flying it. fares on that route are actually lower by about $1. but with proper advertising. but there surely is something wrong with the above picture. but it’s unlikely that 18 people did. The June 19 flight was by no means an exception. As the above image shows. I realize there is no guarantee it would have sold all vacant seats at those prices. Is it possible some ticketed passengers missed their connection? Of course.800. United files discounted last-minute weekended coach fares domestically. mainland to Australia — Qantas. including on the upper deck.800. Just a couple of hundred dollars less might have made a difference. so the seat map presents an accurate picture. either. it would have likely sold at least several. The lowest last-minute fare is about $12. but mid-week flights have consistently taken off with quite a few vacant seats. What if United had lowered the fare to $4. If bought at least 21 days before departure. With equal fares. The post-departure seat map in Economy Class of UA863 from SFO to SYD on June 19.7/15/12 How airlines could make more money Business Class: San Francisco to Sydney. The lowest Business Class fare on United on that route is — and has been for some time — about $6. but not internationally. Delta and Virgin Australia — offer the same fares as United. You do the math to figure out how much money United lost as a result of those 18 unsold seats. Even so. which requires a 50-day advance purchase.400. The airlines have supposedly sophisticated systems to handle such scenarios and maximize yields.com/2012/07/03/how-airlines-could-make-more-money/ 2/8 . So why doesn’t United lower those fares? Perhaps it doesn’t care — if the return flight was full. Coach fares are much lower — certainly over $1.300 at least three days in advance. 2012 (courtesy of united. as the image below indicates. and this has been a pattern. it’s hard to see how additional revenue of tens of thousands of dollars would be something immaterial to any company. and about $12. It’s worth noting that there were several nonrevenue passengers on the flight.000? It would have made tens of thousands more. on June 19.000 — but the empty seats are many more.S. The other three airlines flying from the U. The snapshot was taken a day after departure. a ticket costs about $9. Economy Class has done worse than Business.com). United’s flights from Los Angeles to Sydney have fared a bit better — guess what. It’s true that those planes are full on certain days of the week.000. that Boeing 747 left with 18 empty seats in Business Class. While United offers the only nonstop service between San Francisco and Sydney.000 or even $3. so United’s competitive advantage would have been obvious. but I’ll ignore that fact in my analysis. United and other carriers now offer nicholaskralev. many business travelers on that route prefer Qantas for better service.

Having human beings keep track of at least high-revenue routes for several weeks before departure would make a lot of sense. There is something else. but the additional revenue would be much greater. inventory management. Jeff Smisek. Even though no extra cash would have ended up in the carrier’s pocket for that particular flight. the company would lose absolutely nothing. hiring new employees means higher labor costs. It has refused to remove that restriction despite repeated calls from numerous top-elite fliers. meaning they would have spent more money on United in the future. United limits the use of system-wide — or global — upgrade certificates to coach tickets booked in W class or higher. until just a few days before departure. used certificates reduce the airline’s liability for accounting purposes. but apparently those weren’t enticing enough to fill more seats on June 19. More importantly. airlines rely on computer models and robots to manage flight inventory. airline profits. My impression is that United and most other airlines simply don’t have enough people working in inventory and revenue management to monitor flight loads and propose adjustments where necessary.com/2012/07/03/how-airlines-could-make-more-money/ 3/8 . For the most part. Sure. first class. labor costs. Continental execs at odds over loyalty program Airlines cut back on first-class service What to do with empty premium seats? Tags: airfare. last-minute fares. Qantas. business class. Delta Airlines. and Business Class tickets booked in D class or higher. 18 Business Class seats remained vacant.7/15/12 How airlines could make more money paid upgrades — or “buy-ups” — at check-in. Delta’s rules are even more draconian. there were probably passengers on fares lower than W who wanted to use a system-wide certificate but weren’t allowed — at the same time. I realize arguments that have to do with loyalty carry little weight with United’s current management. But why can’t United exempt from that rule last-minute upgrades that can be requested only at check-in — just like it offers paid upgrades? On that June 19 flight. How would have that made United any money? Letting customers use upgrade certificates they have earned with their loyalty goes a long way. though American allows such upgrades on all fares. San nicholaskralev. Jeff Foland. There are millions of flights in a large carrier’s system at any given time. airline revenue. but in this case. such a gesture would have likely preserved and possibly expanded those customers’ loyalty. airlines. premium cabins. RETURN TO MAIN COLUMN PAGE Related stories: Did United choose the best rez system? American tries to entice top United fliers United. airline inventory.

system-wide upgrades. Why not mention this to them and show them how they could sell cheaper tickets and still make more money! Leave a Reply Required fields are marked * Your email address will never be published or shared. upgrades. 2012 at 11:45 AM Wow! That makes a lot of sense. Sydney. After reading your book. though. Virgin Australia Posted by nkralev Latest Subscribe to RSS feed 1 Comment on How airlines could make more money 1. United management. Name * Email * Website Comment Submit Reply Spam P rotection by WP -SpamFree Subscribe to updates nicholaskralev.com/2012/07/03/how-airlines-could-make-more-money/ 4/8 . Carter Rutherford says: July 13. United Airlines.7/15/12 How airlines could make more money Francisco. it sounds like you have actually made United change some things. They really should do that.

carriers of selling as a "direct" flight — not nonstop — two separate flights that have nothing in common except for their number.7/15/12 How airlines could make more money Enter your e-mail address: Subscribe . . Travel advocacy Help fight dishonest and misleading practices in the airline industry that hurt travelers every day: Fake 'direct' flights A marketing ploy by major U.com/2012/07/03/how-airlines-could-make-more-money/ 5/8 . Kralev International LLC is a travel consulting and training company.S. Key words airfare airfares Airways airlines American American Airlines Asia awards Barack Obama Bill Clinton Boeing British business class Chicago Colin Powell Congress Continental Airlines customers Delta Airlines Diplomacy Europe first class foreign policy Foreign Service frequent-flier programs George W. a thing of the past: United Airlines' secret blocking of thousands of award seats otherwise made available by other members of the global Star Alliance. Bush Germany Hillary Clinton hotels London Los Angeles Lufthansa M ileage Plus New York passengers San Francisco Singapore Airlines Star Alliance State Department Travel United Airlines United States upgrades US Airways Washington White House nicholaskralev. United StarNet blocking Hopefully. . Our mission is to improve your travel life and save you lots of money.

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