February 21, 2015 Zack Sionakides no responses

Airlines Adding in Extra Seats

This week United Airlines announced that it may change many of its 777 aircraft seating from 9 across seating to 10 across in economy class (Daily Mail Article)continuing a trend of higher density seating configurations. Its economy plus product (a sort of low-end premium economy) will stay at 9 across as it is now. The 777 is a workhorse of long haul travel throughout the world, and for years had been typically outfitted with 9 across seating, except in some high density configurations used mostly on short-haul flights in Asia.

In addition to adding an additional seat per row, which shrinks the width of the seat, airlines are downsizing premium classes and using slimline seats to add even more rows in the same space. The results are pretty staggering with seat count additions of over 100 in some cases (e.g. Air Canada). These seating configurations are certainly not comfortable for many passengers and the planes are being used on long trans-Pacific flights.

The cost/benefit is definitely there for airlines, as otherwise I believe most airlines would prefer to provide a more comfortable product for their customers. The major causes for this recent change in product across the industry, I see as follows:

1. The most common reason stated for why airlines keep adding seats is either: passengers aren’t willing to pay more than the minimum ticket price, or a variation of, that airlines don’t care and just want to jam in seats to make more money. My take instead, is that there is a demand from a large part of the population for lower priced tickets regardless of level of comfort that is driving this movement. You see this in the fact that the most profitable airlines are the ultra-low cost airlines (i.e. Spirit Air, Ryan Air, etc.) who have much lower base prices than full service airlines. This demand for lower priced travel options is also visible in other industries such as hospitality where there historically have been low priced options through hostels, pensions, or sharing.

While airline tickets are cheaper on an inflation based basis than they were 30 years ago, a ticket is still a significant expenditure for the average individual, family, or organization operating on a tight budget. Even on the low end, an airline ticket is going to cost several hundred dollars; a meaningful amount of money for the average individual. Compare this to the activity of purchasing a sandwich for lunch, where the price may vary from $3-7, a difference that is almost meaningless for the average person in a one-off transaction. As such, many passengers and organizations buying tickets are going to gravitate to the lowest cost ticket, and their desire to trade-off comfort for money, due to the high cost in buying extra comfort.

2. There is some lack of buyer knowledge on the differences in airline seating products. This lack of knowledge is more apparent from infrequent travelers that may only fly 1-4 times per year, and either don’t do the research or are overwhelmed by the differences in products. The travel aggregator sites (Kayak, Expedia, Hipmunk, etc.) unfortunately don’t discern the comfort of a seat on a 767 of one airline and a 777 of another; though an experienced traveler may very well be able to tell the nuance differences. Even in the premium cabins this problem exists, where one airline may have business class seats that are cradle recliner types, while another has lie-flat seats with direct aisle access; yet the only comparison tool available to consumers is cost and total trip time. Even in the case that a buying system added in comfort to the selection process, it is an entirely qualitative decision where one person may value the extra space at $100, another at $20, and others place zero value on it.

Airlines do a pretty good job of counteracting the buyer knowledge issue by offering their frequent flyers better seating and upgrades to premium cabins. This ensures that subtle differences in basic economy services do not dissuade higher value customers to choose a different airline, since an exit row or first class seat is always going to be an improvement over any basic economy seat.

3. The economics of flying an airplane greatly changed when oil prices spiked in the late 2000s. This has been discussed ad nauseam in the media, so I won’t go in to much detail. Simply put the cost of operating an airplane has driven the need to generate significantly more revenue per flight, since directly passing on the full fuel costs would reduce ticket demand and create a spiraling problem. This has been accomplished in a myriad of ways, including adding in more seats to the airplane.

4. Technology improvements. The technology of slimmer seats is actually fairly new. It was first implemented in 2010 by Lufthansa using a seat designed in conjunction with Recaro. At the onset the seats were intended for short flights of an hour or two, where passenger comfort wasn’t a major concern. Now they are being installed on high density wide bodies for long-haul trips. If the technology existed 20 or 30 years ago, I am certain a number of low cost airlines would have implemented it then to cut costs and increase revenue.

5. Airlines need to generate high margins on premium products to improve profits. Most airlines do well margin-wise in their business class market, however the highest margin seats in the industry are currently in premium economy. There is a good size market segment that does not want a basic economy product, can’t afford to regularly buy business or first class, but will pay a premium for a little more space. This includes business travelers on limited budgets, passengers with medical needs, tall passengers, and those that just want a little more comfort. This market is similar to the rapidly growing, fast casual segment of the restaurant industry that meets the needs of consumers who don’t want low-quality fast food, but can’t afford to eat out in nice restaurants on a regular basis.

To meet this demand with a product passengers will purchase, means the airline needs to present an enticing value proposition to the prospective buyer. Cramped conditions in basic economy certainly help to drive this product difference in the premium economy section, as a wider seat that reclines further is more easily discerned visually than a little extra leg room of similar sized seats. The target market for premium economy needs to be turned off to ever flying in basic economy, just like the patrons who eat at fast casual restaurants don’t eat at McDonalds unless desperate. The airlines that get this value proposition correct, and match product to demand, should see the best returns on their fixed assets.

Is there hope on the horizon for reprieve to crowded planes? Probably not, barring a very long period of low fuel prices, that would change the economics of operating an airline back to how it was in the 90s and early 2000s, and bring a lot of startups in to the industry. My suggestion to weary travelers is shop carefully and purchase the product you want, not just the cheapest one. If you need extra legroom for a long flight, buy it and arrive at your destination satisfied, instead of miserable. If your employer pays for travel, work with them to put in place a travel policy that is realistic given the current flying situation.

However, I do believe we are reaching a plateau as to how many passengers can be crammed in a given space, unless a major change in fuselage design of commercial airlines is put in place. Most likely the changes you’ll see are in the balance of seats between business class, premium economy, and economy, with each airline positioning their brand in a way that they believe can maximize their business.

Originally published by Zack Sionakides on LinkedIn

Share it!
Aenean mattis venenatis

Leave a Reply

Your email address will not be published. Required fields are marked *