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Mortyman
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The Economics of Airline Class

Sat Mar 18, 2017 10:19 pm

Interesting video:

The Economics of Airline Class

http://www.youtube.com/watch?v=BzB5xtGGsTc
 
Rookie87
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Re: The Economics of Airline Class

Sun Mar 19, 2017 3:35 am

Very interesting video, thank you for posting. I ended up binging on their channel lol very informative videos.
So again, thank you for sharing it
 
MHG
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Re: The Economics of Airline Class

Sun Mar 19, 2017 8:30 am

That video is not telling the whole truth.
Especially the comparison of the revenue gap is exaggerating.
The revenue gap between Y and C is way smaller (nowadays) than shown because airlines are forced to offer discounted C.class tickets as well and the video does not even take into consideration the additional amount of money spent by the airline for those "extra perks" in C aside from more floor space assigned to C-class:
1) Significantly higher price of a C-class seat (hardware) vs. Y-class seat.
2) Higher crew to passenger ratio.
3) Additional perks like lounges / loyalty programs / separate check-in (additional staff required) / catering / give aways / etc.

Do not underestimate those mentioned under no.3. Each of them separately do not seem that much - separately - but it ll adds up in the end ...
And the extent to which perks are added varies widely.
Still, overall revenue of C-class remains higher than Y-class. Just the gap is way smaller than it appears in the video.
I miss the sound of rolls royce darts and speys
 
parapente
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Re: The Economics of Airline Class

Sun Mar 19, 2017 8:32 am

Good link,thank you.Much is debated on this site as to the relative benefits of aircraft.But rarely is the economics of class sizes included.Of course from a business point of view it's pretty much 'the' key variable.This vid' makes This point very well.
 
anshabhi
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Re: The Economics of Airline Class

Sun Mar 19, 2017 8:35 am

the video is good for beginners, but as @MHG says it's not very good for people aware about airline economics..

If Y only fills the aircraft, then won't we have ULH premium only A320s?
 
aviationaware
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Re: The Economics of Airline Class

Sun Mar 19, 2017 9:20 am

MHG wrote:
That video is not telling the whole truth.
Especially the comparison of the revenue gap is exaggerating.


The video is overly simplistic, yes, but with leeway in both directions. For example, it is also understating the difference by taking taxes as revenue, which they aren't. The tax load relative to ticket price is much higher in Y than in J or F, so this counters your argument. Obviously, the yield management perspective is totally left out of that video so that doesn't improve its quality.
 
c933103
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Re: The Economics of Airline Class

Sun Mar 19, 2017 11:20 am

Then on ly thing I am wondering about after watching the video is that how do they mange to get three times as much subscribers as European Space Agency's channel with content like this
 
aviationaware
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Re: The Economics of Airline Class

Sun Mar 19, 2017 12:40 pm

c933103 wrote:
Then on ly thing I am wondering about after watching the video is that how do they mange to get three times as much subscribers as European Space Agency's channel with content like this


Maybe because the ESA is underfunded and, because of that, doesn't get anything meaningful or interesting done and is dead boring.
 
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lightsaber
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Re: The Economics of Airline Class

Sun Mar 19, 2017 2:55 pm

Good video, I like the caviats. In particular how the non-stop passengers are paying significantly more than the non-stop passengers. Also, that this was a premium heavy configuration.

I expected to not like the video as it was a better link than my expectations.
I like how they note an old Y cost the same as today's J. :)

Lightsaber
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Irehdna
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Re: The Economics of Airline Class

Mon Mar 20, 2017 2:09 am

The video did not even get the configuration correct. At 0:38 he says that the 777-300ER has 224 seats, when it in fact has 299. Plus he doesn't take into account frequent fliers who often get discounts/occasionally free business class rides.
 
aviationaware
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Re: The Economics of Airline Class

Mon Mar 20, 2017 7:18 am

Irehdna wrote:
The video did not even get the configuration correct. At 0:38 he says that the 777-300ER has 224 seats, when it in fact has 299.


He only showed a wrong picture (a crime even the most prestigious news outlets are guilty of when it comes to planes). He didn't specifically mention a -300ER, and his seat config is correct for BA's 4 class 777-200ER.
 
vv701
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Re: The Economics of Airline Class

Mon Mar 20, 2017 12:51 pm

At the IAG Markets Day Meeting it was stated that the consolidated revenue yield per square metre across the entire BA long-haul fleet is lower from their F Class cabins than from their J, W or even Y Class cabins. This might be partly because of load factor. It is also likely that the significantly higher area per passenger seat is a factor.

The lower revenue per square metre probably explains why the oldest 772s in their fleet have 17 seats in their F Class cabin compared to the bulk of their four-class long-haul fleet that has either 14 or 12 F Class seats. Further BA's latest four-class aircraft, their 787-9s, have only 8 F Class seats. Note also that their order for this type was reduced in favour of more 787-8s, a smaller, lighter (MTOW 227,930 kg v 247,307 kg) aircraft that BA operates without any F Class seats. They configure their 8s to carry up to 214 passengers (J35 / W25 / y154) compared to just 216 (F8 / J42 / W39 / Y127) on their 9s.

It will be interesting and perhaps revealing to see how they configure their 787-10s and 350s.
 
Flighty
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Re: The Economics of Airline Class

Mon Mar 20, 2017 2:45 pm

Right, it is about revenue per square meter. The loyalty aspects can be fuzzy, both in terms of cost and revenue. If you provide generous F upgrades, might the richest 0.1% prefer you? If the quality is top notch, might you win a disproportionate share of paid F? And if so, that's a huge chunk of associated revenue, perhaps large contracts as well.

F is hard, and the business is reaching consensus on ultra-J, ultra-Y and steerage Y as being the key to the future.
 
JAAlbert
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Re: The Economics of Airline Class

Mon Mar 20, 2017 3:19 pm

I think it is a good introduction to the topic of income produced per cabin, especially for armchair enthusiasts like me. As I watched, I did note that he didn't discuss how taxes on each ticket, frequent flyer upgrades (purchased and gratis), credit card tie ins, cargo and crew costs effect income per cabin. A video or article expanding on these additional topics would be very informative. I recall watching an old documentary following a Virgin 747 - the documentary said that the plane, with passengers and cargo, earned $500,000 per flight. From that documentary, it seems that if you can fill a 747 regularly and fly it often enough (and fuel prices are low) you can make a bundle.

I also recall an article which mentioned airline credit card programs. It stated - without elaborating - that the airlines make a fortune on those cards. It would be interesting to have an article prepared on income earned by airlines for ancillary fees and programs.

It's all fascinating stuff and shows just how complicated it is to run an airline profitably!
 
Flighty
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Re: The Economics of Airline Class

Mon Mar 20, 2017 3:50 pm

JAAlbert wrote:
I think it is a good introduction to the topic of income produced per cabin, especially for armchair enthusiasts like me. As I watched, I did note that he didn't discuss how taxes on each ticket, frequent flyer upgrades (purchased and gratis), credit card tie ins, cargo and crew costs effect income per cabin. A video or article expanding on these additional topics would be very informative. I recall watching an old documentary following a Virgin 747 - the documentary said that the plane, with passengers and cargo, earned $500,000 per flight. From that documentary, it seems that if you can fill a 747 regularly and fly it often enough (and fuel prices are low) you can make a bundle.

I also recall an article which mentioned airline credit card programs. It stated - without elaborating - that the airlines make a fortune on those cards. It would be interesting to have an article prepared on income earned by airlines for ancillary fees and programs.

It's all fascinating stuff and shows just how complicated it is to run an airline profitably!


Yes, even if nobody buys F (and few people do), the upgrades can entice people to join your credit card program. The issuing bank assigns a value to those people and pays the airline big $$ for that. Sometimes into the billions.

$500k trip revenue sounds high. It should be closer to $200k, maybe 300 in extraordinary cases. For LAX-SYD, 350 seats * 10 cent RASM * 7700 miles = $270,000. I don't know cargo, but round the total to $300k. And no route would average that; that's a good day for LAX-SYD.
 
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sergegva
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Re: The Economics of Airline Class

Mon Mar 20, 2017 8:51 pm

The numbers in this video seem wrong to me. Y+, J and F could be less expensive, by far.
They said:

LHR <-> IAD, 15.3 -> 22.3 (wednesday -> wednesday)
Y = 876 $
Y+ = 2633 $ (x 3)
J = 6723 $ (x 7.7)
F = 8715 $ (x 9.9)

What I get (choosing the cheepest fare of the day in britishairways.com, nonstop):

5.4 -> 12.4:
Y = 893 $
Y+ = 2372 $
J = 2550 $
F = 3071 $

26.4 -> 3.5:
Y = 852 $
Y+ = 1349 $
J = 3978 $
F = 9671 $

17.5 -> 24.5:
Y =939 $
Y+ = 2312 $
J = 3144 $
F = 3689 $

Average:

Y = 895 $
Y+ = 2011 $ (x 2.2)
J = 3224 $ (x 3.6)
F = 5477 $ (x 6.1)

Re-using square meters they give for Etihad's A380, I get:

Y (0.34 m2) = 2632 $ / m2
J (0.94 m2) = 3430 $ / m2

...and this is without free upgrades, better miles accumulation, lounge and stuff included.
So, no, J-pax are not cashcows, or not anymore.
After all, a lot of "all-Y" airlines have better economic records than most classic airlines. There isn't any reasons to be so condescending with Y pax, like in this video ("they are just here to fill the plane"... c'mon!)
 
superjeff
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Re: The Economics of Airline Class

Tue Mar 21, 2017 1:04 am

Fares vary tremendously, depending on day of the week, time of day,etc. The airlines have.become experts at yield management. The margins on a typical flight are extremely small.
 
Jomar777
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Re: The Economics of Airline Class

Tue Mar 21, 2017 9:46 am

Interesting video. Was it requested by Willie Walsh from IAG? Although it is quite true, it shows clearly where Legacy Airlines fail against LCC - expecting people to pay more for less.
One of the final quotes on the video is that Economy Passengers and Tourists are there only to fill the plane. How ridiculous is that??? If that was really the point, why not have Business Class Only airlines (oh... wait!!!)???
By squeezing the Economy and Tourist Travellers, legacy Airlines are losing customers to the LCC Market quite quickly. The only market which is really still in the hands of legacy only carriers is the Long Haul one but expect LCCs to start offering connections or increasing their offer on this area and Legacy Airlines will be a thing of the past.
 
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SomebodyInTLS
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Re: The Economics of Airline Class

Wed Mar 22, 2017 11:09 am

sergegva wrote:
So, no, J-pax are not cashcows, or not anymore.
After all, a lot of "all-Y" airlines have better economic records than most classic airlines. There isn't any reasons to be so condescending with Y pax, like in this video ("they are just here to fill the plane"... c'mon!)


Yet that (all the money is in J, Y is just filling the plane) is an a.net mantra for many self-important members. I have read various permutations of those words many times here.

One of the others - that freight makes more money than passengers - has been consigned to the dustbin of history since it's clearly not true any more. Once upon a time, one of the many anti-A380 arguments was that it needed a larger cargo bay since the 777 freight capacity was so superior.
"As with most things related to aircraft design, it's all about the trade-offs and much more nuanced than A.net likes to make out."
 
airbazar
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Re: The Economics of Airline Class

Wed Mar 22, 2017 12:51 pm

anshabhi wrote:
the video is good for beginners, but as @MHG says it's not very good for people aware about airline economics..

Yup. It's been a long standing misconception which is quickly debunked with 3 simple questions:
How many premium only airlines have had success? How many Y only airlines have had success? How many mixed class airlines have had success?
Conclusion: An airline needs Y passengers more than it needs C passengers in order to succeed, which completely debunks the myth that premium passengers are more important.

Now lets use a real world example. Last month a traveled to India from the U.S. I paid $2900 for a J class seat. A Y seats was abount $1400, so about half. My lie-flat seat takes up the space of at least 2 Y seats. So far the fare difference makes sense: twice the price for twice the space. but as a J class passenger I also get an airport lounge with free food and drinks. I get better, more expensive meals on-board the flight. And I get more personalized treatment due to a smaller ratio of FA-to-pax. All of that costs money, thus bringing the cost to the airline, a lot closer to a Y passenger. So at least at this airline, I call BS on tthe "Y passengers are only there to fill seats".
 
Flighty
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Re: The Economics of Airline Class

Wed Mar 22, 2017 3:04 pm

You really need both. It's not just executive guesswork, the mature airlines have experimentally proved to themselves that they have the right mix. Sometimes, product is old because the correct financial plan calls for a seat to last 8-12 years. If it only lasts 4 years, the project doesn't pay off, and the airline would have to be an idiot.

To some extent, this is a battle between brand-y wish dreamers, who view their brand judgment as financial meaningful, and the beancounters like me who count the actual money to make decisions. There again, the truth is somewhere in the middle.

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