Letting those without carry ons board first

Just how to best get passengers on a plane is an endlessly fascinating topic. It involves everything from physics (e.g., how many people can fit in an aisle at once) to marketing (e.g., how can the airline use boarding perks to differentiate customers) to human behavior (e.g., how do people choose to line up). That makes a recent report on American Airlines particularly interesting. Here’s the NBC summary.

So is this a good idea?

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Upgrade auctions

Getting moved from coach to the front of the plane is one of the nicer things that can happen on a long flight. If you a lot (especially on full fare tickets), getting upgraded can be a routine occurrence. Of course, that raises the question of why airlines pretty much give upgrades away. Yes, it makes sense to take care of really good customers particularly when moving someone up to business class costs the airline very little. But there is no guarantee that high status frequent flyers necessarily want the upgrade more than some more lowly coach passengers. That is, Mr Executive Platinum may not be willing to pay more than Ms. No Status for the privilege of escaping the cattle car.

Now Ms. No Status may get her chance to score an upgraded if she is willing to open up her wallet as several airlines are starting to auction off upgrades (Flier Auctions: Better Seats, Going Once, Going Twice…, Wall Street Journal, Apr 24).

Airlines overseas have started auctioning off upgrades, with travelers in economy or premium-economy cabins bidding against each other for seats that offer better space, food, service and sleep. Bids for premium seats that otherwise might fly empty begin online weeks in advance and typically close 48 hours before takeoff. The company behind the auction technology says it may come to the U.S. soon.

So far, airlines say travelers end up spending more for upgrades in online auctions than they would spend at check-in. Unlike a casual offer at an airport kiosk, the auction system can generate excitement as fliers strategize about how to win.

“You can buy the cheapest ticket and still have a chance of sitting in business class,” said Danny Saadon, North America vice president for El Al Airlines, where the average winning bid for a business-class upgrade is $800. That’s a deal when the airline’s business-class tickets cost anywhere from $3,000 to $10,000 more than coach.

Different airlines run the auction in different ways since the system from Plusgrade, a New York City company, allows flexibility. An airline can choose who can participate in the auction so it may choose to offer the opportunity to bid to all customers or only those that bought in a particular fare class or to those that meet a certain profile. Besides access to business class, El Al also auctions off empty middle seats to those in couch want some extra elbow room.

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Good news for better air travelers: More on-time flights

For those heading to an airport for the Thanksgiving holiday, the New York Times (Airlines’ On-Time Performance Rises, Nov 21) has some good news: More flights are leaving on time!

There are, of course, some devils in the details behind these aggregate numbers. Performance can vary by month simply because of weather (apparently August and January are the worst) and the numbers above do not reflect commuter airlines affiliated with major carriers (so going home to a small regional airport may be more touch and go). Also, as the graph makes clear, it sucks to be a major airline that like United goes through multiple computer glitches in a year.

So how have the airlines brought up their performance? By focusing on the processes needed to get planes out.

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Overbooking MBAs

Overbooking is a basic model in yield management and is always a fun example to do in class. If you are selling tickets to a flight and there is some chance that passengers will be no shows, it is optimal to oversell the flight, i.e., sell more tickets than you have capacity to serve. Model it right and you have a tidy little newsvendor problem in which the seller weighs the cost of accommodating a bumped passenger with the opportunity cost of flying with an empty seat. The optimal amount of overbooking will also depend on the distribution of the number of no shows on the flight since no shows represent “demand” for oversold seats.

An academic institution may not look like an airplane, but it faces a problem similar to determining how many seats to sell on the 9:15 flight from O’Hare to LaGuardia. The admissions office can invite students in but it cannot guarantee that they will show up. A student may be admitted to a different school that they prefer or simply have a change of plans so enrolling no longer fits their immediate plans. On the other hand, they may all decide to show up.

That gets us to MIT (Bad Math: MIT Miscounts Its New B-School Students, Wall Street Journal, Sep 25).

The Sloan School of Management’s full-time M.B.A. program, usually about 400 students, was oversubscribed by an unusually high number of students this year. Rather than expand the class size, the school asked for volunteers willing to wait a year to enroll, sending out an e-mail just a couple of weeks before the Aug. 23 kickoff barbecue. By that point, many expectant students had quit jobs and secured housing in the Boston area. …

After realizing they had a student surplus, school officials emailed the incoming class on Aug. 7, offering “guaranteed admission to the class of 2015 for the first 20 admitted students who request it.” The school gave them until Aug. 13 to respond, according to one student’s copy of the letter, which was reviewed by The Wall Street Journal. But it didn’t get enough takers.

So, like an airline offering vouchers to travelers willing to hop off oversold flights, the school put money on the table, offering students who expressed an interest a $15,000 scholarship to be applied to next year’s tuition. Students still balked, and on Aug. 21, a day after pre-term refresher courses began, Sloan raised the offer to $20,000 for the first 10 respondents. (Tuition for the 2012-2013 academic year is $58,200, with total expenses—including books, housing and food—estimated at just under $89,000.)

To take the suspense out of the discussion, only four students took Sloan up on its offer.

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Would you bet on jet fuel prices to save on the cost of a plane ticket?

Would you be willing to gamble on the price of your vacation? Specifically, would you buy an airline ticket now — paying some cash upfront — but not know the final price of the ticket until you actually are traveling in, say, two months? That is what Allegiant Travel is proposing (This Airline Wants You to Buy the Jet Fuel, Businessweek, Sep 25).

Allegiant CEO Maurice Gallagher Jr. would let travelers choose whether to lock in a set, higher fare or pay a lower ticket price in exchange for shouldering any changes in fuel prices before their travel date. Those dice-rolling fliers would, based on fuel prices, pay an additional amount or receive money back if energy costs fell in the period between booking and flying. …

Unlike the major airlines, Las Vegas-based Allegiant is disproportionately dependent upon leisure travelers, who often plan and book their trips to vacation cities like Las Vegas, Phoenix, and Orlando months in advance. The no-frills airline has virtually no business travelers, the kind of passengers who buy a full-fare ticket a day or less before traveling. That’s one reason Allegiant—which does not hedge any of its fuel purchases—is willing to risk regulatory resistance and consumer confusion with a “variable pricing” mechanism aimed at recovering some of its fuel costs. At Allegiant, 80 percent of an average month’s ticket revenue is sold by the start of that month, Gallagher said. That leaves the discount airline more exposed to fuel price increases than many carriers.

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A discount airline starts assigning seats

EasyJet, a British discount airline, has long emulated US-based Southwest and let boarding passengers just grab whatever open seat suited their fancy. Now, however, they are introducing assigned seating — or as the Brits apparently prefer — allocated seats (EasyJet to launch allocated seats on all flights, The Guardian, Sep 5). Here is how it is going to work:

Allocated seating will be rolled out across easyJet’s network from November, with all passengers allocated a seat. Those wishing to change their seat will be charged £12 for front row and over-wing seats, £8 for berths in the four rows behind the front row, and £3 to reserve a seat anywhere else on the plane. Passengers who don’t pay for a particular spot will be randomly allocated a seat as well when they check in, free of charge, although the chances of getting a seat up front will be diminished. “The majority of people will not have to pay for their seat,” said an easyJet spokesman, adding that the airline would attempt to seat families together even if they don’t pay for specific seats.

What does £3 buy you? As this graphic shows, the bulk of a plane’s seats can be had pretty cheap.

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Creepy developments in airline travel

So what are reasonable steps a firm may take to personalize its service offering? Clearly some on-line businesses record every link a customer clicks and serves up information based on those choices — one need to look no further than one’s Amazon recommendations to see that. But that setting is self-contained; a customer comes to Amazon.com and Bezos’ minions only use what he or she does on the site. Customers generally value the recommendations they receive but might feel differently about it if Amazon actively tracked what they did away from Amazon’s web site.

Which gets us to British Airways. They have been in the spotlight the last few days as a program they call “Know Me” has gotten some press. Here is how it is explained on Marketplace (Your usual extra pillow, Ma’am? British Airways mines passenger data, Jul 10).

Stacey Vanek Smith: British Airways is getting some flak from privacy watchdogs about its new Know Me program. BA will create a little database about business class and first class passengers, including photos from Google images and information gathered during previous flights. Things like the seat or drink you prefer or if you like an extra blanket. BA says it’s just trying to provide better service. This is nothing unique according to Bob Sullivan, a tech reporter with MSNBC.com.

Bob Sullivan: What they’re doing here is taking data that they already own, because they have a relationship with a customer, and data that’s publicly available, and they’re marrying it to find out interesting things, which, frankly, every company is doing right now. …

You and I, and I bet all your listeners out there, you know how often have they really gotten an ad when they were surfing online that was JUST what they wanted? The success rate is actually much lower than the big data people would have us believe. But on the other side the privacy invasions are enormous. And so the cost-benefit to me is really unclear.

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Will my flight be on time?

Shortly after this post is published, I will be heading to O’Hare to fly to a conference in New York. Will my flight be on time?

That is actually a slightly ambiguous question. The airlines have some leeway in how they schedule flights. It is not ordained by God that Flight 398 should take two hours and five minutes. That was American Airlines’ decision. The schedulers at AA could as easily have deemed that the flight would take two hours on the money or two hours ten minutes and no one would have really questioned the change.

According to the Wall Street Journal, airlines have been messing with the times they block for flights (Reality Check: Why Airlines Are Shrinking Flight Times, Jun 13). Some times have gone up but on average they have gone down.

American, Alaska, United and Southwest airlines have all reduced scheduled time for trips in at least 16 of the past 24 months, according to the Official Airline Guide data compiled by American. Together, the nine biggest airlines took an average of one minute per flight out of their schedules last year, according to American’s schedule analysis. That may not sound like a lot, but minutes add up to days across thousands of flights. At just American, a one-minute change in schedules represents a total of 24.2 flight hours across its fleet each day.

Here the author of the piece discusses some of his findings.

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Airlines: Where does all the money go?

The Wall Street Journal remains a reliable source of eye candy, to wit:

The article in question (How Airlines Spend Your Airfare, Jun 6) attempts to map to what fraction of costs are covered by what fraction of passengers. Thus with 100 passengers on the flight all paying the same amount, 29% of passengers and hence revenue goes to covering fuel.

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Commoditizing airlines

We’ve been on a run of airline stories recently so we might as well mention two more. The first is from the Wall Street Journal, noting that Spirit Airlines has risen to being the most profitable airline in the country on a per plane basis (A Stingy Spirit Lifts Airline’s Profit, May 11). Here are the relevant numbers:

How have they managed to achieve this? A fanatical devotion to cost cutting and lots and lots of fees for ancillary services.

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