What To Do With Empty Economy Seats

Air New Zealand’s announcement that it is looking at having economy class “seat beds” is not surprising.

The grapevine has been chatting for a while there would be major innovation in the on-board economy product on the carrier’s new B777-300ERs, due to be delivered next year. Most rumours favoured the idea of sleeping bunks, but the seat bed idea is close enough.

Under the plan, Air NZ will offer economy customers the ability to purchase the seat next to them if it is not occupied. The two seats will then be able to form a bed.

What to do with empty seats is a potential revenue stream that has been overlooked in an industry that constantly tries to ensure every seat is filled but never (understandably) achieves that.

Last year Air NZ started a programme where on flights to the US passengers could pay an extra $75 and guarantee the seat next to them would be empty. According to one report, up to 10 passengers on each flight would select the option. (There are approximately 240 seats on an Air NZ B777-200.)

I would be curious to know what the cost is of flying an empty seat in Air NZ’s case. With no meal to feed it and no fuel to carry the person and his/her luggage, could Air NZ make a greater profit with a passenger in that seat or with someone paying $75 for the seat to be empty?

Any bean counters willing to crunch some numbers?

Update

Air NZ has released this statement from General Manager International Airline Ed Sims.


The current speculation about Air New Zealandlaunching a lie flat economy class bed is misleading. While improving personalspace and allowing our Economy passengers to sleep flat remains our Holy Grailwe are still in the middle of a research and development process to deliver theworld’s best long-haul travel.  Our design and prototyping thatinvolves more than 20 options has some months to go and only five or six ofthese options might fly.

Our break through thinking will not be limited to seatdesign. We’ve had some of the best technical, engineering, research andcustomer service brains in Air New Zealand, and from around the world, workingon a range of ground breaking products.  We’re also redesigning ouraircraft livery, our uniform and a whole range of other products that willchange the way our customers fly.

The most significant innovations will be revealed with thelaunch of our new long-haul product for our new Boeing 777-300ERs, which startarriving in late 2010.



2 Responses to What To Do With Empty Economy Seats

  1. John Burland 29 October, 2009 at 1:04 pm #

    I would be curious to know what the cost is of flying an empty seat in Air NZ’s case. With no meal to feed it and no fuel to carry the person and his/her luggage, could Air NZ make a greater profit with a passenger in that seat or with someone paying $75 for the seat to be empty?

    That’s not the point.

    The marginal cost of flying an empty seat is zero. The marginal cost of flying a seat with a passenger in it is the cost of processing that passenger from reservation to baggage claim, including meals and marginal fuel burn.

    The total revenue that an aircraft as a whole generates i.e. passengers, cargo, mail will ideally cover the full cost of operating the aircraft which includes the allocated fixed business costs.

    Here’s an explanation of [[http://en.wikipedia.org/wiki/Cost-volume-profit_analysis|Cost-Volume-Profit analysis]], if anyone’s interested

    What Air NZ’s doing is achieving a marginal revenue of $x by selling distressed inventory i.e. a seat that wasn’t sold and would thus generate no revenue.

    (It’s a BFO that if there was anticipated demand for that seat, they wouldn’t be selling it for a marginal revenue of $x if a passenger was prepared to pay a full price for the seat…

    I imagine they’ll wait until check-in, determine the booked load and offer the delta between capacity and booked seats at $x per seat, probably even increasing the number to reflect no-shows as check-in time goes to zero.

    Very smart.

  2. Will Horton 2 November, 2009 at 11:03 am #

    Hi John,

    Thanks for your comment. The reference to not having to pay for a meal and fuel alluded to the general idea of removing numerous costs associated with the booking–there’s little point in figuring out each and every saving.

    There is no doubting what Air NZ is doing is quite smart and a great revenue opportunity to take advantage of otherwise lost revenue.

    That should not, however, preclude a discussion about the bottom line finances. What is the margin compared to if the seat was filled with a passenger?

    Is there a possibility that after there is a clear idea of the load and how many unoccupied seats there will be on a flight, the price being offered for the seat to remain empty ($75) results in a profit higher than if there was a fare-paying passenger physically in the seat? (And that’s irrespective this a revenue opportunity for a seat that would otherwise go out empty.)

    I think that’s a discussion very worth having and I would still like to see some numbers on that.

    Cheers,
    Will

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