Posts Tagged ‘commercial airlines’
Is Air Transport Pricing Deliberately Confusing?
Until we can price all air transportation correctly, we will not be able to price any air transportation correctly.
Social Flights is the premier air transportation company that sells private jet service on a per seat basis. This is important because there is no other way to compare the time-value of a private jet against the time-value of a commercial jet unless they are priced in the same manner.
Unfortunately, highly competitive markets determine the price of a seat on a commercial airline, not necessarily distance of the flight. This does not make very much sense – for nearly any other product, you pay for how much you consume. If only commercial airlines were priced like private aircraft: by the mile.
Why does an airline ticket need to be 400 dollars 6 weeks prior to departure and 600 dollars 2 weeks prior to departure, except to maximize profit? Nothing else changes except as a proportion to distance traveled. But think of all the accountants, marketing personnel, and strategic planners constantly manipulating price inputs that have nothing to do with passenger satisfaction.
Every airline use essentially the same types of aircraft, they pay the same cost in fuel, and they have similar direct costs in labor, landing fees and gate contracts. You would think that a 3000-mile trip would cost X amount more than a 1500-mile trip… all day long, for each and every airline.
- Calculation of fuel burn per 200 lb payload
This chart shows the actual fuel cost to carry a 200 lb payload 1750 miles between DFW and LAX for various types of commercial aircraft assuming jet fuel price is about 3 dollars per gallon (at the time that this industry study was published).
I did some back o’ the napkin calculations and concluded that a Lear 35 burns 5 times more fuel per 200 lb passenger than an MD-80. A Phenom 300 is about half of that, or 2.5 times that of the MD-80. The average would be around 3.3 times the commercial jet.
The Golden Ratio
This is a terribly difficult calculation to make so bear with my assumptions here. But suppose all things being equal, we can say generally that a private aircraft cost is 3 -5 times greater than the commercial airplane while the door-to-door time is 1/3 – 1/5 the time of the commercial flight. The factor of 3 – 5 (depending on the comparable averages) puts the cost of the traveler time in parity with the cost of the airline time.
Why does this matter?
Now, some honest comparative market analysis can take place by simply adding and subtracting time and money from both parts of the Golden Ratio to account for various attributes of the trip. For example: shorter drive to smaller airports, no long lines, non-stop flights can be added or subtracted from the “time” part of the ratio. Meanwhile; the cost of parking, airport taxes, cost of food, cost of lodging, and the cost of traveling to your final destination, etc., can be added or subtracted from the cost side of the ratio.
The Data will set us free
To liberate this information is to empower the traveler, the operators, the community and the hospitality industry to make rational decisions. Communities can design rational incentives for tourism. Corporations can make rational decisions for employee travel, and economic planners can make rational investments in intermodal transportation.
Is There An Alternative To Commercial Airlines?
In Japan and Europe, high speed rail often competes with air travel for short distance routes. While it may take 3-4 hours door-to-door to travel 300 miles in an aircraft, the high-speed train can cover the same door-to-door distance in more comfort, the same time, and for less money. An automobile may need 6 hours to complete the same journey at a similar cost of ownership.
What many peoples fail to realize is the possibility that a community can operate their own airline. This alternative is being pioneered by Social Flights. The regionalization of air service is a new concept that allows communities to own and operate one or more aircraft maintaining control over the schedules and locations where the aircraft flies.
In the United States, a rift continues to grow between available air service and reasonable alternatives to air service. This creates a substantial burden on families; but it also creates a compound burden on the economy upon which those families depend for their livelihood. If corporate travel is constrained, the economy as a whole is constrained.
From this article in the NY Times:
Consider the new realities of air travel. Competition is decreasing, fares are rising and airlines are adjusting routes (and charging extra fees) in ruthless calculations to extract the greatest possible revenue per mile flown.
Many airlines will continue shrinking overall capacity and trimming domestic routes in 2012, and the Chapter 11 bankruptcy filing of AMR, the parent company of American Airlines, will merely exacerbate the situation. In 2012, American will “ground some planes and resize our network,” the company’s chief executive, Thomas W. Horton, recently told employees.
In addition, John P. Heimlich, the chief economist of the trade group Airlines for America, said, “Capacity reduction is one of the steps the industry is taking to preserve profitability.”
Several articles are now popping up comparing the alternatives that are available. An overnight Amtrak in a cozy sleeper car can cost the same for some routes as the aircraft - unfortunately, Amtrak is not universally connected to very many routes. High speed rail is still on the drawing boards but still many years away with fewer stops and likely connecting major hubs anyway. The other alternative is to simply drive; with the ground travel and delays incurred t hub airports, a commercial flight less than 750 miles can have an door-to-door average speed of around 70 miles per hour.
Michael Boyd, the president of the consulting company Boyd Group International, sums up the phenomenon succinctly. “The cost of flying airplanes across the sky has eclipsed the ability to support it at many communities,” he said in a recent forecast. In 2012, he predicts, airlines will accelerate the mothballing of smaller 50-seat jets, the workhorses for connecting service between many midsize airports, and even some big ones.
Social Flights can provide the knowledge, expertise, personnel, certification, and equipment to maintain and operate an aircraft fleet, as well as the social media backbone that allows people to self-organize around the aircraft asset.
As such, the community can create direct flights bypassing hubs, they can schedule flights for their corporations and shuttle their executives to new business markets for a price that is hugely favorable to any existing alternative; which is often nothing.
Ideas Travel Where People Travel
Good ideas travel easily and far along trade routes. Ideas like irrigation, Apples, grapes and wine spread along the Silk Road. The paper and writing spread new ideas leading to increased literacy, the scrapping of old philosophy and the creation of new social orders. The printing press then led the way for today’s mighty publishing Industry. But don’t forget a simple fact, travel is the substrate of the next economic paradigm.
Ideas: A Chain with many Weak Links
Seth Godin wrote a wonderful article about the publishing industry called The Domino Effect. He observes that:
1. The middlemen (bookstores) have too much power to limit shelf space.
2.Authors are separated from their readers and don’t have the data to contact them directly.
3. Pricing is based static, slow, and largely irrelevant of content or any form of supply and demand which is of little benefit to the reader or the author.
4. Ideas from books travel much farther and faster than the book itself which does not translate into book sales.
Mr. Godin’s point is that given how important books are, the Chain has many weak links between the author and the audience. Publishing is due for an extraordinary disruption and Seth is going to change it with The Domino Project. But how many other industries suffer from the same weak-chain syndrome?
Travel: A Plane with many Weak Links
Well, if Books and Travel spreads ideas along the Silk Road, then they must have a lot of other things in common. If we apply Seth’s observations to the commercial airlines:
1. We see that Airports and airlines have tremendous power to limit gates, times, and availability of routes.
2. Airlines have no idea why they are carrying all those people around.
3. Pricing is static, segmented, slow, and has very little to do with the actual supply and demand for travel.
4. Travelers are transporting ideas which move faster and more broadly than the aircraft itself and which does not translate into more airline tickets sold.
Where ideas spread; value is created
What is so powerful about ideas? Most innovation gurus discount raw “ideas” as the useless drivel of idle minds. “Show me the money, not the ideas”, they bark. If ideas are not innovation, then what are they? If Ideas are not valuable, then what are they?
The Travel Economy
Travel technologies and applications are being sold for incredible sums of money. Every airline merger is big news and every geolocation application is huge business. Travel data is a lightening rod for everything from pricing to privacy. Social Media applications are getting that migration routes are an excellent marker for “value flow” and therefore, cash flow. Airline Travel is still the most favored mode political disruption because the links in the economic chain are so weak. Travel is serious business.
Every industry with weak links between production and end use are candidates for disruption in the great integration. Any idea that can strengthen the link in the chain between origin and the destination of an idea is a product of the great integration. The Social Value creation process and astonishing opportunity will happen at the weak links between origin and destination of any product or service.
Should the Government Reregulate the Airline Industry?
After the justice department approved the merger of Continental Airlines and United Airlines last Friday, Congressman James Oberstar (D-Minn) voiced his displeasure again with the merger and suggested that Congress might just need to reconsider the deregulation of airlines that happened in 1978.
The airlines have been stuck between a rock and a hard place for years. Combined profits of the industry are non-existent and customer satisfaction with airline service is somewhere down there in the range of our approval ratings of congress’s performance.
What we have received from deregulation are cheap air fares. Most people don’t remember what it cost to fly on the airlines prior to 1978 because they were either not old enough or did not fly on the airlines back then due to the costs. Real costs for flying via commercial airlines have come down over the past 30 years but the by-product of lower fares has been a reduction in what we consider to be service and the amenities of air travel. In some ways, airline travel has become just another form of mass transit much like rail service.
What we want we can’t have, and the government stepping in will not solve the problem.
We want our cheap $99 return fares, anywhere, anytime, and we want great service and convenient on-time departure schedules to go with the low price.
Deregulation brought on the competition with low cost carriers, which brought down the fares that we all enjoy.
Low fares combined with volatile fuel prices, worldwide competition with lower labor costs and airlines irrationally putting too much inventory of seats in the market took the profits out of the airline industry.
So now we have to adjust to some new fare structure and service level that the free market should work out. Mergers of air carriers are a part of this evolutionary process.
The airlines and their shareholders deserve to make a profit, or at least attempt to do so, while providing air transportation to the consumer. Unlike a utility where we have no choice, we don’t have to fly if we don’t like the combination of price, service and time efficiency of air travel.
As my Southwest flight pulled into the gate Sunday afternoon at Nashville, the flight attendant reminded us that we have many choices about who we fly with and he thanked us for choosing Southwest Airlines. In reality, we have choices beyond whom we fly with because we can drive and, in some cases, take the train. We can also choose not to go at all.
Regulation of air travel from the federal government should be limited to matters of safety. Congress should not venture anymore than they already have into the regulation of customer service, pricing and competition.
Government intervention has not brought much value to anything lately and I can’t imagine a scenario where reregulation of the airline industry will ultimately benefit the US economy and the consumer of air travel.