Airlines

On Thursday, Southwest Airlines Co. said its passenger unit revenue in April jumped an estimated 18% to 19% from a year ago, even as traffic demand fell nearly 1%. Helping the domestic budget carrier was a reduction in seat capacity, which helped it to fill a greater percentage of its planes and lift ticket prices.


By keeping capacity low, airlines can shift a higher percentage of ticket sales to premium-paying business-class and first-class travelers.



Well well well, we all know that the recent Icelandic eruption in Europe has caused some devastating impinge upon the airline industry right? Revenues have been fluctuating because airplanes have to be banned from flying under such acerbic weather conditions. They have no choice but to halt operations for a few days.

However, the good news is that revenues are actually stabilising and in the future years, we will see an uproar in the revenues as well.


First and foremost, why is the revenue rising despite the fact that the demand for air tickets is falling?

Well, simple! That's because the airlines are making better use of the seat capacity of the airplanes. There is way better management than before. In the past, managers just aim to create as many seats as possible to fill up the rising demand but they are not aware of the importance to optimise the number of seats occupied in every single flights.


As a result, many flights have many empty seats and this cost them a loss in the efficiency of revenue. In the end, they have to lower the air tickets by a huge lot just to entice people to fly with him.

Say for example, Airline A decides to cut down on the number of flights to America from 2 to 1 daily. This in turn bring about a rise in seating capacity from 70% to 90%. And it earns them a total of $90,000 per flight.


Conversely, Airline B decides to retain the number of its flights to America at 2. The seating capacity fell from 70% to 50%. Even though they earn $50,000 times 2 which gives you $100,000. They are not making more money than Airline A.


Why is that so? Simply because you forgot to account for the other concomitant costs, i.e. cost of the fuel, the cost of the employees, the staff, the stewardess, the people at the control room, the pilot and all the preparations done to make this additional flight work.


Yeah, so fundamentally, it's a huge mistake to focus on the quantity rather than the quality in today's market. Many are looking for the luxurious flights nowadays to pamper themselves. Now that the business classes are making a move to start taking flights to their destinations, it will be fatuous to ignore them for the business market is now revived.


More planning will need to be done to make sure that the number of seats occupied on every flights is optimised. You will have to look at the market demand.


Trust me, numbers don't really work in this market. The more number of flights you give the consumers, the more indecisive they will be and at the end of the day, they might not even choose to take the flight altogether.



Credits -marketwatch, -haagsche, -mauritus