The previous article brought up a scenario at Pittsburgh International Airport where one group of passengers possibly felt that they were more highly valued by an airline compared to another group of passengers (http://hornface.com/business-insight-in-pittsburgh/yinzer-nation-beware-brining-your-kids-back-to-the-burgh-midweek). This is not surprising as it is a known practice for businesses to assign values to their customers and incent them accordingly. This article mentioned some local customer incentive programs (http://hornface.com/business-insight-in-pittsburgh/movie-tax-credits-and-grocery-gas-perks). Customers themselves, however, can quantify their value as well and potentially use it to their advantage.
Since the last article discussed air travel, here is a simple example of how these customers could quantify their value. Note that all assumptions are high-level and based on a specific flight scenario.
Airline data & cost assumptions:
- 103 occupied seats (assuming 80% occupancy)
- 4 hours and 3044 miles round trip
- 49 passenger miles per gallon (http://en.wikipedia.org/wiki/Fuel_efficiency_in_transportation)
- $6.76 fuel cost per gallon (http://www.airnav.com/fuel/local.html)
- $5,000 per flight hour (recently quoted by a pilot regarding additional air time)
These assumptions calculate to $20,000 total cost to the airline of which approximately $10,000 is fuel cost.
Customer data & cost assumptions:
- Average adult weights 150 lbs. and average child weighs 50 lbs.
- $231 average round trip ticket price
- $185 average business round trip ticket price (every 5 flights = 1 free)
- $40 round trip per checked bag less than 50 lbs.
Using this customer data, a flight full of business travelers brings approximately $19,000 of revenue to the airline. If it were instead full of families of 2 parents plus 2 children with 2 checked bags, then the revenue would be approximately $25,000. Additionally, the family flight would weigh about 30% less than the business flight saving the airline on fuel costs as well.
What should customers do with data such as this? Some might suggest wearing t-shirts that say “My family is contributing more to the airline’s margin, so deal with my kids” on their next family vacation, but analysis should be used for good and not evil. The point is that if customers are truly aware of their value, it should make them better negotiators, and that customers misunderstanding their value really shouldn’t be an excuse.
Finally, while it’s obvious that airlines need both business and leisure travelers to contribute to their margin, hopefully they as businesses are truly aware such differences. A thought on how to close the gap is carry-on luggage. While carrying a bag on saves the airline some handling costs, it costs them in efficiency on the time it takes to board and deplane. How many customers would they really lose by charging $20 roundtrip for each carry-on? Analysis such as this is continually happening is businesses, and there’s no reason why customers shouldn’t do it as well.