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Op-Ed: Densification, Unit-Revenue, and You

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Op-Ed: Densification, Unit-Revenue, and You

Op-Ed: Densification, Unit-Revenue, and You
May 08
08:29 2017

We’d heard rumors since Sunday. American Airlines was going to — What did they say, “Explore interesting density opportunities.”? I think that was pretty close to verbatim.

Density and opportunities. Two words that are great when discussing cake, but not great if you are talking about being a passenger of any frequency.

Well, they’ve gone and done it. My friend Jon Ostrower broke the story at CNN. American is going to accept 737-8 MAX with “more than 170 seats.” I suspect, as many others do, this means 174.

American confirmed that their Max fleet will still have sixteen first class seats. This, of course, means room is coming uncomfortably. American has said at least three rows will be taken from today’s 31″ pitch to 29″. The remainder of the main cabin will lose a mere inch. The rest of the space will come from the lavatories.

But why now? I think that’s what everyone wonders. It’s a signal.

Ok, it was not supposed to be a signal to other airlines, but United has jumped on to say they are investigating such a possibility — we’ll get back to why they did later on. For now,  it’s telling the investors to back off.

I think everyone was shocked at the institutional investor reactions when AA decided to spread some of their success down to the employees in the form of what some consider long overdue pay raises. If one hand giveth, only to be bitten – then something better be taken away.

This was a signal to the board and the big investors to say, “look, short term gain is still our entire goal – and by the time these decisions are disrupted, we’ll all have retired.”

Is that a good way to do business? Sort of? Maybe? Legally, it is. Maximizing shareholder value is the only true objective of a public company. More seats at the same price not only means a higher revenue per trip, it also means a lower unit cost. Allegedly, the drawbacks are minimal. American Airlines is gigantic, they have a huge pool of elites, if you live in an AA hub that requires you visit a large swathe of destinations – you fly AA whether you really like them or not.  Were it not for American leading the race to the bottom of seat pitch among the legacies, I could make that statement about the other two with a change of two letters.

It makes sense for any company with such an amount of market power to seek some rent. You and I would, too. Except that a lot of the high-value frequent flyers book quite close to departure. If the only seats left are in the 29″ area of the plane, are they really going to stick with you when they’ve been sold out since a week earlier, and there’s not even a middle seat in economy extra?

Spirit has 28″ inches. They charge for a carry-on; they charge for, well everything. The Ferengi would envy them. The thing about Spirit is that they do everything they promise, without question. It’s just up to you to understand that.

No Spirit? Well, United said they were studying the same thing –they had to, once their investors heard American was. That’s a big dollop of potential earning per share just being left in the tin. Even if the CEO didn’t want to, going against densification would be a very quick trip to spending more time with the family. Delta, we’ll see what they have to say – but everyone loves Delta and they may be able to weather the first part of this densification storm.

I admit, one of the big three was going to go 29″ in at least some rows on their next generation narrowbodies. It was so expected that announcing you were going to be the first isn’t even that dishonorable. In theory, it raises unit revenue. Something you have to discuss if you are American and you just raised costs by paying your staff and spooked your shareholders.

In practice. I am quite suspicious. Frequent flyer programs, glibly, have been a bit of a carrot and stick approach. “Fly us, and us alone, so sometimes it won’t be so bad!”

Most ultra frequent flyers have precheck, clear, and a credit card to get them into a lounge (in which membership is required for domestic flights anyway without said credit card). Take away upgrades and status recognition, and does it really make sense for them to pay even $1 more for the same misery because it’s on American Airlines, United Airlines, or Delta Air Lines? It doesn’t.

Lowering the seat pitch to levels only comfortable for stuffed animals, all for the price of an M, B, or Y fare. Well, you might just find customers spilling over to Southwest or JetBlue. Worse for the big legacies, they might take their high value spend to Alaska. They haven’t said anything about racing downwards for nebulous reasons.

In short, sell out all the slightly more Premium seats ages before a lot of the high-dollar business travelers book, and relegate the frequent flyer’s only nibble of a carrot to priority boarding for the same tiny seat (with or without IFE) because everyone else has?

Congratulations American Airlines et al. Instead of having a high-value customer base that can be counted on, you’ve made everyone what you were most afraid of: a price sensitive free agent that books the cheapest flight in the class of service they want, regardless of airline.

Oh, this is going to end well.

 

 

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About Author

Bernie Leighton

Bernie Leighton

Aviation media is the only career where you can be in Papua New Guinea one day, and then go to Bangladesh the next; for no reason than to fly on rare airlines, rarer aircraft, and visit new countries. I write about aviation. I mostly love Russian planes. I'm a Trivia geek who flies helicopters and loves meat.

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2 Comments

  1. obliteron_nebula
    obliteron_nebula May 08, 17:30

    Nice Ferengi reference.

    Reminds me of a discussion between a Ferengi and one of the Captains. The Ferengi is extolling the virtues of a materialistic society to the Captain.

    The Captain replies “Back on my home-world that kind of thinking almost destroyed our civilization.”

    The Ferengi scoffs and says “You should have managed your business better.”

    As a 6’4″ traveler mainly flying out of Seatac, I’m motivated by how much legroom I can get in premium economy and amenities to take the edge off. This means I mostly fly Alaska, Jetblue, and Hawaiian.

    It’s kind of hard to understand what dollar American is chasing. Who will pay a premium for 29″ seat pitch? My guess is people who will only make that mistake once.

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