Three particularly iconic aircraft were invented in the late 60s. Supersonic Concorde first flew in 1969 and she was whizzing passengers from London to Bahrain for a princely £356 (almost £3,000/$3,670 in 2023’s money) seven years later. Meanwhile the iconic 747 hit the skies in 1969 and entered regular service with US flag carrier Pan Am less than a year later.
Preceding both was the Harrier jump jet, flying in 1967 and on Her Majesty’s service by 1969. While Concorde was famous for speed and Boeing’s jumbo jet for size, the Harrier offered vertical take-off and landing (VTOL), ideal for service on the Royal Navy’s aircraft carriers.
Your favourite airline revenue economist had a Harrier poster on his wall at school. And the Harrier operated well into the twenty first century – it was not until 2010 that the RAF announced they would sell their planes to the United States.
Today there are sadly no more Harriers flying in Britain’s skies. But VTOL is resurging. Germany’s Lilium is developing Lilium Jet, an electric VTOL (eVTOL) with five seats. Bristol-based Vertical Aerospace is developing the five-seater VX4, also eVTOL and bringing the Harrier’s legacy back to Britain.
How will eVTOL change aviation?
Thanks to battery power, eVTOL aircraft like the Lilium Jet and VX4 will be attractive to airlines who are keen to promote their sustainability (see article). They will also have great potential to revolutionise air traffic flows in four ways:
1. Thanks to low operating costs they can carry a small number of passengers some distance without hitting an airline’s cost base too hard, allowing airlines to operate thin volume but good yield routes like Oxford to Cambridge.
2. They can also easily offer puddle jump services like between the Channel Islands, or hop over jungle like the Amazon (Brazil’s GOL is planning to use the VX4), helping passengers turn time-consuming surface sectors into time-saving low-fare flights.
In island countries like Papua New Guinea, Solomon Islands and Vanuatu (see article), or The Bahamas, where demand from many of the smaller islands is erratic eVTOL’s low costs could be a boon to local airlines currently operating costly chug-a-bugs like the Cessna Camel or Twin Otter.
3. Since eVTOL are quieter and safer than helicopters they may be able to operate regularly across congested cities without upsetting residents. Imagine being able to get from London’s Heathrow to Gatwick or from Nairobi’s JKIA to Wilson in less than ten minutes.
4. eVTOL can also enable last mile traffic, helping airlines take their passengers closer to where they really want to go than a hub or regional airport.
Sometimes eVTOL may be able to offer services directly into city centres. It is not yet clear whether or not special “vertiports” will need to be built. Lilium believe they are necessary. But this is not necessarily the case, as helicopter landing sites in hotel car parks attest.
So how will airlines and other eVTOL operators be able to monetise these exciting new vehicles. Read on…
Airlines will use eVTOL like the Lilium Jet or VX4 in one of three ways.
1. All-eVTOL services, either to schedule or as an on-demand air taxi service
2. eVTOL services that complement the main fleet by carrying connecting passengers the last mile on a semi-flexible basis
3. eVTOL services that complement the main fleet by opening routes that would not otherwise be viable.
Some eVTOL may be used as “white label” services. A lessor could let airlines use them by the week or the month and then move them to serve another airline in the region. Leasing company Avolon has ordered 500 VX4s and they are working with both airlines (GOL, Air Greenland, Japan Airlines and AirAsia) as well as third parties like Gozen Holdings, who plan to operate an “Urban Air Mobility” service in Turkey.
Pricing eVTOL taxi services
Figuring out the right price point for eVTOL taxi-type services will not be easy. There are often no clear benchmarks to figure out the “market rate” as surface equivalents could be significantly slower or more tedious.
eVTOL operators should not make the same mistake as FlyBE on UK domestic, who went out of business partly because their services were generally cheaper than taking the train.
It is not clear though whether or not eVTOL should be more expensive or cheaper than a taxi. Cabs are often taken by one person while Lilium Jet and the VX4 have four seats each (the fifth person is the pilot). Taxis are cheap in some markets like Doha and expensive in others like New York depending on the extent to which local drivers’ associations can bargain with the local regulator.
Chopper hopper Blade carries people from New York airports to Manhattan for $195 each way, slightly more than double the typical cab cost. It is likely though that many of their passengers have their trip paid for by an employer so the fare is tax deductible, increasing willingness to pay. This will not necessarily be the case in every market.
Airlines rarely conduct conjoint analysis to determine fares. But when it comes to pricing eVTOL taxi-type services they should. It would be easy to retail a third party’s eVTOL taxi services through New Distribution Capability, a communications standard.
Allocating revenue between eVTOL connecting services
When eVTOL flights carry connecting passengers airlines will have to decide how much revenue should be shared between eVTOL and conventional services.
When one carrier operates a through ticket there are two standard ways of measuring revenue, route level and network level. Neither work well for the eVTOL model.
Route level revenue is defined by adding all the revenue from a passenger’s ticket and allocating it to flights according to a proration mechanism. This is often done on the basis of miles flown, subject to a small minimum.
It will not work for eVTOL interline. Anu Vohora at Safarilink, a Cessna Caravavn operator ex-Wilson Airport, points out that it is both uneconomic and unfair for last mile carriers like hers to take a simple $50 or $100 under standard proration when a passenger is travelling on a $1,000 ticket.
The same objection arises for online connections too. When passengers arrive on long haul flights the prorated revenue allocated to last mile sectors flown by eVTOL will often be barely worth mentioning.
The second way of defining how much revenue a flight generates is at the network level. This is the aggregate of all revenue from a passenger’s itinerary.
The idea is that if a flight sells enough seats on other flights it can still be worth operating, even if it loses money at the route level. Once again, eVTOL causes issues as it is likely that even without eVTOL operations the passenger would have still flown.
Airlines may be able to turn to conjoint analysis studies to figure out how to price interline services involving eVTOL. The conjoint survey will need to compare ticket products with and without the eVTOL link.
But this will be new ground for many carriers and organisations like Gozen Holdings may be in a strong negotiating position if they can understand the market deeper and faster than conventional airline sales and pricing teams.
Pricing routes opened by eVTOL
When it comes to opening new routes with eVTOL airlines should be on more familiar ground. They should use their existing market entry processes and simply revenue manage according to the limited capacity. Sometimes the small data set problem will apply – small cabins mean few passengers and few data points.
Airlines may be able to bulk up their demand forecast accuracy by using emerging data sources like consumer spend and social media chatter (see article).
Luggage limitation
Not many people realise that an airline’s pricing department also tends to control the baggage allowance, which is quoted on an e-ticket near the flights and fare. This has been the case since the days people travelled by sea rather than air (see article).
It remains to be seen whether or not eVTOL will have the luggage capacity to carry people’s cameras or sports equipment together with their main bags. Luggage demand could be substantial – BA allows a Gold member of their Executive Club to carry four bags at up to 32kg each when they buy a first class ticket and most airlines offer at least 10kg extra for a business class passenger.
IATA Resolution 302 requires that the “most significant carrier” (MSC) sets the baggage allowance for the entire journey. The MSC is typically the airline operating the longest segment or the first to cross an IATA traffic area or sub-area boundary. Although feasible, it is unlikely that the eVTOL will do either in practice.
Will there be enough room in Lilium Jet or the VX4 to carry everyone’s bags? We will have to wait and see.
But many high yield travellers do not travel with bulky bags. Virgin Atlantic set up Limobike to zoom passengers from central London to Heathrow by motorbike in November 1995 and it is still going strong.
Lack of baggage space need not be a showstopper for the right travellers. The future will be bright for eVTOL.
oliver AT ransonpricing DOT com
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