Revenue Optimised LOPAs - Part 2

Further applications of revenue science to guide aircraft configuration

Deciding which aircraft to buy is the most important decision an airline can make. Not far behind is how many seats to put in each cabin, leading to the seat map (or LOPA - Layout of Passenger Area - as we say in the trade). The basic principle of LOPA optimisation is to start with maximum density and only deviate when doing so has a strong revenue case. This is the second of two articles discussing how to find these revenue cases in practice (click here for part 1)

Just as a recap, the first principles of LOPA optimisation were:

Remove low value seats in a lower cabin and replace them with high value seats in a higher cabin until the higher cabin’s demand at worthwhile fares is exhausted

If you can fit extra seats by placing galleys and cabins in unconventional positions, do so

If it costs nothing to enhance the product, do so

Usual upgrades

When demand is high in lower cabins but seats are expected to be spoiled in higher cabins, revenue managers can overbook the lower and upgrade. Using a higher cabin as if it were a lower one is called “virtual capacity”.

For this reason eliminating lower cabin seats may not have as high a cost as it appears at first glance. We used to do this regularly when I was at Qatar Airways with their pre-Q-Suite 777-300ERs, which had 42 business class seats – perfect for most routes but a bit too many for a few like Manila in the Philippines and Dhaka in Bangladesh.

In this case, the business class cabin was divided by a door 2 galley – we simply classified the second premium compartment as economy, put 18 economy passengers in the deluxe B/E Mini Pod seats and offered an economy meal. Where we upgraded into premium proper the lucky passengers enjoyed the full service so that full fare paying passengers did not notice anything strange and feel hard done by.

Note that the technique does not work in reverse - I do not recommend overbooking higher cabins with the intention of downgrading high fare payers.

I will address the revenue economics of upgrades in a future article.

So our next principle of LOPA optimisation is:

Be prepared to use higher cabins as “virtual capacity” and upgrade where necessary

Excess fares

Sometimes demand is such that you can expect to sell most lower cabin seats at a reasonable fare late in the booking cycle but demand in a higher cabin is low. In these cases it is possible to actively increase fares in the lower cabin above the market rate and offer the higher cabin for a small fare difference.

British Airways did this regularly with Club World (their business class) and First (their top cabin) out of London. At certain times of the year a Club ticket might cost £3,500 and a First ticket £3,800. At only £300 extra, First looks like great value! Meanwhile they were happy to sell Club out of Europe or after a corporate discount on the same routes for about £2,000, which should be considered the market rate.

What is happening here is that London-based travellers booking reasonably early but outside of the holiday season were actually being targeted with First, a perfect pricing strategy for those who have autonomy over their travel decisions like successful small business owners. Such travellers, once hooked, may continue booking First even when prices are higher.

Cabin planners should be aware that pricing wonks will find clever ways of selling higher cabins, reducing the risk of taking away economy seats.

This leads to the next principle of LOPA optimisation:

People booking a lower cabin can be inspired by marketing to book a higher one - but only if you have a higher one

I will be writing about the economics of first class in a future article.

Flexible friends

European carriers have for many years used a moveable curtain to separate business and economy on short flights. The higher cabin offers the same seats as the lower, but with a centre table between seats and of course all the catering and service frills that you would expect. The decision about where the curtain should go sits with revenue management, who decide how many seats in each cabin are required on a flight-by-flight basis.

The advantage of this flexibility is clear. When economy is in high demand but business is not, only a few rows of business can be offered and vice-versa. When both cabins are in high demand, the airline can take the decision based on analysis of the expected ticket prices.

But on long haul, capacity tends to be fixed because the seats in each cabin are so different. However new concepts like Paperclip’s “Butterfly” Seat can be configured as either premium economy or business class depending on a specific flight’s requirements. The economics of this flexibility are strong, I calculate about $10k incremental revenue per row per week.

So our next principle of LOPA optimisation Is:

Consider flexible cabin solutions where these are available

Galley cheque

Airlines like AirAsia and easyJet place a lot of emphasis on raising revenue by selling passengers food, drink and other products during their flight. Free catering in economy is not something I generally recommend either, even for full-service carriers – when you stay in a hotel, you have to pay for your food and drink so why should the plane be any different.

When I was at Qatar Airways, which branded itself as a “five-star airline”, a huge amount of free economy food went straight into the bin because it was not what people wanted. Had we offered a range of quality products that people wanted to buy, profits would have been up and waste down.

Even on longhaul flights when laying on the catering keeps people happy, making them more likely to recommend the airline to their friends (increasing demand and hence fares), galleys can still be used to offer profitable duty free and other sales.

Success in onboard retail is a big topic that I may write about in the future.

But for the time being, our next principle of LOPA optimisation is:

Galleys are revenue generating spaces, not cost centres

Individual involvement

It is clear that revenue science has a lot to say about how aircraft should be configured. So our final principle of LOPA optimisation is:

Involve revenue management and ancillary specialists in the LOPA decision process

Oliver AT ransonpricing DOT com