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Airline Pricing for the Truly Desperate

Outrage! British Airways is selling full price seats on aircraft instead of giving them to stranded passengers. No doubt this secures multiple advantages to the airline. But its effect on passengers must be thought through, and examined empirically. By default, I'm not against the pricing scheme, unless I know how it really affects allocation.

The first question in allocation is, "who should get the seats?" And many people in this situation default to a first-cancelled, first-rebooked standard. However simple, and deceptively fair, that is clearly not an efficient allocation. We want the most desperate home first, no?

The whole point of an allocation system is to measure desperation, and BA's pricing is one way to allocate tickets to those most desperate. I could even say that using sky-high prices to hold some seats open to the highest bidder is remarkably fair.

Yes, BA's pricing does favor those willing and able to pay full fare over those willing but unable to pay full fare. But that doesn't imply those able to pay are less desperate than those unable. And more importantly, it lets people who weren't previously booked and cancelled the opportunity to fly soon if they are truly desperate.

In the end, only by leaving seats for sale at the highest prices, will there be substantial numbers of seats open for those truly desperate enough to wait in the airport on standby. So, by setting high prices for a limited number of seats, the BA scheme winds up discriminating between two types of people who are unable to pay: those willing to wait on standby and those unwilling to wait.

Is there a better way to measure desperation without a price signal?

Now, I should note that, if flights are returning half empty, than BA is absolutely incompetent, and deserves to go bankrupt.

"Sir, Your Toothpaste is too Big..."

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aquafresh_small.JPGKudos to the TSA screeners at Dayton International Airport!

They are the first team out of about a dozen airports to realize that my half-empty 5oz tube of Aquafresh Extreme Clean -- securely grouped with my other liquid bottles and gel tubes in the ubiqitous clear quart-sized plastic bag -- violated security regs.

Screeners at far bigger airports -- including Dulles, National, and Los Angeles -- have missed my too-large toothpaste, even during the deadest off-peak travel times. I've gone through so many times with that one Aquafresh tube, I hadn't even given its contraband size another thought. Perhaps the screeners have all missed it until yesterday it because I usually lay out the clear bag on its own tray, in full view. Yesterday, I crammed them in with other items, and the pre-screener did her job right.

Granted the TSA at Dayton missed the toothpaste last month, but hey, nobody's perfect.

A Modern Platform

And I thought my humor was dry:

"We are committed to continuing to support the warfighter by making this the most modern platform possible," said Forrest Gossett, Boeing Wichita spokesman.

That "modern platform" would be the B-52H, first deployed in 1962. Of course, much of the guts and skin of each tail in the current USAF fleet have been repaired or replaced or upgraded several times since initial delivery, so much of the technology in the B-52 really could be modern.

See also, Boeing's B-52 timeline.

Airbus to Give Billions in Fuel Rebates?

Last month, Enplaned was all over the plan by Airbus to offer its customers a fuel rebate so that the operating cost of the A340 will match that of the more fuel efficient Boeing 777. Says Customer COO of Airbus:

“I can agree a figure with a customer that reflects the fuel burn delta and run that out over 12 years and pay it to them,” he adds. “But if the 777’s fuel burn advantage was to give it greater range, then we’d have to look at [improving the A340].”
Enplaned makes some respectable back-of-the-envelope calculations:
Well, OK, it's probably wrong maybe it's $15mm, maybe it's $30mm, we just want to get an order of magnitude estimate. But it's big. Maybe it's smaller for the A340-600 vs the 777-300ER than the A340-500 vs 777-200LR, who knows.

Even on an aircraft with a list price of $200-250mm that's a lot to spot your competitor. Leahy has just offered this to the world. Every customer from now on is going to be insulted if bargaining on the A340-500/600 doesn't start from a similar premise. Not to mention those who already have the airplane knocking on Airbus's door asking for some money back. If Airbus is planning to sell, say, another 200 of the A340-500/600 we're talking $25mm times 200 = $5bn. Big bickies, as they say downunder.

Airbus is willing to spend billions on rebates instead of billions more on a redesign of its current A340. Enplaned notes the preferences many European people and company boards have for limiting environmenal impact:
So very seriously environmentally-concerned Lufthansa is polluting the earth something like 10-20% more than it needs to by running A340-600s? How will that look to the deep green German public? Sure, you can make up the cost of the kerosene with money from Airbus, but what about the damage to the earth? Who's going to pay for that? At the very least, Airbus ought to plant a few trees to make amends.
It's basically impossible to forbid Airbus from giving cash back to repeat customers, but if it were, would that intervention be the closest anybody has ever come to calculating a Pigovian tax?

H/T: Randy's Journal. The Randy being Randy Baseler-- Vice President of marketing for Boeing Commercial Airplanes in Seattle.

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