Lately there’s an attractive bird game in the airline industry. Should airlines sell all seats on their flights or block some to keep other people a little further for now? No one seriously thinks that you can escape socially on a plane, however, dressed in a mask and with an empty seat next to you, increases the feeling that the threat is not high, especially compared to other spaces where the meetings are very close together.
Gordon Bethune, the successful CEO of Continental Airlines in the 1990s, used to say that the airline industry was as wise as its dumbest competitor. Occasionally he used this with regard to pricing, frustrated by the fact that other airlines rarely make a fare sale, felt that the order was in favor of the airlines. Now, is it fair to say that those locking seats are stupid or that the ones who sell all their seats are stupid? It’s based on how far you think.
I have previously written that one of the most sensible priorities of airlines is to regain the confidence of air consumers. I’ve flown 3 times in the last 3 weeks and talked to dozens of other people about my travels. Since my reports have generally been positive, I am convinced that this has affected some of others’ reviews. On the contrary, if I had told them about overcrowded planes and disrespect for the dresses in the mask, I bet they would have had another reaction. That’s why I think some airlines play the long game while others play the short game.
The short game is to maximize profits and money right now. Sell each and every seat you can, and because airline marginal prices are low, it means that even the lowest fares are higher than empty seats. In fact, this will maximize existing month and quarter revenue, but at what cost? When TripAdvisor and other sites publish court cases about entire aircraft and perceived hazards on board American, United or Spirit, is this the most productive way to temporarily decrease calls? Compare that to those flying in Alaska, Delta, JetBlue or Southwest, all of which have seating blocks on board. Consumer opinion on those flights will likely attract those who are still reluctant to fly. This is the long game because returning to the previous call for Coronavirus is the most productive thing for the whole industry. Some flights will be operated today, however, most are still 50% to 60%. This means that the burden to build trust is low, while getting the advantages of promoting each of them is not as convincing.
Let’s take a look at designing this matrix of game theory gains. Here’s what I choose for a 30-day return to the industry exit, assuming that two airlines each take a separate resolution to sell all seats or block safe seats:
This shows that if either airline locks seats, the industry will run out of profit because it will give up profits from blocked seats. But if one airline sells seats while others block, it makes a small profit because its profits accrue while the other is limited. In 30 days, the replacement in customer trust will be small, which will make the sale of seats logical for some, but the low cost for those who also block. But what about the six-month effects? Here’s my vision of this gain:
This shows that during a longer era of time, the two airlines that decide to block seats are now selling a much faster recovery in overall demand. Therefore, each airline makes the biggest profits in this era. While either airline is selling seats for the next six months, their return is positive but at a much slower pace, as many consumers still decide not to fly because of their concern for full aircraft.
Okay, I recognize that you can make those winnings whatever you need to make the point you need to do. I think those are moderate in a relative sense, and airlines won’t get many calls until customers are convinced they can be on board. This means that each of the genuine delights in the coming months is of undue importance in determining the overall trust of the customer. That’s obviously what Alaska, Delta, JetBlue and Southwest think, and I agree with them. I sense what United, American and Spirit are doing, and I’m satisfied that they think their current movements have little or no effect on the long-term call of the industry. I don’t agree with that view.
Interestingly, this debate turns out to be taking a stand only in the United States. A recent report from CarTrawler and IdeaWorks shows how 25 airlines around the world are addressing the coronavirus problem. Nowhere else in the world do others ask for the locking of middle seats. With so much uncertainty about the long-term and long-term call for airline industry trends, it turns out that airlines do their best to make consumers comfortable for short- and long-term play.
I am the former CEO of Spirit Airlines, where my strong team transformed the company into the highest margin airline in North America and created a new model for air
I am the former CEO of Spirit Airlines, where my strong team redesigned the company to become the largest airline in North America and created a new air style in the United States. Now I sit on the forums of several public and personal companies, I am an assistant professor of economics at George Mason University and co-host of the popular weekly podcast Airlines Confidential.