Airline economics means Covid could never free up middle seats for long

Airline economics means Covid could never free up middle seats for long

Photographer: Nicolas Economou / NurPhoto / Getty Images

Here is another reason to thank the medical profession in the midst of the misery of Covid – doctors want you to have more room to lie down when you fly.

The risk of catching the virus on board drops by 57% when the middle seats are left unoccupied on planes, according to a study released Wednesday by the U.S. Centers for Disease Control and Prevention. This validates the decision of most of the major US carriers at the start of the pandemic to stop selling mid-size seats. It is a measure that has since been almost universally abandoned. Delta Air Lines Inc., the last recalcitrant, will resume filling its cabins to capacity from May 1.

The reasons are not difficult to discern. The fixed cost of an individual flight is high. Landing and navigation charges are the same whether a plane has one passenger or 300. Even the labor charges are more or less set in stone, as the number of cabin crew members required is largely determined by the number of seats in an aircraft, rather than how many of them are filled. Fuel costs don’t vary much either, as most of an aircraft’s take-off weight is made up of the plane and fuel, rather than passengers and their baggage.

Problem solved

US airlines have high fixed costs, which means operating costs in 2020 have fallen much less than revenues

Source: Bloomberg

This means that one of the most crucial measures of airline profitability is their load factor – the share of seats occupied. Fill the cabin sufficiently and you will be reimbursed for all fuel and flight operating costs. Every seat you sell after this point is pure profit. The problem is, competition from competing carriers constantly drives down the cost of tickets, which means you have to sell more and more of the cabin to break even.

Seen this way, it’s easy to see why not selling tickets in the middle seat will never work. By definition, an aircraft configured in this way will achieve a fill rate of 67%, because only two out of three seats can be sold. However, numbers like this were last viable over a decade ago, when aviation was much less competitive than it is today.

Take a look at the balancing load factors of the major airlines – the levels at which mid-price ticket sales are sufficient to cover operating costs:

Breaking point

The balance load factors of the major airlines are all above the 67% level that would be necessary if you were to forgo selling middle seats

Source: Bloomberg

In the last two pre-pandemic years, the median carrier was expected to occupy nine out of ten seats to hope to reach the breakeven point on this basis. This is because many equilibrium load factors are greater than 100% even in normal times. It seems impossible until you consider that most carriers make a decent amount of money from things other than selling passenger tickets, like charging travelers for sandwiches, legroom, or luggage. , manage loyalty programs or transport commercial air freight.

As we wrote, things are worse thanks to Covid and shouldn’t get better for some time. Of the 27 airlines in our sample, only eight had balance load factors below 100% in the past year. This should improve as flight frequencies increase and make it easier for carriers to cover their capital costs, but domestic traffic is still well down from pre-Covid levels almost everywhere. International travel, meanwhile, may not return to normal until the middle of this decade.

Always down

Seats available in top ten domestic aviation markets are still down almost everywhere in April

Source: OAG


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