school me on Econ 101 vs American Airlines strategy (pic)

Badger

Badger

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Last weekend I am flying American Airlines from Dallas to Bahamas. The flight is oversold and they are offering $800 per seat plus hotel, food etc. to give up seats (they needed 8). As I sit down I see this plastic thing bolted on the middle seat in my row. See PIC. OK I can't hold back anymore, so eventually I ask the flight attendant what this is all about.
Her version:
Management is trying to save money. The 737 has a 161 seat capacity which under FAA rules requires 4 flight attendants - 1 per 50 seats (maybe she said passengers). By installing 11 of these plastic things, they reduced the capacity to 150 and thus only need 3 attendants instead of 4. She said this all started about a month ago.

Can anyone explain the thinking of AA management? My rough figures: flight attendant salary $60,000 plus overhead, lets use $100,000/year for AA cost for flight attendant.

Of course these flights will be below capacity much of the time, but by losing 11 seats at say $600 per ticketed passenger, that's $6,600 per flight. After 15 flights at capacity of 161, they would have more than made the $100,000 employee cost.

This doesn't add up with my math.

(click on pic to see larger version)
 
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Badger said:
Of course these flights will be below capacity much of the time, but by losing 11 seats at say $600 per ticketed passenger, that's $6,600 per flight. After 15 flights at capacity of 161, they would have more than made the $100,000 employee cost.
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I think you answered your own question. Perhaps the bean counters worked out that the few times they needed one or more of those 11 seats don't equal the cost savings, which, BTW, is a multiple of the salary.
 
It seems like a stretch. Just over spring break these 737's make lots of trips per day. Both of the legs I was on were at (over) the 150 capacity.
 
The economics are no where near as simple as you make it out to be.

So, part of it is the cost of the flight attendants and part of it is that those are premium seats that they charge extra for.

Planes are rarely completely full - load factors are typically between 80 and 85%, meaning that these represent seats that would go unsold. FAA rules specify the flight attendant crew based on the number of seats, not the number of actual passengers on the flight. If it's a situation where the flight would be full, the airline can (and will) raise the fares so they make more revenue anyway.

Making them premium seats means they can charge most passengers extra. Elite frequent flyers may be able to get them for "free" - that operates on the same theory as upgrades to first class or award/"free" flights.

You can bet that the airline did a pretty deep economic calculation before converting the seats & determined that they'd make more profit by blocking them off. (and, as a side note, it's relatively easy to unblock them if they need the capacity).

Other airlines have done similar things - JetBlue, for example, limits the number of seats in their planes to reduce the number of crew required. I don't recall whether Southwest does or not. USAir experimented with a configurable seat at one time with a similar goal. And many airlines in Europe create a "business class" cabin by using this same kind of technique.
 
Badger said:
Can anyone explain the thinking of AA management? My rough figures: flight attendant salary $60,000 plus overhead, lets use $100,000/year for AA cost for flight attendant. [/img][/url]
Click to expand...
Remember that to fill one FA slot on one aircraft, 7 days a week, 52 weeks a year, will take something like 2 employees.

You have to factor 7 day a week coverage (1.4 employees right there), plus coverage for vacations, training, sick time, etc etc.
For all that, you gain 11 seats, for the small percentage of time when the plane is actually full.

EDIT: I'd personally love to see them remove 6 of the seats and increase seat pitch. And then I woke up.
 
PilotAlan said:
EDIT: I'd personally love to see them remove 6 of the seats and increase seat pitch. And then I woke up.
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You fell asleep in the first place on a commercial flight?!?! Props to you! :yes:
 
aircraft operate 12 hours per day.

That's at least 1.5 employees per day times 28 days = 42 employees divided by 16 work days per month worked per employee = 2.625 = then you need to assume vacations and sick so you need 3 human beings. That's at least $180k.

So, 11 seats time 6.7 flights per day times $200 per fare times 28 days times 12 months. $4,952,640. However, this is at the fringe of the capacity of the airplane. American Airlines average load factor is 82.9%.

Thus - a 161 seat aircraft goes out on average with 134 seats filled. Thus, the 11 seats are not filled on enough of time to pay for anything . . .

End of problem.

Airlines would kill and eat their grandmothers if they could raise average fares by 10 cents or increase their load factor by 1/2% . . .
 
At some point it comes down to the "revenue per employee" number that every analyst uses to measure and compare productivity and profitability. The calculation wouldn't be difficult if several years-worth of information were available.
 
Also - the cost of an employee is not their salary. Those 3 employees who get paid 180k probably cost another 150K minimum in benefits and training. So now you're talking in the neighborhood of 330k. At 6600 per flight you're at about 50 flights that need to sell out annually to make it worth it. It's probably in the neighborhood of being the most profitable move.
 
I would believe all of the economic analysis by the wizards at the airlines if the airlines didn't make routine trips into bankruptcy courts. :rofl:

OTOH, this one makes some sense since it is easily reconfigured for heavy trafficked routes.

Cheers
 
X3 Skier said:
...
OTOH, this one makes some sense since it is easily reconfigured for heavy trafficked routes.

Cheers
Click to expand...

that's what I was thinking, but during spring break, they still had them installed. Probably a shortage of flight attendants on peak demand times.

I'm sure AA has some MBA doing the number crunching
 
comanchepilot said:
...So, 11 seats time 6.7 flights per day times $200 per fare times 28 days times 12 months. $4,952,640.
. . .
Click to expand...


$200 per air fare? Not according to what I paid and Kayak, etc.

But none the less, it comes down to simple math and AA thinks they found a way to save some $$.
 
$200 for that segment - geesh guys- who pays $600 to fly anywhere - and if you do - its generally round trip right? So you have to cut the fare you paid in half. Moreover, if you connected, now you need to divide by 4 to ascertain the revenue on that segment.
 
It's a miracle that airlines can stay in business at the fares they charge.

Oh, that's right, they don't....

The game of Russian Roulette that the airlines keep playing (for decades now) as they pass the gun around the table is fascinating to me.
 
Airlines sell their seats at batch prices. Say there's 130 seats on a flight. The first 10 go super cheap. The next 50 cost more. The next 50 even more and the last 20 are super high.

To me that's why it doesn't make a ton of.sense. if they were going to remove 11 seats to make it legal for less crew they should remove a row and give the space back to the customers. That's 6 there and then they'd only need 5 plastic seat blockers.

Its a pain to move all the seats to do that but it could easily be done on an RON.
 
Captain said:
To me that's why it doesn't make a ton of.sense. if they were going to remove 11 seats to make it legal for less crew they should remove a row and give the space back to the customers.
Click to expand...

Surely you jest. Or maybe not and I won't call you Shirley.

Cheers
 
Delta did this for a while too. They just pulled seats out of the back on one side. I joking told the light attendant that they had a dance floor :goofy:
 
bflynn said:
Also - the cost of an employee is not their salary. Those 3 employees who get paid 180k probably cost another 150K minimum in benefits and training. So now you're talking in the neighborhood of 330k. At 6600 per flight you're at about 50 flights that need to sell out annually to make it worth it. It's probably in the neighborhood of being the most profitable move.
Click to expand...
Salary is more typically a third of total personnel cost, which puts it over half a mil. Now, that "one third" rule of thumb typically includes office rent, etc, which an FA wouldn't have, but there are probably training/dispatch related costs that make up for it.
 
Ken Ibold said:
Salary is more typically a third of total personnel cost, which puts it over half a mil. Now, that "one third" rule of thumb typically includes office rent, etc, which an FA wouldn't have, but there are probably training/dispatch related costs that make up for it.
Click to expand...

What 'dispatch' cost would be related to an FA?
 
None, if they just wander out to the airport and board whichever plane they think might be fun to work that day.

Captain said:
What 'dispatch' cost would be related to an FA?
Click to expand...
 
wabower said:
None, if they just wander out to the airport and board whichever plane they think might be fun to work that day.
Click to expand...

:rofl::lol:...

That is funny right there.............. I don't care who you are..:yes:
 
Ok, from what I see here, I get that blocking the 11 seats makes financial sense. Is it possible that those seats can be taken out to give tall guys like myself some more space, then advertise that to the general flying public? thus turning a negative perception (hasty cost cutting measures) into a positive perception (cost effective comfort improvements)?
 
wabower said:
None, if they just wander out to the airport and board whichever plane they think might be fun to work that day.
Click to expand...

So a 'certified dispatcher' would be necessary to get a FA to her plane? Someone certified to check the weather and NOTAMs and all the rest...that's what's needed to tell Becky what gate to go to?

You say 'Dispatch' when talking about an airline and that's what you're talking about. It's a certificated position. Don't degrade their career by suggesting they 'send FAs to gates'. That isn't even in their job description and they have no part of that function.

Yuck it up.
 
Dispatch means lots of things. Don't try to big-dog this bunch, or you'll lose again--as usual.

Captain said:
So a 'certified dispatcher' would be necessary to get a FA to her plane? Someone certified to check the weather and NOTAMs and all the rest...that's what's needed to tell Becky what gate to go to?

You say 'Dispatch' when talking about an airline and that's what you're talking about. It's a certificated position. Don't degrade their career by suggesting they 'send FAs to gates'. That isn't even in their job description and they have no part of that function.

Yuck it up.
Click to expand...
 
Lets not forget its also reduced weight = reduced fuel = reduced cost.
 
The last 5 times I've flown every flight was overbooked and they offered free travel miles to anyone who was willing to take a later flight. So the load rates are surprising to me but then again I'm sure that's different in slower parts of the country. The math definitely makes sense, though. Whoever the cost analyzer was that discovered that neat little trick probably got a nice bonus.
 
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