Have fees changed how airlines look at load factors?

To most air travel consumers and airline employees, the site of a full plane load of people (its “load factor” being the percentage of seats filled) signifies the airline must be making money – at least on that airplane.   Its seems counter-intuitive that a plane that seats 173 people (a typical Boeing 757 configuration) could push back from the gate with 173 people on it (a 100% load factor) and still lose money.

But to airline executives and savvy investors, yield (the simple math of revenue per available seat mile minus cost per available seat mile) has traditionally been much more important than load factor percentages.  Airlines like Southwest, the gold standard for efficiency because of one aircraft type and very few complicating and expensive additional services like airport lounges, made money for years on load factors significantly lower than larger airlines with their multitude of different aircraft types and higher costs because of much more complicated operations.  Up until recently, if you’d asked any airline leader in revenue management or operations, they’d gladly have swapped high yield for high load factors.  Why?  Simple.  Fewer passengers paying more for their tickets puts lets stress on the operation, e.g., fewer bags to handle, faster planing and deplaning, fewer passengers to re-accomodate during irregular operations.

But is this still true in the age of unbundled fares and the ancillary fees that are driving profit margins for the airlines?  Whereas in the old model many services and products like checked bags and meals were included in the price, now, fees are broken out and driving billions in additional revenue.  Take for instance airline A that charges cumulative fees for checked bags that are oversized and overweight.  For a passenger checking three bags with just one of them oversized and overweight, baggage fees alone on Airline A could top $600.00 one way – and all those fees are tax exempt under current IRS regulations so they’re pure profit for the carriers.  Simple math says more passengers equals more opportunity to pad the bottom line with ancillary fees.

So perhaps the old model has changed forever.  Airlines now may see completely full planes as a cash cow for ancillary fees whereas in the past they were a potential drag on the operation, required higher staffing levels to provide service, and a cause for higher fuel bills to move all those souls.

If my assessment is correct, then it appears high load factors and their associated fee accumulations for the airlines may be the model of choice for airlines…though not the model of choice for passengers.

Time will tell.


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