Article ID: | iaor2017194 |
Volume: | 15 |
Issue: | 6 |
Start Page Number: | 488 |
End Page Number: | 499 |
Publication Date: | Dec 2016 |
Journal: | J Revenue Pricing Manag |
Authors: | Monestier Alex |
Keywords: | scheduling, combinatorial optimization, programming: assignment, economics, marketing |
This paper aims to prompt the airline industry to explore a new way of using existing airline cabin layouts that improves profitability and comfort. The century old paradigm, that passengers take a seat for an entire flight, is a way of utilizing airliner cabins that heuristically means poor comfort for most passengers and low financial returns (Return on Invested Capital – Weighted Average Capital Cost industry wide of −2.3 per cent (2013) and −1.2 per cent (2014), and EBIT of 3.5 per cent (2013) and 5.1 per cent (2014) of revenues Earnings Before Interest and Tax) – Source IATA). The author shows the benefits of allowing a place‐exchange market to operate during flights. This market proves to be a superior value extraction tool and opportunity for airlines, which can substantially increase their profits by enabling widespread comfort to their customers. As a consequence, airline economics are greatly improved. As a corollary, this dramatically increases the amount of viable routes.