• August




‘Delta may be onto something’: Experts describe how the company is winning with customers even though rival airlines can fit more passengers

Airlines in the US have gone back and forth over social distancing on planes, and whether it makes sense to block the middle seat on flights.

New data shows that regardless of what the airlines think, passengers want to see those seats fly empty — and are increasingly willing to pay for it. Passengers are willing to plunk down 16-17% more on average to fly on an airline that blocks the middle seat, according to a survey by Atmosphere Research, a travel industry analytics and consulting firm.

The finding comes a few weeks after American Airlines announced it would stop blocking the middle seat on its flights, setting off a wave of criticism. United has filled middle seats all along — chief communications officer Josh Earnest told reporters that blocking seats is “a PR strategy,” not “a safety strategy.” (The airline said it still up-gauged some flights, where possible, onto larger aircraft to provide more distance between passengers.)

Out of America’s so-called “big three,” Delta is the only airline that continues to block the middle seats, as well as every-other seat in the domestic first class cabin, effectively capping capacity on its planes at 60%. But whether it’s a PR or a safety strategy (and Delta insists it’s the latter), it’s working out well.

But two key accounting metrics indicate that Delta’s passengers, like those surveyed by Atmosphere, are putting their money where their (masked) mouths are.

The first is available seat miles (ASMs), which represents how many available seats an airline flew on its planes over how many miles. If one airline operates a route with a 200-seat plane, and another airline operates the same route with a 300-seater, the latter will have 50% more ASMs.

The second is Passenger Revenue per Available Seat Mile. PRASM measures how much revenue an airline makes from passengers — including fares, add-ons like baggage fees, and in-flight purchases — averaged out over all the ASMs the airline operated during that time period. It’s essentially a measure of an airline’s financial efficiency.

In essence, Delta is not earning revenue for 40% of their ASMs, since the airline is capping its flights at 60% load factors. So, setting aside variables like operating expenses and fares, Delta’s PRASM should be 40% below that of an airline like United, which is performing similarly.

However, Delta’s second quarter PRASM was 6.40 cents, just 15% below United’s 7.60 cents. The slimness of that gap suggests that Delta is earning a revenue premium, charging higher fares on average than United, according to Henry Harteveldt, a principal and co-founder at Atmosphere Research, a travel industry research firm.

“If you adjusted Delta’s PRASM for the 40% hit it took by blocking seats, Delta is earning a substantial premium over United,” Harteveldt said. “Overall it looks like Delta may be on to something.”

(American’s PRASM — 6.48 cents — is less useful for comparisons, as the airline’s seat-blocking policy was never as rigid as Delta’s.)

Delta has said it’s not charging passengers more to make up for that missing capacity, but the airline has historically charged more in general. The airline has commanded a revenue premium since before the pandemic, in a large part thanks to its deserved reputation for things like on-time performance and relatively generous seat pitch. Customers value those things, Harteveldt said — Delta has simply continued to charge what it was charging before.

“It’s fair for airlines to compete on product and try where they can to leverage a premium from their customers, if they feel they’re delivering a better product and the customer agrees with them,” Harteveldt said.

The twist is that now, travelers are looking at how airline handles the risk of COVID-19 along with traditional aspects of the flying experience. “The conversation has shifted,” Harteveldt said. “It’s not that on-time performance doesn’t matter, but consumers value physical distancing right now more than they do on-time performance.”

Harteveldt drew a distinction between competing on overall product and attracting higher fares — something Delta has found success with before and during the pandemic — to commodifying safety. Frontier Airlines said in May that it would sell travelers an empty middle seat, but quickly retracted the program after it was accused of profiteering.

Ed Bastian, Delta’s CEO, said that the airline was successfully managing its supply and capacity, which benefited pricing and yields.

“So indirectly that is coming through in price. But that’s not the objective,” he said. He added that the Delta’s latest customer surveys found that the blocked middle seat was the top reason passengers were choosing the airline.

Although there is limited research into the likelihood of COVID-19 transmission on airplanes, with the few available studies providing mixed evidence, a recent study found that filling the middle seat nearly doubles the risk of picking up the virus in-flight.

Delta has said it will continue to block middle seats through at least September. Southwest, JetBlue, and Alaska Airlines are also limiting capacity on flights.

Photo credit: “consumers value physical distancing right now more than they do on-time performance,” an industry analyst said. Sandy Huffaker/Getty Images

Story credit: https://www.businessinsider.com/airlines-middle-seat-social-distance-coronavirus-delta-2020-8

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