Reducing Air Fare
Last to last weekend, while virtually all my engineering friends were getting drunk and partying like crazy to celebrate their impending graduation, I decided to spend my time a bit more productively by carefully reading and analyzing Todd Sattersten's new ebook titled Fixed To Flexible.
There's at least 36 very important lessons in this ebook. None of these ideas are original or particularly new, but some of these ideas I have already heard from reading other blog posts and ebooks. But the one idea that stuck in my head really concretely was the story on page 5 about how RyanAir's CEO cuts air fare costs down.
Whenever I'm exposed to a dozen ideas and one just sticks, that's usually a sign of a strong interest in the topic. In this case, the problem of cutting air fare prices is strictly a socio-technical one. And almost everyone I interact with frequently knows, by now, how interested I am in hard socio-technical problems. Good socio-technical problems not only have a very good technical component to it, but all their solutions have very strong social ramifications which cannot be disregarded.
Allow me to paraphrase all of page 5. Unlike my previous blog posts, none of the ideas below are mine. But they're all great ideas. And here's why.
So I'm Ryan, the CEO of an air flight service company. And my mission is to deliver the cheapest flights. What do I do? I know there's a market for cheap flights, especially for short distances, i.e. flights less than 4 hours. Students, youngsters and casual tourists are the best target audience since they're always strapped for cash and do not mind being inconvenienced a bit if it means they get to fly cheap.
One way to reduce the price of air tickets is to reduce my own operating costs. The first thing I do is buy just one type of plane for all my flights. This causes inflexibility and the inability to fly inter-continental routes, but it also means the same small army of technicians can fix any plane. Training them therefore becomes easy. Also, pilots can be exchanged between planes even at the last minute without much notice.
If I place a large order of the same type of planes, the plane manufacturer might be willing to give me an unusually large discount. It is cheaper to build many planes of the same type one after the other, also known as economies of scale. I therefore find the cheapest aircraft that operates on all my routes. The Boeing 737 is the cheapest narrow-body airliner with just one aisle and 6 seats per row. So cool, I'll pick up a dozen or so of those.
The above partial solution does not have any social ramifications. The 737 is about as safe as any other commercial airplane manufactured by Boeing, so passengers need not worry about their safety.
The next trick is to charge customers for every use of the bathroom during the flight. This will discourage customers to use the paid on-board bathrooms, but rather use the free bathrooms at the two airports at both ends of the flight. This allows the air carrier to reduce the number of on-board bathrooms since fewer people are going to be using them. Reducing the number of bathrooms not only reduces the cost of production of the plane, it also reduces the turnaround time and operating costs of each trip. Fewer bathrooms will have to be cleaned out upon landing. Also, the space occupied by bathrooms can be replaced with more passenger seats, meaning that the average cost of each seat will go down.
This solution has huge social ramifications. People are obviously going to react strongly. It means that customers will now need to remember to use the free airport bathrooms and empty out their bladders before they board their flights. The gate staff will need to add an additional line to their pre-board instructions reminding customers to do the same. And of course, charging for bathrooms will only work for short flights, perhaps for flights that are 4 hours or less. People with small bladders, people who wish to consume excessive drinks during a flight, people with diabetes, and forgetful people will all have to bite the bullet and pay for every use of the bathroom. But most other people should be fine. Young, healthy, disciplined people like you and me should be able to handle paid washrooms quite normally.
The trouble with paid washrooms is that people now need to remember to carry cash/change with them when they fly. Or we'd need to add a self-service credit card swiper outside each washroom. And the bigger question is, how much do we charge for a visit to the washroom? Do we charge at most once for the entire flight, or do we charge for each visit? So many unanswered questions.
Another easy solution to reduce air fare is to start charging people for each checked-in baggage. The idea is to encourage people to carry less when they fly. Most passengers probably carry 3-4 times more luggage and more clothes than they actually need anyway. Hopefully with this rule in effect, people are likely to bring more carry-on luggage. People will need to pack more carefully. Check-in will be much quicker, and fewer gate agents will be needed to help with the check-in. This will all lead to long-term reduced costs, hopefully for the customer. The trade-off? People who carry liquids and gels are pretty much forced to now pay the extra fee for check-in baggage.
Another strategy is to take-off and land only from mid-size cities or from cheap, secondary airports in the outskirts of major cities. This has the advantage of significantly lowering landing fees, but it means people will need to travel more to get to and from the airport. Sometimes as much as 100-150 kilometers. Another socio-technical roadblock.
What if me forced customers to walk for 3-5 mins from the airport gate all the way to the plane? Once they're near the plane, what if we made customers climb a set of 50 steps or so to get into the plane? And what if we dropped people off at the tarmac immediately after landing and taxi? More walking for each one of us resulting in inconvenience, but it could mean lower-priced flight tickets since the air carrier does not have to pay any gate fees to the airport.
But even if we absolutely wanted to drop customers off at the gate, the other place where costs could be cut down is by reducing airplane loading time. The quicker we get customers, luggage and other freight into the plane, the less time we spend at the gate. For airports that charge gate fees per minute, this could be huge savings.
It's a known fact that passengers boarding the flight is the longest pre-flight activity before take-off. So how do we optimize boarding times? Reducing boarding time is difficult since it directly involves the passengers, making the problem strictly socio-technical. One common approach is to assign passengers to various "zones" or "seating areas" upon check-in, and then boarding people in order based on what zone they were assigned to.
For example, I know Air Canada boards its passengers from back row to front row so that the front row people don't keep the back row people waiting in line as the front row people struggle to stow their luggage into the overhead cabins. On top of that, it might be better to board people with window seats before people with aisle seats so people with aisle seats don't have to unbuckle and get up to let the window seat people take their seat. I'm pretty sure United Airlines does this. US Airways and Westjet, in contrast, seems to board passengers pretty randomly, except for perhaps giving preference to certain frequent flyers or elite passengers traveling in first class or for passengers who took the trouble of checking-in online 24 hours prior to departure. It turns out that random boarding is actually more efficient in certain cases.
I once read that Southwest Airlines claimed that if its boarding time increased by a mere 10 minutes per flight, the sheer number of trips throughout the year would require the air carrier 40 more planes at a cost of $40 million each to run the same number of flights it does currently! So shaving off even as little as 10 minutes off of boarding time can result in large savings down the road in the long run. There are many different boarding procedures, although I've only touched on 1 or 2 of them. Seems like there is enough money in this area to warrant a decent amount of simulation-based research in it. Here's a great paper/blog post on how one can board a 150 seat airplane in less than 15 minutes! Truly spectacular.
What other ways exist to reduce operating costs? We could get rid of meals on short flights less than 4 hours. That seems like a good idea. We could also force passengers to do their own inter-airline baggage transfer. We could board the plane from both the front and back. We could eliminate business and elite passenger classes to speed up boarding time and reduce the average price of a ticket. The simpler the fare structure and lower the price differential between the highest and lowest prices offered, the less consumer resistance there will be while purchasing tickets. Improved forecasting models to more accurately predict demand will mean fewer flights with empty seats. One way to achieve this is to incentivize customers to book early by offering cheaper tickets to early buyers. We definitely want the plane as filled up as possible since the difference between making and losing money can be just a handful of passengers. Finally, we could automate ticketing, check-in and boarding as much as possible. Thus, easily accessible kiosks with good, stable software and a highly intuitive UI is a must.
At the end of the day, some of all the cost savings made by the air carrier will hopefully be transferred to the customer. And air carriers will need to reduce their prices if they want to remain competitive with other air carriers. In the end, it'll be normal people like you and me who benefit from all these cost savings, at the expense of sacrificing certain services resulting in maybe some mild inconvenience every now and then.
