Armchair Inventory Management

I’d like to think that for the most part my blog isn’t about drawing conclusions, but rather about starting conversations. For example, earlier I posted about airberlin discontinuing flights between Miami and Berlin. I wasn’t saying it was a bad move, but rather just explained why I found it strange.

This post will be different, as I’m going to draw a conclusion — American’s revenue management got a route wrong. Really, really wrong. Even more so than they got award availability between London and New York wrong last weekend. šŸ˜‰

As I posted about back in June, American will be adding one daily nonstop flight between Tampa and Los Angeles as of November 6, 2014. Currently Delta operates in the market with two daily nonstop flights. It’s probably not the most lucrative market in the world, but presumably Delta does decently well between passengers traveling to Los Angeles, other parts of California, Asia, and Australia.

While I don’t think this new route will be a game changer for American, I’m personally excited about the route, since my family lives in Tampa.

As you might expect for a brand new route, it’s totally empty for the foreseeable future. For example, here’s the seatmap for the inaugural flight from Tampa to Los Angeles, which is in less than three weeks:

American-Seatmap-2
American-Seatmap-1

Given that the right side of row eight is always blocked, that the center seats in rows 16 and 17 are always blocked, and that the last row is always blocked, that means at most 14 seats are taken on the seatmap.

And before anyone says that seatmaps aren’t accurate indicators of how booked a flight is (which is true), I had a friend look at the loads on the flights, and there are only a few days through the end of the schedule with more than a couple of dozen people booked on it.

Great, so you’d think they’d have some promotional fares, right?

Nope, quite the opposite actually. American doesn’t want you to fly their new nonstop flight between Tampa and Los Angeles.

For the first month of service, the cheapest one-way economy fare between Tampa and Los Angeles is $636.

American-Fares-3

American-Fares-1

American publishes several cheaper fares between Tampa and Los Angeles over the same timeframe, like the below $281 fare. Except it explicitly prohibits taking the nonstop flight:

American-Fares-2

Okay, so it’s not unusual for airlines to charge a premium for nonstop flights, since there’s a convenience factor to it. While it would still seem crazy, I could see American charging $636 if that’s what Delta was charging as well.

What’s Delta charging for their nonstop flights between Tampa and Los Angeles for the month of November? Substantially less than half of what American is charging, despite offering twice as many frequencies.

American-Fares-5

Admittedly revenue management is an extremely complex art. Airlines don’t sell seats on planes, but rather sell seats between city pairs, which is how fares are determined. Given that there are literally hundreds of thousands (if not millions) of combinations of fare classes and fare bases, I think it’s safe to say that sometimes things slip through the cracks. And I think this is one of those cases.

But there’s always going to be the person that argues airlines do everything right (even though their long term balance sheets suggest otherwise), so I’d certainly love to hear how those people would explain the above. šŸ˜‰

Comments

  1. Oh yeah! Let’s see everyone s*&t on Delta now!

    Signed,

    Fored to be DL Platinum by the finance team at work.

  2. Ben, said with admiration as always, but at some point this month did this officially become an American Airlines-only blog? šŸ˜‰

  3. @ Nick — Hey, aren’t you happy I’m ragging on American and using Delta as a positive example? Last thing I thought you’d ever complain about! šŸ˜‰

  4. Never forget that in the days after travel started back up post-9/11, with very few people flying, airfares actually rose. And it made sense. The only people flying were those that really had to, and they were price insensitive. Discounting wasn’t going to put more butts in seats at any reasonable marging, because it wasn’t price keeping them out of the skies.

    Not necessarily disagreeing with you that AA ought to be more aggressive in pricing this non-stop. But only if they think a lower price won’t simply pull higher fare travel off of other routes.

    And with a new route you have theories of consumer behavior, there’s also value in building data so you know how to price going forward.

    Maybe a mistake here, maybe not actively managing the route enough, or maybe not.

  5. @ Gary Leff — In general I of course agree, but specific to this guy I don’t buy that at all. Heck, Delta is charging less for first class on the nonstop than American is charging for economy. And they have more frequencies.

  6. American will match the Delta fare if you provide the fare details and flight nos, so long as they have adequate inventory.

  7. Allison, say WHAT? Airlines price match now? How does this work — do you call a special reservations department?

  8. Allison/Ben,
    Is matching a lower fare on a competitor airline a regular American policy, or is it only for this flight?
    Thanks.

  9. Yes, it is. If it is the exact same route, AA will match. I work for a large corporate agency and there is an easy online procedure in place for fare matching. Quite a few airlines will fare match on a case by case basis.

  10. I just checked AA.com and the fare is $494.20 RT. So, maybe you caused AA to readjust? I was thinking that perhaps the cruise lines were using this for some kind of bulk airfares that they give their passengers. Most cruise lines do the air portion very last minute, because sometimes passengers don’t request it until 3-4 weeks prior to sailing. But, these AA flight times do not work for a return flight from a cruise. No cruise passenger could make a 740AM departure from TPA. All the carriers do special flights for different industries, i.e. ski resorts and cruise lines. But, I can’t see how these AA flight times work for the cruise lines.

  11. “Given that the right side of row eight is always blocked, that the center seats in rows 16 and 17 are always blocked, and that the last row is always blocked, that means at most 14 seats are taken on the seatmap.”

    Could you please explain why these seats are always blocked? Is it for status passengers? Are they particularly desirable?

  12. @JohnB, the cost of the roundtrip is less than the one-way. In Lucky’s example, he focused only on one-way trips and from looking up some flights indeed his findings are true. Perhaps AA wants the passenger to fly roundtrip than oneway? No idea since I’m not really an AA flyer. Regardless, if I really want to be on that inaugural flight, I’d book a roundtrip since that’s cheaper than the TPA-LAX one-way.

  13. I’m not sure what the surprise is here. American makes mistakes with new flights *all the time*. Case in point: when it introduces additional frequencies on the transcon routes, it forgets, repeatedly, to block out discounted domestic first class fares from the route. This meant that people got, e.g. ~$500 ow transcon First on the A321T for *weeks* despite the entire travel blogosphere talking about it.

    In fact, I think you posted about it at least once.

    That wasn’t even new; in the old days, when they swapped the 762s and 763s on these routes as part of their retirement, you could get super-cheap First fares.

    It’s entirely possible that their fare rules have not been updated for this new flight and/or American hasn’t tweaked their fares, or they’re doing wait-and-see to see fill rates, or something else. I don’t think /anyone/ has suggested airlines don’t make mistakes, they do it all the time. We just tend to notice more when they make a mistake on the low end.

  14. Lucky, how can you say that seat maps aren’t an accurate indicator of flight loads? I know it’s not 100% reliable, but I’ve always found them to be pretty darn good at showing how full a flight is.

  15. Sorry for the second comment – but why look at one-way fares? I would think a roundtrip ticket is what 90% of people needing to fly that route are looking for. When you search roundtrips, it looks like almost every day (and duration – I did between 2 and 5 nights in my search) look to be $495, which is pretty good for a nonstop transcon these days.

    One way fares often seem to be higher than roundtrips, so I think you searching it that way skews the issue here, especially when most people are going to book a roundtrip.

  16. @Joey

    I was just stating that there are fares that are unpublished and these flights could fill very fast. Five cruise ships sail from Tampa, this winter season. Three of those ships start sailing between Nov. 8 and 16. Three of the ships sail on Sun. Two of the ships sail alternating Mon., Thurs., and Saturday. Passengers from the West coast always have difficulties getting to FL cruise ports. Years past cruise passengers purchased their air as a package, with the cruise. That changed to most passengers buying their own airfare. But as airfares have been increasing in the last 3 years, passengers have been buying their air from the cruise lines.

    Even stranger is that Delta’s RT fare is more expensive than American’s. Maybe there is more to this than just couple fare quirks.

  17. I’d venture a guess that American’s price for a one way is not half the price of a round trip, as it is for Delta. Make the AA one a round trip and they will probably be within $50, not the $410 shown here.

  18. I would guess that AA/US are working through a lot of pricing kinks as part of the merger. I’ve had a couple of cases with rather ridiculous prices for routes, and a phone call fixed the price to something reasonable.

  19. Ben, don’t sell yourself short, it’s these sort of questions that keep your blog interesting. And the pics of expensive champagne šŸ˜‰ There are hundreds of blogs out there all touting the latest credit card offers and a few trip reports. But these sort of original insights into “airline thinking” from an outsiders perspective, keep your blog quite interesting and fresh.

    Also, how much is the merger affecting the way AA prices tickets? I’ve noticed that in the past US was terrible at pricing oneway tickets (ie, typically very expensive), especially closer in to departure, but would keep roundtrip fares in line with the competition. Just my outsider observation.

  20. @ Al — I believe the right side of row eight is blocked for handicapped passengers, the center seats in row 16 and 17 are blocked because they don’t sell those seats (that way there are only 150 seats on the plane, meaning they only need three flight attendants), and the last row is blocked just so they have somewhere to seat people day of that need to be seated together.

  21. @ Andrew — Well, I was simply countering a point that others were probably otherwise going to make. Sometimes it’s not an accurate indicator. For example, I’ve seen tour companies book 100 seats on a plane without selecting seats for passengers, so in rare instances it can be way off.

  22. @ BigDaddyJ — For what it’s worth, they were actually selling cheap fares on the nonstop for weeks. These higher fares are actually new, oddly enough. They added the restriction after the fact.

  23. @ Andrew — Well, because in my case I only needed a one-way fare, and in 95% of cases nowadays one-way domestic fares are half the cost of roundtrips.

  24. @ EthaninSF — It shouldn’t impact prices, given that they’re still using separate res systems. Odd…

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