The value of incremental revenue to an airline

Sure, nobody likes to pay the various fees that airlines seem to come up with on a daily basis. Still, as much as folks complain about paying the fees it is clear that they are being paid. And some of them are being paid more willingly than others.

In the case of JetBlue, just one of those fee categories – the upcharge for "Even More Legroom" seats – accounted for $85MM of revenue. Considering the net profit for the year was $97MM it can be said that the incremental fees are the difference between profitability and not for the airline. Breaking down just what the impact of EML sales are for the company provides some interesting numbers.

On the Embraer 190 aircraft there are only 4 EML seats available; on the Airbus 320 aircraft there are 36. A lot of fuzzy math going on because I don’t have inside data on the actual fleet operations but generally speaking one can say that about a third of the 600 daily departures are operated by the E90s and the other two-thirds are operated by the A320s.

That’s somewhere in the range of 15,000 EML seats flying daily. Lots of multiplication and division suggests that means that each EML seat earns, on average $15 per flight. Obviously the amount actually earned from each sale is higher as those seats do not always sell.

Similar analysis across the total number of flights daily suggests that the airline is realizing nearly $400 in additional revenue solely from EML sales per flight. The A320s will be earning much more than that on average, more like $550 based on my calculations, while the E90s are closer to $60 per flight. With an average fare of $140 during 2010 adding this additional revenue is akin to putting 3-4 more passengers on the A320s every time they fly. That’s darn impressive.

Much of the increase in the revenue from EML sales can be attributed to the company’s ability to be much more flexible in the pricing of the upgrades. The variable pricing started only in April 2010 so we can expect that the revenues will be even higher for the carrier next year.

Neither Virgin America (Main Cabin Select) nor United Airlines (Economy Plus) nor Continental (Extra Legroom) break out the revenue they realize for their "premium" economy seats so it is hard to do an apples-to-apples comparison. Still, it is clear that these programs are making money, lots of it.

Customers may not like all the fees out there, but there are absolutely some that they are willing to pay quite readily and the airlines are loving that.

Never miss another post: Sign up for email alerts and get only the content you want direct to your inbox.