When I board a plane I look around and wonder why the other passengers chose to fly. The business and leisure reasons often cited do not capture the diversity of travel, but for whatever reasons people buy their tickets, the aggregate effect is the demand for travel.
You might be wondering what an abstract concept like demand might have to do with airline design. In fact, your LOPA is a manifestation of what planners believe is the demand for your airline’s services.
The LOPA reflects how many people are willing to pay, through the galleys, cabin attendant seats, lavatories and premium cabins, for a great experience.
But when bean counters influencing LOPA development are seeking to ram in seats at maximum density, whatever the impact on service, you will need facts, based on demand, to convince them otherwise.
In this series I am writing about how product designers and pricing and revenue management (PRM) specialists can work together to show that product and service investments will be profitable. PRM specialists are demand experts and they will be able to provide the facts you need to convince bean counters when a bespoke galley and other product enhancements are the right course of action.
LOPA best-practice is to take maximum possible density and only deviate when there is a strong revenue case, which you will need help in finding because most other departments will not know.
As well as being demand experts, PRM specialists are always evaluating revenue, and their feedback will be included in LOPA development. You first need to tell them why your product adds value in order to put them in a positive frame of mind for making LOPA comments.
To establish whether a deviation from maximum density is worthwhile you first need to know the fares paid to occupy seats taken away. These will be less than the general average because such seats will not always be sold, and even when they are, it will be at relatively low fares compared to other passengers on the flight. PRM specialists can provide the facts you need to avoid the tyranny of the average, which unfortunately many bean counters still think is the right way to frame LOPA development.
Passengers often fly many times over the course of a year, so to get the LOPA you want you will also need to help evaluate its value up to and beyond the end of its life. The LOPA directly frames passenger experiences and heavily influences the views they develop about your airline and share with their friends.
If they like your product, many will come back for more. This ‘lifetime value’ boosting value of your LOPA, which you will need to help calculate, potentially offsets its up-front costs. Lifetime value is addressed on the pricing strategy side of PRM or, if not there, the frequent flyer program.
Submitted February 14, 2017
Next time I will write about passenger profiling and market segmentation. Later we will walk through galley loading, waste optimization and the revenue case for amazing first class seats.
Oliver Ranson is the founder of Ranson Pricing. Oliver was educated at LSE, where he took a First and then a Masters in economics. The rigorous microeconomics grounding that he received at LSE formed the basis of his passion for pricing.
After graduating Oliver joined leading consultancy Analysys, where he helped a mobile phone network operator justify their prices in front of their local regulator and conducted research for the European Commission.
He then moved to revenue management at Qatar Airways, creating from scratch the strategy framework and tools necessary for the airline to completely redefine their pricing. Before founding Ranson Pricing he was head of product research at Qatar Airways, where he applied his deep understanding of pricing concepts to investigate how product enhancements drive revenue.
Oliver believes that effective pricing based on both rigorous analysis and sound intuition is the key to long-term profitability.