May 31, 2008

Passenger airlines will charge by volume and weight

Posted in Ideas at 00:38 by Graham King

When you send a parcel by air, the price depends on the volume and weight of that parcel. Volume, because you are buying a certain amount of space in the plane. Weight, because the heavier the plane’s cargo, the more fuel it takes to get it off the ground. You pay for the fuel to fly your parcel.

The pricing structure for air mail / air freight is closely linked to the costs faced by the airline.

When you travel with your parcels, a disconnect appears. You buy a certain amount of space - typically a seat for yourself, a small bag and one or two big bags. A bigger seat (’business’, ‘premium’, etc) is more money. Extra bags is more money.

Currently you get a fixed amount of weight for your bags, and an unlimited amount of weight for yourself. A 120lb (55kg) waif with no luggage pays the same as a 260lb (115kg) behemoth with their full complement of luggage (2x 50lbs in the hold plus 40lb in the cabin, on American Airlines). That’s the same price for 120lb as for 400lb! Try convincing an air freight company (UPS, Fedex, etc) to use that pricing structure!

The reason it works is that the 120lb person subsidizes the 400lb one, and the airlines hope it evens out. Now, whenever you see that type of setup, there is an opportunity. Attract only the most valuable customers (the light low-luggage ones, who are over-paying their share of the fuel), split the difference with them, and you have a business.

The reason I think this will happen is that it will only take one airline to switch. The first one to start charging by weight will get a lot of press coverage, and higher profits (from over-charging the light customers slightly less than the other airlines). Once the high-value customers start using an airline that offers them better rates, the balance stops working everywhere else. The other airlines end up with only the heavy high-luggage customers that are paying less than their share of the fuel. They have to change to survive.

Airline pricing should be a flat rate for your seat (depending on the ‘class’ of your seat), and a price per lb or kg you want the airline to carry. The weight price should fluctuate as often as the price at the petrol pump.