Airline Customers' Willingness to Pay to Reserve a Seat

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Sponsors:

NSF CAREER award SES-0846758

Researchers:

Jeff Newman

Students:

Stacey Mumbower

Many people find air travel frustrating. Flight delays, missed connections, full flights, long security lines and add-on fees are just a few reasons why air travel can be so frustrating. The U.S. Department of Transportation helps make air travel less frustrating by setting policies that protect the rights of air travelers. For example, at a Senate panel in 2012, Transportation Secretary Ray LaHood said that he had been urging airlines not to charge fees to reserve more popular coach seats.

"It can be challenging for government agencies to design policies that best balance the needs of customers and airlines because policy makers have historically had little information about airline customers," says Dr. Garrow.

She notes that the Internet is providing new opportunities to design policies that better protect customers. For instance, several firms have created databases of airlines' prices from online sources, and sell this information to airlines. Garrow's research seeks to explore ways in which researchers and policymakers can use these big data to better understand how customers respond to airline practices.

"There is currently a lot of discussion related to the airlines' practice of blocking rows of seats for their premier customers (such as frequent fliers with elite status). Some have questioned whether showing seats as being unavailable to non-premier customers misleads customers into purchasing a premium coach seat," Garrow says. "These individuals argue that the practice of blocking seats may lead customers to believe a plane is fuller than it is, and encourage them to pay more to reserve a window or aisle seat towards the front of the plane."

Using publically-available seat map and pricing data from JetBlue, Dr. Garrow, Dr. Newman, and former doctoral student Stacey Mumbower show that customers' purchases of premium coach seats (with extra legroom and early boarding privileges) are strongly influenced by seat map displays. They find that customers avoid seating in middle seats and seats near the back of the plane by purchasing premium coach seats. In fact, customers are between 2 and 3.3 times more likely to purchase premium coach seats when there are no window or aisle seats that can be reserved for free. They use these results to show that if JetBlue were to block certain rows of seats for premier customers, the airline could sell more premium coach seats and potentially increase seat revenues by more than 10 percent.  Specificaly, they show that JetBlue’s seat fees are currently underpriced in many markets; an optimal static fee would increase revenues by 8 percent whereas optimal dynamic fees would increase revenues by 10.2 percent. In addition, if JetBlue were to block certain rows of seats for premier customers, they could potentially increase revenues by 12.7 percent.  These findings underscore the importance of ensuring customers are not inadvertently misled into purchasing premium seats by seat map displays that block seats for premier customers.

This research was featured in a NSF Discover article.

 

Publications resulting from this research:

Mumbower, S.M., Garrow, L.A., and Newman, J.P.  (2015).  Investigating airline customers' premium coach seat purchases and implications for optimal pricing strategies. Transportation Research Part A (73): 53-69.