So... why post this? Well, it is worth exploring as both an economist and as a businessman. Let's go economics first.
There is a theory in economics that we all act rationally all the time. This theory is called homo economicus. The validity of this theory is debatable, but what is not debatable is that we all act rationally some, or even most, of the time when we stop to think about how we should act. So let's apply this concept here. If I am fat enough that I require two airline seats (which considering how small those seats are isn't pushing things too far for many Americans), and I know that Canadian airlines cannot legally charge me for two seats, how does this affect me? Well, at the very least it means that I would now get ample room... I wouldn't have to squeeze in between people because, with my luck, I would end up with the center seat.
Okay, but what if I am overweight, but not to the point where I require two seats? Well, assuming I measure the utility of my seat on an airplane in terms of my personal space, the only rational reaction to this, if I fly in Canada frequently, is to gain enough weight so that I require two seats, but not gain any more. In fact, assuming I measure utility in terms of personal space, this is a very simple choice for everyone and it is based on a simple math equation: if excess space in my seat (as measured by the distance from my waist to the arm rest on either side of me) is greater than the excess space I would have if I were fat enough to require two seats (but no fatter), I should gain weight. It is really that simple assuming that we fly enough in Canada for this law to make any real impact on us.
So... what are the business implications of this law? First and foremost, it can only serve to lower profits in an industry that really doesn't need that. Despite the fact that we are 7 full years removed from 9/11 and the fact that terrible event involved only 4 planes out of the millions of flights that have been flown in the history of human aviation, air travel is still down from pre-9/11 levels... and quite a bit still. (I'm not naive enough to think that 9/11 is the only reason air travel is down... just wait) And it surely doesn't help that the price of oil (until the global economy began collapsing due to CDOs....) was high enough to cause (some) Texans to start driving 'flexfuel' pickup trucks... High oil prices mean high gasoline prices mean high jet fuel (really high octane gasoline) prices. They need to pass those costs along to someone and guess who is next in line... the customer. Decreased service, decreased quality of food (if that's possible), and increased fares.
So in this market where airlines are struggling to stay in the black (which in business terminology means making a profit), why on God's (see a previous post about G instead of g) green earth would a court make a ruling that means, on the most superficial level possible, that airlines will sell fewer tickets? The only feasible answer is that politicans are not economists and are certainly not businessmen... Don't get me wrong, they do business, they may run or have run a business, but that does not make you a businessman anymore than working at a bank makes you able to make good financial decisions.
Okay, so I said that at the most superficial level, this means fewer tickets. That is obvious. What else does it mean though? Well, think about this: ever been on a flight that was 'over sold'? The truth is, airlines are devious. Every flight is 'over sold'. They count on some people not showing up for their flight. How many people do they assume will miss? I don't know. They have extensive data (all those flights) and can see how many people, on average, miss any given flight. So given this number, they sell that many extra seats. That is why you rarely get a decent flight time if you are flying standby.
So what exactly does this Supreme Court ruling have to do with this? Well, most plane tickets are bought online these days. So the obvious question is: how will they know if I require a second seat or not? If they just ask me that, I as homo economicus would say "Yes, I need an extra seat" because everyone likes having space, me included. So there must be some sort of qualification for getting a second seat for free when you book your ticket otherwise they will over-over sell the flight. What's wrong with that? Well, when enough people show up so that the flight is full and someone that had a ticket can't get on the plane, they have to give them some sort of compensation. Too many people needing to be compensated and it isn't worth them over selling the flight any more. So the airlines need to set some minimum criteria to qualify for a second seat.
Additionally, the important part of the airfare for airlines is the price of the ticket. I know this sounds really obvious, but if they legally cannot charge me for a second seat, they lose an entire fare because of me. This means that the profitability of each flight will be lower on average. This means that they need to recoup that lost fare somehow, but consumers are not willing to help them out. Similarly, they cannot really save money by restructuring how much they pay the flight staff... they have unions and as Detriot will tell you, the union runs things. The pilots all belong to a union, so if the airlines try to cut their pay, the pilots go on strike, all the planes are grounded, the airlines lose lots of money every hour. Similarly, they can't cut out the flight attendants... even discount or budget airlines have them. So how will they recover these lost fares?
This Supreme Court ruling is great for people that are fat enough to require two seats and for consumers in general, but it is terrible for airlines. If airlines cannot recoup these lost fares, they may start slipping into the red (the opposite of being in the black). Canada can't afford to not have any airlines operating in the nation, so they will end up needing to subsidize the airlines somehow... and all because they passed a law that sounds good, until you actually look at it.
2 comments:
"So the airlines need to set some minimum criteria to qualify for a second seat. "
I suggest, since they payments are made online, to put an "I'm obese" sort of chip on their credit card, to be sent in along with all the other essential data such as name and date of birth, when the payment is processed. Who knows, maybe by streamlining this, the court will make more rulings such as this one (like: obese need an extra seat in the tram even if it's at Massena, or at the cinema, or they should be helped to buy bigger appartments that they can't afford, only because they don't fit in a 20sqm studio) and develop a whole subsidized market for this consumer category... :))) I'm not being mean, just ironic, and that's only directed to the court that made the ruling.
So in addition to LOMLOTs we will have FETLRES (fat enough to legally require extra space)??? lol
I imagine they would probably have an option for you to check when you are booking your flight that says you will need an extra seat and then you have to provide some sort of proof.. perhaps a note signed by your doctor indicating your weight and/or waist size? I don't know... The only problem I can come up with have the information tethered to your credit card information is what if you lose weight? Then you will need to change the info with your credit card. What would then happen if you knew that you no longer qualify for this extra free seat/space? Homo economicus would book as many flights etc as foreseeable before changing the information so that I will have the space even if I don't have the weight any longer. Or perhaps they will require you to input a measurement of your waist and then based on that they will say if you qualify for the seat. Then, when you get to the airport they would measure you and if you no longer (or never did) qualify for an extra seat they hit you hard with a penalty fee. But that would be very humiliating having your waist measured at the airport....
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