Capacity decisions are what airlines make when they don’t fully predict demand. This is what leads to unexpected price spikes, which we call capacity mispricing. Airline capacity is the difference between the capacity they have and the demand they can meet. The difference between having enough capacity to carry their customers or not.
Capacity decisions are critical because they are the difference between the price and the service level a company can offer to its customers. As such, they are one of the most important aspects of any airline’s pricing model. In fact, in some capacity decisions is the only place we can truly find the company’s true intentions.
The fact is that airlines rate capacity first, not demand. So when the airline decides on their capacity allocation, it is far more critical than we think. As a result, airlines make capacity decisions every single day.
For example, when you get on a plane, you usually know whether or not you will have to fly for a very long time. The amount of time you have in that plane is a completely different story. If you want to know if you will be making a long trip, you can check out the seats at the airport. This gives you a sense of how long it is likely to take for you to get to your destination.
But, how do you know how long you’ll get on a plane? That’s the question. The answer, of course, is that you check in with the seat-assignment system. You want to know if you’ll have a long flight time, you call the airline reservation system and ask if there are any seats available on your flight, and then you call the airline to see if there are any available seats, too.
That’s the airline industry. There’s no real way to check in or check out a plane. Airlines just pick the longest flight time they can and then leave you sitting on the floor. It’s pretty much no different than how we check out at a store, except that there is no way to avoid it.
Capacity decisions are crucial to the airline industry. But what’s so bad about it? Well, I believe the real problem is that once you get a seat on a plane, you are stuck with a seat for the entirety of the flight. If you want to get off the plane, you need to get off the airplane. And in the airline industry you either get off the plane or you die.
So in a way, the airline industry is an oxymoron. It’s a very centralized industry, with very few independent players. So if you want to become an airline pilot, you have to commit to a very large organization that will take care of you. And yes, that means that if you decide that you don’t like flying, you can just walk out to the nearest highway and try to hitch a ride, but you’ll be stuck there for the duration of your flight.
The airline industry is a bit of a paradox. Its true that most of its employees are employed at a single company. It also makes it almost impossible to do independent research on the industry. What that means is that while there are lots of papers written on the subject, you cant really figure out why there are so many different kinds of airlines.
For example, there are three categories of airlines: carriers, low-cost carriers, and discount carriers. All these are very different from one another. The carriers are the ones that have low-cost, low-fare deals with airlines which fly to cheap destinations. Discount carriers fly to places where there are no cheap flights. Low-cost carriers are the ones who fly routes at a much more expensive rate than the carriers, and discount carriers are the ones who offer discounted fares.