What goes into ticket pricing for airlines?

BY DAVID ONJILI

A twitter user recently lamented Kenya Airways (KQ)’s high-ticket prices wondering how a flight to and from Spain on Egyptair from Nairobi would cost nearly the same.

As at the time of going to press, the tweet had over 1500 retweets and over 5000 likes, not to mention some hilarious responses on the thread. Of concern however is the level of ignorance, both in the tweet and the responses on matters flight ticketing and route and airplane selection in specific and matters aviation in general. 

Airlines have ingenious means of coming up with ticket prices, which reflect what travelers are willing to pay on a given route at a given time. This is usually informed by data collection on travelers’ habits on routes at a particular time.

To start with, the question would be if KQ could profitably compete budget carriers on domestic routes. A budget airline is one that keeps its prices lower than competitors mainly by, among others, cutting on luxurious services like food and drinks on board, and by cutting down time at an airport on roundtrips to minimize on parking charges. 

KQ is not a budget airline. It strictly operates three airplane models; the Boeing 787-8 Dreamliner, Boeing 737 jets with variants (737-800, 737-700, 737-300) and the Embraer E190 jets. The Nairobi/Kisumu route in question is a domestic one. For the purpose of this writing, I will strictly dwell on the Embraer E190 jets that KQ operates on such routes with three daily flights to Kisumu but that rises to five whenever demand dictates.

The Embraer E190 jet has a Maximum Range of 2,935Km and a Maximum Take-off weight of 51,800Kgs The cabin configuration has 12 Premier World seats and 84 Economy seats. Passengers onboard also enjoy in-seat individual touch screens for entertainment not to mention free meals that KQ will provide. The latter two luxuries are additional costs to the airline and need to be incorporated into the ticket price.

The general public, from the said tweet and the responses on its thread, believes that it is good to employ a bigger plane to carry more passengers and make more money at an affordable cost to the travelers. This is simple on the paper but is not a viable business strategy. The tweet did not also indicate the cabin configuration in question; economy or premier? The prices would vary greatly here.

Kisumu Interanational Airport

Kisumu City is Kenya’s third largest city. It is located along the shores of Lake Victoria. President Mwai Kibaki’s Government face-lifted Kisumu International Airport (KIA) in 2012 with an upgrade that included extending the runway from 2.1Km to the current 3.3Km and expanding the width from 30m to 40m. By world standards, these dimensions are still limiting to the airport, which rules out chances of KQ flying the B737 or B787 to Kisumu. It is for these limitations that you will wait for long to hear of international flights being re-routed to KIA due to bad weather or technical hitches at Jomo Kenyatta International Airport.

Both B737-800 and B737-700 have wingspans of 34m compared to E190 jet’s 28.72m. The wider the wing, the nearer the engine gets to the untarmacked surface on the edge of the runway which exposes it to debris that can damage its fans when they get sucked during landing and take-off. Each airplane model needs a specific length of runway for take-off and some distance for safe emergency stopping. The heavier the plane (Maximum Take Off weight), the more runway it requires. Similarly, during landing the same applies. 

Crew

Airlines’ primary objective is to minimize costs and maximize profits. The aviation industry is highly unionized and both pilots and airhostesses have a pay grade. Pilots are also paid per flight hour; the total time from the moment an airplane first moves for the purposes of taking off until the moment it finally comes to a rest at the end of the flight. 

By 2018, the median annual commercial pilot salary was $130,059 (Sh13.1m), without factoring in issues like seniority and other contingencies like rest time between flights. KQ, which is experiencing a shortage of pilots, has had its fair share of wrangles with Kenya Airline Pilots Association regarding remuneration.  

In July last year, KQ was reported to have had 91 flight cancellations of which 68, according to Reuters were due to pilot shortage. The Pride of Africa has an estimated 434 pilots against a fleet requirement of 497 and it estimates that the crew shortage costs it some $50m (Sh50b) annually. Existing pilots need to be promoted from flying the B737 jets to the B787 fleet. With such pressing needs, you wouldn’t expect the already overburdened pilots to fly more to Kisumu. Assuming that indeed they did so to enable the lower cadre pilots get more flight hours, would it be cheap?

On the other hand, budget airlines employ entry-level pilots and cabin crew. They do not command huge salaries as the primary goal at this level of employment is earning more experience in terms of flight hours. This slightly low cost of crew is reflected in the pricing of tickets by budget airlines and flying low capacity planes.

Passengers would want to fly in bigger luxurious planes but from a business and safety standpoint such may not be possible on certain routes. The onus is on government to continue improving the aviation infrastructure in the country

Tax 

Whenever an airplane lands, takes off and even parks at an airport, depending on its weight, there are charges that the Kenya Airports Authority levies. These charges are usually factored into the ticket prices by airlines. They are several but this article will limit itself to a few relevant and highlight why there will be a huge difference in ticket prices between two different plane models on the same route.

Cost 

The retail price of E190 Jet, according to Embraer’s website is $50m (Sh5b). KQ will always factor in the cost of maintaining such a plane during flight. A flight cycle for an airplane does not matter whether it took 40 minutes to Kisumu from Nairobi or 8 hours on an international flight. It considers that whenever a plane is airborne no matter the duration it becomes pressurized and this wears and tears the rivets and plane’s other components.

If you divide the total cost of the plane by the number of flight cycles it might have in its lifetime (approx. 50,000) then divide the result by the number of passengers (p2) for the E190 to Kisumu, you can roughly see why it would be costlier on a short haul domestic flight as opposed to a long haul flight. (Sh5billion/50,000 = Sh100, 000 per flight cycle). Since the E190 carries 96 passengers when full, each ticket is charged ($1000/96=$10.42 for maintenance). That translates to Sh1, 100 per ticket, per trip. KQ must include it in pricing to cater for the cost of purchase and maintenance of the airplane during its lifespan. The cost would even be higher had we looked at B737 or B787 which KQ flies internationally.

Ultimately passengers would want to fly in bigger luxurious planes but from a business and safety standpoint such may not be possible on certain routes. The onus is on government to continue improving the aviation infrastructure in the country. 

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