Business Class or Economy?

Airlines are complex businesses that rely on a delicate balance of factors to remain profitable. One of the most crucial aspects of their operations is how they structure their seating arrangements. In this blog post, we'll explore how airline seating works, why are there so many classes and which tickets generate the most revenue for carriers.

The Basics of Airline Seating

Modern commercial aircraft typically feature three to four distinct seating classes:

1. First Class
2. Business Class
3. Premium Economy (on some airlines)
4. Economy Class

Each of these classes occupies a different amount of space on the plane and comes with varying levels of service and amenities. Interestingly, the distribution of these seats isn't proportional to the revenue they generate.

The Hidden Complexity: Fare Classes

While we've covered the main seating classes that passengers are familiar with, the reality of airline pricing and inventory management is far more complex. Behind the scenes, airlines operate with a system of fare classes that goes well beyond the simple First, Business, Premium Economy, and Economy distinctions.

The Alphabet Soup

Airlines typically use letters of the alphabet to denote different fare classes. Each of these letters represents a specific fare with its own set of rules, restrictions, and prices. For example:

• Y: Full-fare economy ticket
• B, M, H: Various levels of discounted economy fares
• W: Premium economy
• J, C: Business class fares
• F, A: First class fares

And the list goes on, potentially using up to 26 different fare classes.

Historical Context

You might wonder why airlines use letters instead of numbers for fare classes. The answer lies in the history of airline reservation systems and the development of Global Distribution Systems (GDS).

1. Early Reservation Systems: In the 1950s and 1960s, airlines began developing computerized reservation systems. These early systems had limited memory and processing power.
2. Character Efficiency: Letters were chosen over numbers because a single character could represent more options. With numbers, you're limited to 10 digits (0-9), but letters provide 26 options.
3. IATA Standards: The International Air Transport Association (IATA) standardized the use of letters for fare basis codes to ensure consistency across the industry.

The GDS Connection

Global Distribution Systems play a crucial role in the airline industry, acting as the backbone of ticket distribution. The use of letter-based fare classes is deeply intertwined with the development and functioning of GDS.

1. Birth of GDS: The first GDS was created by American Airlines (working with IBM) in the 1960s, called SABRE (Semi-Automated Business Research Environment). Other airlines followed suit, and eventually, these systems evolved into the GDS we know today.
2. Industry Standards: As GDS developed, they incorporated the letter-based fare class system. This became the standard way of communicating fare information between airlines, travel agents, and later, online booking platforms.
3. Compatibility: The letter system ensures compatibility across different GDS platforms (like Sabre, Amadeus, and Travelport) and airline reservation systems.
4. Flexibility: Letters allow for more intuitive grouping. For example, 'Y' is often used for full-fare economy, with 'B', 'M', 'H', etc., representing various discounted economy fares.
5. Expansion Capability: As airlines needed more fare classes, they could easily add double-letter codes (like 'YY' or 'YB') without disrupting the existing system.

How GDS Uses Fare Classes

Global Distribution Systems use these letter-based fare classes in several ways:

1. Inventory Management: GDS communicates with airline systems to check available seats in each fare class.
2. Pricing: The fare class determines the price of the ticket, which the GDS retrieves from the airline's pricing system.
3. Rules and Restrictions: Each fare class has associated rules (like refundability or change fees) which are stored and communicated via the GDS.
4. Booking Code: When a reservation is made, the fare class becomes part of the booking code, which is used throughout the ticketing process.

The Revenue Breakdown

When we look at the metrics of revenue per square foot, space taken per seat, and ticket price, we see an interesting pattern:

1. Economy class takes up the least space per seat but also generates the lowest revenue per square foot.
2. Premium Economy offers a significant jump in revenue without a proportional increase in space used.
3. Business class provides the highest revenue per square foot, making it the most profitable overall.
4. First class, while commanding the highest ticket prices, doesn't necessarily translate to the highest profitability due to the extensive space it requires.

Conclusion

The use of letters for fare classes is a prime example of how historical technological limitations have shaped modern industry practices. What started as a memory-saving technique in early computer systems has evolved into a complex, standardised system that underlies much of the global air travel industry.

The next time you see a fare class code on your ticket, you'll know it's not just a random letter, but a key that unlocks a vast amount of information in airline and GDS databases worldwide. This system, while complex, allows for incredible flexibility and optimisation for what has emerged as a software sector itself, Revenue Management.