By Jonny Lupsha, Wondrium Staff Writer
The pandemic has people worldwide feeling nostalgic for air travel. Airlines and entertainment companies have begun offering alternatives to real travel for those who miss flying. Airplane seating is a game of incentive and asymmetry.
Although few people enjoy going through airport security, many people during the pandemic have yearned for packed bags, flying high in the sky, and other experiences of air travel. In recent years, and especially since the COVID-19 outbreak, airlines and entertainment companies have begun offering alternatives.
Many airlines from Australia to Singapore offer “flights to nowhere,” in which travelers board flights that take off, fly for several hours, and land at the same airport. Other companies offer on-the-ground restaurant experiences that simulate airplane cabins, which are complete with rowed seating and “in-flight” meals. A docked Boeing 777 at Tokyo’s Haneda Airport sells tickets to board a first-class seat, relax, and get full meal service for up to ¥59,800 (or $550 USD).
Ordinarily, the balance of first-class and coach seating on commercial flights is an economical game that gambles on how much money people will spend for accommodation. In his video series Understanding Economics: Game Theory, Dr. Jay R. Corrigan, Professor of Economics at Kenyon College, said the nature of this game is asymmetric information.
Ladies, Gentlemen, and Those in Coach
Dr. Corrigan said that to understand the balance of first-class and coach, imagine there are only the two cabins and, like in real life, both reach their destination at the same time, while first-class enjoys free drinks, more leg room, and more attention from flight attendants.
Also, imagine there are only two strict types of travelers: business and leisure. The biggest difference in this example is that business travelers don’t pay for their own tickets; they’re paid for by the companies who employ them.
“Let’s assume a business traveler is willing to pay $2,000 for a seat in first class and $1,000 times alpha for a seat in coach, where alpha is a coefficient that ranges from zero to one and indicates how comfortable things are in the coach cabin,” Dr. Corrigan said. “When alpha is one, flying coach is quite pleasant, almost as nice as flying first-class, but when alpha equals zero, flying coach is an excruciating ordeal.”
Now, he said, imagine that a leisure traveler, who pays for their own ticket, is willing to pay $600 for a first-class ticket and $500 times alpha for a seat in coach. If a flight from New York to Los Angeles is $1,600 first-class and $300 coach, an airline would want to fill its plane with first-class passengers and seats, but not enough travelers will pay that. Instead, most travelers will fly coach. So what does an airline do? It incentivizes first-class and makes coach less appealing.
A Packet of Peanuts to Ease the Pain
“While you don’t control ticket prices [as an airline employee], one thing you do control is alpha,” Dr. Corrigan said. “You can lower alpha by installing less comfortable seats in coach, by moving those seats closer together, by providing less-appetizing snacks, by limiting in-flight entertainment options, and so on.”
This is where asymmetric information comes in. Travelers know how much they’ll pay for a ticket, but an airline does not. According to Dr. Corrigan, the airline’s job, then, is to choose a value of alpha that creates a “separating equilibrium” which will force business travelers to reveal their high willingness to pay by buying first-class tickets and for leisure travelers to reveal their low willingness to pay by buying coach tickets.
In other words, an airline can change its services and accommodations in each cabin to get the hypothetical business traveler to want to travel first-class and the leisure traveler to want to fly coach. However, if coach is too nice, business travelers won’t pay for first-class. So how nice can coach be before a business traveler will simply fly coach instead of paying for first-class?
“Substituting what we’ve assumed about willingness to pay and prices [for first-class], that gives us 2,000 minus 1,600 must be greater than 1,000 times alpha minus 300,” Dr. Corrigan said. “Rearranging to solve for alpha, we find that alpha must be less than 0.7.”
Similar equations follow for balancing the accommodations and restrictions for both cabins. Dr. Corrigan concluded that the goal is to find which values for alpha offer a “nice, tidy separating equilibrium” to keep both cabins relatively full. Just like coach cabins that are too nice will cause business travelers to simply fly coach, coach cabins that are too miserable will lead to passengers completely unwilling to fly coach but who can’t afford first-class, meaning empty airplanes and huge losses.