I've already been musing over the economics of the new Delta flight to Paris. The Trib had a story yesterday with details on the contract with Delta Airlines over the how much revenue they are guaranteed on their new Pittsburgh to Paris flight. The deal is not based on seats as I figured it couldn’t be.. but on revenue. Delta has a claim for cash if revenue coming in below $64,706 per flight. USAToday said in the past the new flight from Pittsburgh will be a 757. I have no idea how accurate this is, but SeatGuru tells me a 757-200 has 24 first class and 162 economy seats.
Airfare setting is a black box. Case studies in price discrimination are written about how airlines change fares all the time to maximize revenue as best they can. The seat next to you can cost twice as much of half as much as you paid depending on when you bought it and other factors. Thus you can’t ever extrapolate from any one fare. All that being said, I pointed out that I was able to get $530 RT fares to Paris in this flight for large chunks of the summer. So $265 each way. If all 162 economy seats are sold at that low price it still gets you to $43K. What the first class seats could go for I have no idea, but many know that most first class seats are really filled by upgrades using FF miles or other perk programs. A real full fare ticket could be a lot more, but at $1000 on average per segment (which would be $2K RT) for the remaining seats it generates another $24Kfor a total of $67K.
Yes, I know the whole airfare process is lot more complex than that. But I am surprised a bit. Fares as low as I got I thought would have to trigger some of the clawback provisions Delta had negotiated. Not necessarily it seems. So even with all those really lowball assumptions the minimum revenue threshold is met. Since I am sure a lot if not most seats are sold above that low price, the revenue is safely above the threshold. If the seats are sold that is. The next question is whether the low fares are really indicative they are having problems filling the seats which would not be surprising given the state of the airline industry these days.
If the market were tighter and fares were more like last summer there wouldn’t any possible risk to meeting the threshold, I guess the question comes down to how off-season holds up more than anything else. Peak summer season normally pushes fares and the number of passengers up. Remember, the USAirways flights to Europe started only as seasonal flights to match seasonal demand (was there a subsidy involved? I really don't recall either way). Only later, and really just for a brief time when you consider the long run, were there ever full-year European flights out of Pittsburgh. So how those seats get filled in November, and at what prices will be the real question. I wonder a bit if the guarantee to Delta is calculated per flight, or on average over the year or any longer period. Could make a big difference if you think about it.
But I will report how filled the flight is next month.