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Like most commercial businesses, airlines are devoted to selling as much of their product as they can.
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The main complication is simple: Where other products with strong seasonal demand can be produced all year long, an airline’s product cannot be produced in advance and stocked until peak season.
Nothing more perishable than an unsold airline seat: full value until just before the door is closed, dropping to zero value in the next instant.
The consequence is that if an airline wants to sell more in peak periods, it needs to temporarily increase its production capacity during that period.
That is not so easy. Anyone having extra aircraft available in peak will somehow need to figure out what to do with them after the peak.
Somehow, someone needs to pay.
Well planned, it can be possible to increase production capacity during certain periods in an efficient way, for instance with heavy maintenance in complementary periods.
More often, the extra capacity for peak production just remains unused throughout the rest of the year.
This brings inefficiency to significant resources. It’s not only fleet that needs to be dimensioned to the peak, it also involves resources like crew, handling capabilities, maintenance, etc.
Such costs are normally too big to earn back with a few weeks of peak production.
The tricky part is that the reports don’t show this. Peak production mostly looks very profitable.
The relevant negative effects all get covered up in traditional profit & loss calculations.
Although the above mentioned costs are real and directly invoked by the extra production, in the P&L they are typically thrown on the big heap and equally allocated to all block hours.
Thus, a peak flight will get a cost allocation that is far below the real costs of having the capacity available to operate it. Usually such too low cost figure is offset against good peak-season revenues, showing a handsome plus at the bottom line.
For steady year-round flights, the effect is opposite, as their P&L will include overestimated fixed costs and thus lower results than they really generate.
Of course this sets everyone on the wrong foot.
The overly positive perception of peak profits drives overall capacities up and in order to limit the inefficiency, airlines will try to deploy their extra aircraft thru shoulder periods as much as possible.
Because everyone does the same, this drives down yields in shoulder months and thus further amplifies the problem.
The good side is that this is a partly self-inflicted problem.
For many airlines, just fixing the math could already bring substantial savings.
It sounds counter-intuitive, but more than in peak season, airlines need optimal sales eagerness in off-peak periods.
