lehpron
Posts: 6846
Joined: Tue Jul 10, 2001 3:42 am

Does 80/20 Apply To Airlines? Who's Target Market?

Thu Apr 08, 2004 5:54 pm

In my business class we learned about a statistic called "80/20" which states that 80 percent of sales comes from 20 percent of the customer base. This was with regards to B2C (business to consumer) retail sales.

Can or does this statistic apply to airlines, that 80% of flight tickets are bought by 20% of total paying passengers, i.e. the business traveller or frequent flyer? Are they who the airlines target new promotions to?

What about the other 80%, vacationers and seasonal folks and sweepstakes winners?
The meaning of life is curiosity; we were put on this planet to explore opportunities.
 
BestWestern
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Joined: Fri Sep 08, 2000 8:46 pm

RE: Does 80/20 Apply To Airlines? Who's Target Market?

Thu Apr 08, 2004 6:11 pm

80% of revenues probably come from 20% of customers. Not so sure about passenger boardings, but could be accurate.
You are 100 times more likely to catch a cold on a flight than an average person!
 
lehpron
Posts: 6846
Joined: Tue Jul 10, 2001 3:42 am

RE: Does 80/20 Apply To Airlines? Who's Target Market?

Thu Apr 08, 2004 6:27 pm

Well I'd imagine that low-cost fare airlines will have higher percentages and high cost will have lower. But if those that fly most often are such a small percentage compared to everyone else, then the airline literally depends on their business to stay alive, correct? So when price wars occurs between airlines, the airline may loose a crucial chunch of revenue and cannot survive on its remaining 80% of customers who provide only 20% of revenue, so to speak.

In terms of newer aviation technology applied to the commercial sector, who could that be geared to or which passengers matters most?
The meaning of life is curiosity; we were put on this planet to explore opportunities.
 
SailorOrion
Posts: 1959
Joined: Tue Feb 06, 2001 5:56 pm

RE: Does 80/20 Apply To Airlines? Who's Target Market?

Thu Apr 08, 2004 8:17 pm

Most European Airlines operate at 20% F/C passengers and 80% Y passengers.

Official AEA data (2003): 84.6% Y class pax.
some airlines:
AF: 92.1%
AZ: 95.0%
BA: 69.3%
LH: 76.7%
KL: 89.9%
SK: 66.0%

Pretty interesting is that LH leads the pack at longhaul premium PAX, and BA has only 15% Y class passengers on domestic traffic.

However, I think that much less than 20% of the customers make up 80% of the revenue, it's more like 10-90 for most airlines, maybe even 05-95.

Celestar
 
lehpron
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Joined: Tue Jul 10, 2001 3:42 am

RE: Does 80/20 Apply To Airlines? Who's Target Market?

Sat Apr 10, 2004 7:37 am

5-95? DAMN, why do I get the impression of a small airline! Somehow I keep thinking that those airlines would be either really popular or simply has really popular flights/fares.

What about purely overwater flight? Like LAX-HKG or LHR-JFK, etc.? similar percentage?
The meaning of life is curiosity; we were put on this planet to explore opportunities.
 
deltaffindfw
Posts: 1383
Joined: Tue Sep 02, 2003 7:42 am

RE: Does 80/20 Apply To Airlines? Who's Target Market?

Sat Apr 10, 2004 7:42 am


Celestar - the 80/20 rule cannot be applied to first vs coach seats. It needs to be applied to business traveler vs leisure (or high dollar vs low dollar ticket). I spend $1000/week on average to fly for business. When I fly DL, I upgrade for free to first class. Since I'm not Exec. Plat. on American, I fly coach.
 
Lufthansa
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Joined: Thu May 20, 1999 6:04 am

RE: Does 80/20 Apply To Airlines? Who's Target Market?

Sat Apr 10, 2004 3:16 pm

Lehpron

Be vary careful about things you learn in business school. I am currently doing my masters in Economics, having already completed undergraduate economics, and I know exactly the statistics you are talking about.

These are generalizations. When one talks about generalizations, they usually apply in sectors as a whole..... But when you look at individual product items it can vary significantly.... Look at your t-tail test and confidence intervals..... There is a lot of room for variation. You really need to run a regression on your individual product type as a whole...

When you look at something small, simple smaller consumer items. Lets take coffee or jeans. Then you will find those sorts of rules are approximately normal. Simple smaller transactions that everybody can afford generally follow such trends. But complicated high end or expensive goods don't more often than not. Something you also need to consider is the elasticity of demand. That too will have a significant impact... As we have seen with the worldwide fall in demand for short haul firstclass travel (paid at a full price at is...We're not counting upgrades here)

You really need to think about that... These sorts of figures are thrown out around the world and generally accountants don't have the slightest clue why the are following them. I am going to suggest you take some economics classes... Particularly Mirco-economics if you are interested in that.... teaches you how to think. Warren Buffet has long been critical of business schools around the world for pumping out graduates who can't think...and just blindly accept and follow. He went from nothing to a Billionaire worth about $45 billion (it may be more now) so I think he may understand what he's talking about. So, no, I doubt this applies to aviation. What is probably of more interest to us is what the lifetime value of different market segments are. That is a statistic we can use to focus on revenue growth(which isn't necessarily profit either, although it may be).
 
deltaffindfw
Posts: 1383
Joined: Tue Sep 02, 2003 7:42 am

RE: Does 80/20 Apply To Airlines? Who's Target Market?

Sat Apr 10, 2004 4:00 pm


Don't take too many econ classes - remember econ is theory, not reality...  Big grin

Just kidding - that's the finance major in me. I agree with Lufthansa that the airline industry is not a good measure of the 80/20 rule. That being said, many other areas of business do fall in that category. In my field, financial services/investment management, that rule definately applies!
 
InnocuousFox
Posts: 2556
Joined: Sat Dec 06, 2003 1:30 am

RE: Does 80/20 Apply To Airlines? Who's Target Market?

Sat Apr 10, 2004 9:40 pm

40% of air passengers in the states are business travelers.
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