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Bugs to features - How airlines are channeling customer fear

Behavioral economics has shed the light of the principle of loss aversion where they say that the loss is much more powerful psychologically than an equivalent gain. This means that the loss of say Rs 100 would evoke the sorrow which a lot more powerful than the joy of gaining Rs 100. But why are we talking about loss aversion in a post on aviation? - you'll find out in a bit.

Aviation, being closely linked to tourism was hit quite badly when COVID struck. We have covered aspects of the impact in quite a bit of detail on ZappChai in the past. Here are some relevant posts that you may want to browse through - 1. Impact of social distancing on aviation unit economics 2. How airlines could emerge out of COVID 3. Understanding airline fare caps

Airlines are an industry with high fixed costs, which makes the impact of a fall in occupancy quite bad for the business and the bottom line. In the aftermath of COVID while airlines are adjusting to the interim normal where fewer people are travelling, airlines are trying to leverage customer feat to artificially keep the "occupancy" high!

They have now started offering the middle seat to the customers in a move that not only offers the customer the assurance of maintaining social distancing, but also brings more money into the airline's kitty!

Say as a customer, you have booked a window seat. You would be given an option to book the middle seat as well so that you maintain a one seat distance with your neighbour. Few points which need the mention are:

  1. The passengers at the two extreme ends pay up the price of the middle seat. Hence there is an increase in revenue for middle seat.

  2. The cost of this feature to the customer would depend on the occupancy of the airplane. Say the passengers in a plane with the high occupancy, would be offered this feature at a much higher cost than the passengers in a plane with low occupancy, giving the airlines an additional dynamic pricing lever.

With even the strongest of airlines like Indigo having to lay off people, this seems like an effort of last resorts on part of the airlines to sell more space on their planes. As (and more importantly) when the demand starts returning back) the airlines would have to get rid of the feature to accommodate the greater number of people walking in! And one can only hope that the reduction in fear and the increase in demand are as correlated as we expect, else the airlines can find themselves in a bit of a catch 22, with earlier customers still asking for a discounted middle seat!

GSN Invest++: Want to know more about the aviation industry and the top firm there - Indigo? We've covered it through GSN Invest++. Check it out!


About the Author: The post is written by our EZPP partner Manu Jindal. Manu is a graduate from IIM Calcutta, currently working with Airtel Labs.


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