Navigate Bigger Airline Discounts

At first glance there’s no secret – airlines exchange higher share for better discounts. This seems easy enough, but there are a few things going on behind the scenes that smart corporations know and will use to their advantage to secure higher savings rates. Well managed travel programs are all the same. They have strong management teams and their policies and practices are aligned with business goals and traveler service. They generate “duty of Loyalty” – employees are driven to comply with policies because they receive excellent service; their travel management team is partnered with them to achieve each travelers business goals.

Airline customers come in all shapes and sizes, but a single number cannot tell the whole story. Airlines capture a lot of data, but four numbers standout to describe a customer: 1. Yield (average revenue per seat mile); 2.  Premium share (Percent of revenue above (below), the carriers fair market share (FMS)); 3. Total spend (revenue to airlines); 4. Customer concentration (Percent of traffic in markets the airline serves). This article will offer a simple scoring system corporate customers can use to determine how much leverage they may have in negotiations with their preferred airline suppliers.

Good airlines create detailed reports to measure the health and profitability of their corporate contracts. Major network carriers have 1,500 – 4,500 managed contracts in place, with another 5,000 – 30,000 agreements serviced through corporate loyalty programs (American – Business ExtrAA, United – PerksPlus, Delta – SkyBonus , Southwest – SWAbiz). Airlines would keep a close eye on trends that correlate the Net Effective Discount rates (NER) to the Yield and Revenue of a particular client. A rational and financially savvy sales team drives profitability higher by controlling NER’s  across industries or clients with similar spend patterns and size. Outliers are analyzed to determine if a particular team or sales person offered higher discounts than necessary to secure preferred carrier status. Additionally, sales support and analysis teams pay attention to specific customer issues.

As an example two consumer packaged goods companies have similar travel policies and total spend might, but warrant different discount levels based on their travelers’ compliance and support for their preferred carriers. Travel managers in the same industry would be disappointed if they expect equal treatment and ignore differences beyond size and policy compliance.

Airlines use sophisticated modeling and regression analysis to determine if their programs are working as designed. They produce graphs similar to the one below to share internally and use as a framework for strategy discussions about discounts and commissions.

Yield V Revenue

A simple scatter plot that contains data for the carrier’s top 100 clients might look like the graph above. The point on the far right depicts a corporate client that produced $35M, at a $.25 yield. It’s a large customer, but not an extraordinarily high yield. Notice there are several customers at or just above a $.10 yield. They are unlikley to receive industry leading discounts, but these customers can take steps to secure better discounts.

In the next graph the airline’s management team would look for a low slope angle and points clustered around the best-fit line. The slope indicates the relationship between yield and the customers’ discount levels. The lower the slope, the less sensitive to discounts higher yields are, while a high slope indicates that as yield rises, discounts are likely to increase rapidly too. Again, this is sample data, but it should give you an idea about how your program is viewed by your preferred vendors.  Additionally corporations without a contract should be able to achieve a savings rate at least as high as available through a loyalty program, so I’m always amazed to see NER’s below the 5% line (a typical valuation for SkyBonus or Business ExtrAA).

NER

Travel Managers should evaluate their program’s performance to establish realistic goals as they position their company and their Travel Management partner to launch an airline RFP. At this point, trust and respect between your team and the account managers and sales people at each supplier are vital for a smooth negotiation, but an honest appraisal can jumpstart the process and show you areas where your suppliers may expect work on your side to achieve your RFP goals.

Travel Managers who understand the airlines point of view and have strong influence over the qualities that matter will be rewarded.

Here’s a model I developed to determine how much leverage you have as you begin the negotiation process.

Leverage

Yield: Begin here. More than $.25 give your program two points. You have a travel policy that likely includes a healthy combination of domestic first class, some International flights (in business class), and a decent percentage of domestic coach-class, business fares. If you achieved this primarily because your headquarters office is in Boston, and your team flies to New York, Laguardia on the shuttle, exclude that data for this exercise. And for those companies that have a combined yield below $.20, don’t try too hard with the airlines, you’re already doing a great job – your travelers buy coach, and they book at least seven days out (no points). Everybody else, between $.20 – $.25 give yourself one point.

Premium Share: This is the one that separates well-managed programs from also rans. Does your travel team have the ability to influence travelers vendor choices? If you can answer yes – you have leverage. Do you enforce contracts to do the heavy lifting or do you need constant support from vendors each time a traveler finds a lower fare online or a checked-bag disappeared? Honesty here will uncover opportunities to drive incremental savings, but more of the same if the same means high maintenance then you will have a difficult negotiation. If you’re a bank or a movie studio and you give one of the legacy carriers an unbelievable share above their Fair Share or Seat Share in the LAX<>JFK market, then you get two points. If you’re based in Atlanta Delta earns all of your business, don’t get too excited, but I would still give you two points here (we’ll address this more in Concentration). For everyone else, use your judgement.

Spend: Are you a big hitter? Does your company spend more than $1BN each year on air travel (you know who you are), than give yourself two points – you’re big enough to dictate some terms. Even if you spend >$25MM and you have a well-managed program you’re likely to have more leverage than a smaller program.

Concentration: This one is more subjective than the others, but if more than half your spend originates or ends in a fortress hub, you should score yourself lower. A company with operations in New York, Los Angeles, Chicago, or any number of up-for-grabs cities will find that this will give you leverage to negotiate better terms with your vendors.

Leverage Scale

Here’s an example – If you combine low concentration, high premium share and high yield you will find yourself in a rare position and should expect industry leading discounts – even if you have a relatively low spend ($5MM). Carriers should fight over this business and the winners would expect to receive profitable traffic.

Leverage Score

The graph above depicts the best customer – one that can dictate terms and may be able to include “most favored” status in parts of their contracts. Any score above five would put a corporation in an excellent position as they negotiate with vendors. Four or below leaves room for improvement, but you should distinguish between values you can control and those you cannot. Total spend is something you’re unlikley to have influence over, but premium share is.

Travel Managers have a significant influence over the premium share variable, and travel policies are yield’s biggest drivers. Before any negotiation you should determine which avenue for savings would be more effective a policy change or carrier discounts. Remember four constituents should be delighted at the end of the process: travelers, corporations, airlines, and travel management partners.

Aviation Travel Management

Strategic Travel Managers Know Chemistry

Imagine a dashboard that could show you how much carbon dioxide your travelers generate every day. It’s actually a straight-forward problem and one I’ll try to solve for you today. Information about aviation fuel economy isn’t very accessible, but there are good clues and accurate data is easy to capture. Your frequent flyer account will keep track of the miles you’ve flown, but it’s impossible for most people to connect the dots to determine what their trips cost. Not in dollars, but in fuel, or in CO2 emissions. In a previous article I calculated “mileage” rates for aircraft by cabin and type of plane (single aisle or twin aisle) “The Secret Behind Airline Fuel Surcharges.” In this report I’ll show you how much Carbon Dioxide a particular flight created and give you a quick, easy-to-use grid to provide travelers with information about the carbon footprint their choices make.

Just when you thought you wouldn’t need to remember anything about High School chemistry…actually you don’t. I’ll lay out the chemistry and math to solve this problem. First, Jet Fuel, or Jet A, contains a blend of different carbon-based molecules that combine with Oxygen to generate heat and pressure that jet engines convert to thrust. For simplicity, I’ll ignore the blend, and assume that “Octane”, a string-like molecule that contains a backbone with eight carbon atoms and eighteen Hydrogen atoms along the sides and endcaps, is a good proxy for everything else in the gas tank. During the combustion reaction, each carbon atom will combine with two Oxygen atoms to form Carbon Dioxide (CO2), while the Hydrogen will also combine with Oxygen, but their marriage yields water (H20). The reaction balances when two Octane molecules react with twenty-five Oxygen molecules (O2) which contain two Oxygen atoms. The exhaust product contains sixteen Carbon Dioxide molecules and eighteen water molecules. Here’s the equation: 2 C8H18 + 25 O2 -> 16 CO2 +18 H20.

This detail isn’t useful until we convert molecular weights and ratios into terms that people are more familiar with. In this case, jet fuel weighs about 6.5lbs per gallon, and that mass is 81% carbon. We already know that our Octane molecule will split to form water and CO2, but the result most people struggle with is the conversion to weight. Specifically, Oxygen is heavy, about a third heavier than Carbon, so when each Carbon atom combines with two Oxygen atoms, the resulting molecule, CO2 is four times heavier than the Carbon atom by itself. This means each gallon of jet fuel (6.5lbs) will combine with 23lbs of Oxygen and turn into twenty pounds of CO2, and just over nine pounds of water!

How much CO2 does a Boeing 777-200 create on a flight between Chicago and Hong Kong? Let’s work through it – fuel is a liquid, and measured in gallons, but the exhaust is a gas, that’s why we use weight rather than volume to describe the output. I calculated the 777-200’s gas mileage in a previous post here. At .1836 miles per gallon, a 7,821 mile flight needs 42,000 gallons. The flight would generate 851,000lbs of CO2. That’s 30% more than the maximum takeoff weight on departure, including the plane, fuel, passengers and cargo. The table below contains a comparison among cabins and shows passengers, fuel burn and CO2 emissions.

CO2 per flight

Now that you have information about how to calculate the CO2 emissions for an entire flight, we need to add more information to break this down to the seat level. Previously I calculated the fuel burn per seat to provide a table that shows how much the fuel costs per mile for each cabin and at various price points for fuel. That’s a good starting point, but this time the data table will display how much CO2 an international flight would create for different distances and cabin. See below.

C02 per seat 777-200

The Boeing 777-200 offers a useful snapshot of the likely performance other aircraft could achieve. It’s a good benchmark because it’s currently in production and it’s flown on transatlantic, transpacific and intra-Asia flights.  However, the design requirements for long-haul international flying require twin aisles, more lavatories, large galleys, more storage space, life rafts and a host of other overhead not needed for shorter hops. These factors make it useful to perform a similar calculation to offer information about CO2 production from more efficient single aisle aircraft in use on short hauls and for domestic US flying. In this case, the 189 seat, all coach, 737-800.

CO2 per flight 737

A comparison between the 737 and 777 coach emissions level demonstrate that the smaller aircraft is more than 55% more fuel efficient when using numbers normalized for total seats. When you measure efficiency on a blended basis across all cabins the total difference is higher, that’s why it’s important to have separate tables. These tables offer you a quick resource to answer questions about the carbon footprint your travelers leave behind each trip. For more information about aircraft efficiency and comparisons among different modes of transportation, check out these posts about commercial aircraft fuel economy:

The Secret Behind Airline Fuel Surcharges

Boeing 737 vs. Toyota Prius (this might surprise you)

Aviation Travel Management

Recruit Superstars Twice as Fast for Half the Price

A few years ago, when TelePresence was the newest thing and threatened to upset the airline universe, I had many conversations about the ways virtual meetings could become a viable substitute for air travel. In the real world, physical presence is irreplaceable, but the latest conference tools do offer a better way to conduct business and give you control over more of your time for certain tasks. As tools evolve we should use them to improve the clunkier practices in use today. This article throws recruiting into the blender for a business process makeover.

Talent Management leadership describes the two highest payoff tasks every manager must navigate (in order): 1. Get the most out of their existing teams; 2. Find the best people to fill openings. Effective selection strategies begin with an assumption that it’s possible to measure candidates in a meaningful and predictive way that will allow managers to choose the best person among a strong finalist group. High performance teams are made up from high performance people and great managers know finding the right candidate is often a difficult and time consuming process. Managers want to select people who will be a good fit for their organizations, are able to do the job well, and need minimal supervision. In this article I will introduce a process that will show you how to achieve your hiring goals faster and with less effort than you’re probably applying today.

Several years ago I had a choice assignment as American Airlines’ sales manager in Los Angeles. My team had multiple openings for account managers and I posted the positions on AA’s internal career site. It was common for nominally qualified applicants to receive an interview in-person. Since the rest of the country was buried under an unusually harsh winter the candidate list grew to more than thirty people in the first week. This created an enormous opportunity to design an efficient process that could uncover hidden talent since I needed to reduce the candidate pool substantially before inviting people to meet face-to-face.

Requirements: create an ‘interview’ screen to evaluate as many candidates as possible to minimize problems caused by rejecting internal candidates who’s current management team viewed him or her as well–qualified. Next, ensure the filter would provide each candidate an opportunity to showcase their skills and experience, but eliminate the standard thirty minute or hour-long interview call. Furthermore, the process should stratify candidates and generate a clear threshold to determine if a follow up interview would be necessary. And finally, include other team members to secure their buy-in and support for the new employees.

I settled on a simple process that required low effort and only a brief time commitment to organize and plan compared to our former approach. As soon as the posting closed I sent each candidate an invitation to participate in a first round interview, via conference call. The call was mandatory and concluded with a series of questions. Candidates were shown the following agenda:

  1. Detailed overview about the position, and qualities and experience expected from an ideal candidate.
  2. Current team members would share information about their experiences.
  3. Hiring manager and team would answer candidates’ questions.
  4. Round one – Answer three questions.
  5. Candidate responses should be returned via email within two hours.

The first-round conference call was effective – over thirty percent of the applicants dropped out before the call, many because they were not invited to attend in-person. Several more declined to move forward following the call and either decided the questions were too much work or they were not as qualified as they initially hoped. We even received calls from other managers who told us their employees were impressed by our process – many were confident they knew more about this opening than any position they had applied for previously.

As responses arrived I pasted them into an email and assigned each candidate a number (a blind evaluation works well to minimize bias when candidates are known to other team members).  Once the complete list was ready I sent it to the team and asked each of them to rate candidates by choosing: Yes, No, or Maybe to answer the question – should we interview this candidate further? This simple stratification led to remarkably clear results. The top three candidates received a Yes from all six evaluators, while the bottom nine candidates received a No from most evaluators. The “Maybe’s” fell into two groups – those who split between “Yes” and “Maybe”, and those split between “No” and “Maybe”. In the span of five business days the position moved from a ‘closed’ status to a short list of finalists; it effectively allowed me to interview twenty-five people with four hours of work, and dramatically reduced the number of face-to-face interviews.

Team participation increased morale, and the team’s capabilities. Their participation created transparency and gave them insights into the hiring manager’s decision-making process. Another side benefit – your team’s ratings provide you with information about their assessments for each candidate. This has proven to be a useful framework to discuss differences among team members’ value weightings and how they applied personal judgment to the selection process. See the sample evaluation grid below:

Candidates

You shouldn’t underestimate how much you can learn about a person from a written response to a simple question, trust me. Furthermore, it gives you an effective way to offer candidates feedback about their performance. This solution revealed other norms that have held up since my first experiment. Top candidates respond within thirty minutes. Their answers are usually weighted to the lighter side in word count, but content wins and their stories are laser sharp. Many poor answers are returned quickly too, but additional time does not seem to improve a particular candidate’s chances.

The questions are important, and predictable, with at least one tailored to the position:

  1. Why do you want the job?
  2. Why should we hire you?
  3. How much is the monthly rent for a home you’d be willing to move to in Los Angeles?

Finally, some candidates will not be available for the call on short notice, or you may need to add someone to your list after the initial call. Easy fix, simply record the call, and as people are added tell them to let you know when they have three hours free (one hour for the call, and two hours for the questions), then send them a link to the recording and require a response three hours from the time you send it.

Technology does the heavy lifting and saves you time. Great candidates can pass through any filter because they have the sharp skills, business acumen, flexibility, and communication gifts required to articulate a tailored response to “Why you and why this job?”  During the past three years I have applied this process to almost a dozen employee searches with the same effect. High performance teams are collaborative-they give everyone a voice and they depend on emotionally healthy, intelligent, mature, hard-working, value-driven employees to generate the championship results that set them apart. I hope you can put this experience to good use and reduce the time and energy you put into building a better organization.

Coaching

The Secret Behind Airline Fuel Surcharges

Travel Management is a tough business – we’re constantly challenged to explain complex systems and interactions among multiple vendors managed through a dozen systems. Vendors don’t make it easy. Airlines benefit when employees search out of policy for the lowest fares and inevitably compare a three day advance purchase against a twenty-one day AP offered on countless websites. Airlines have also monetized many benefits travelers took for granted three or four years ago. Government regulations have forced airlines to offer more transparent pricing which has led to improvements that protect travelers. Comparison shopping is more effective now since most fees and taxes must be disclosed up front.

Airlines suffered from unexpected fuel price spikes beginning in late 2005; since prices have remained volatile consumer awareness about the problem is very high. Airline marketers have learned how to transform their pain at the gas pump into revenue. Fuel prices routinely exceed labor as legacy airlines’ highest expense. Carriers add fuel surcharges aggressively to capture more revenue from each seat, and most travelers have no idea how much fuel their flights consume – this awareness gap has allowed carriers to regain pricing power.

Jet A spot prices

Data from the U.S. Department of Energy.

Fuel surcharges stand out as an especially onerous fee since they are ineligible for corporate discounts and can even exceed the base fare for some flights. Let’s face it, we’ve seen some big fuel surcharges in the past few years.

All of this has me wondering how much of the passenger’s fuel bill does the surcharge cover? Here’s the punchline: in many cases airline fuel surcharges exceed the cost of fuel needed to carry the passenger. That’s right – surcharges don’t just offset the incremental cost of higher fuel prices, they often exceed the total fuel bill. Customers and clients share a widespread belief that surcharges represent a fraction of the gas bill and most are surprised to learn the truth.

Surcharges have been expanding on domestic flights in the US, but are more commonplace on long-haul, International flights. They are usually applied by Origin and Destination without regard for the passenger’s ticketed cabin. The airlines have generally approached these surcharges as “one size fits all.”

Typical charges for Atlantic flights are $200 each way (between New York and London), while Pacific charges are more likely to be $400 per passenger each direction (between Chicago and Hong Kong).

The fee is not arbitrary, but I wanted to determine if coach passengers were being asked to subsidize the higher fuel costs required to move a passenger in Business Class or First Class? Essentially, is each seat carrying a burden relative to its density or floorspace requirement?

The key to this question is to calculate the fuel required for each seat then multiply that result by a particular airline’s average fuel expense (available in their annual reports). Airlines select aircraft for their operating costs and reliability. I’ve selected a Boeing 777-200 for this analysis since they are currently in production and can be found on routes across both the Atlantic and the Pacific. Although not as large as the Airbus A380 or Boeing 747-400, the 777 is much larger than some of the Boeing 767’s and 757’s in the Atlantic market. Next, a review of the interior configuration options at Boeing’s website demonstrates that a business class seat requires about twice as much space as a coach seat, and a first class seat requires double the amount for business class when you consider galleys and lavatories. Boeing reports the 777-200 aircraft could hold 440 seats in a coach class configuration; combined with other performance data I determined this plane can achieve 81 miles per gallon for each passenger in an all coach cabin. For these calculations our model aircraft holds 301 passengers, with 227 in coach, 58 in business class and 16 in first class. Normalizing the results as described above gives us the results displayed in the table below.

Fuel consumed V2

*$2.50 per gallon Jet A

The evidence is clear and I was surprised that fuel surcharges actually covered more than the fuel expense for the seat. Coach passengers may be subsidizing other passengers, but given the competitive fare environment it’s unlikely that $1,000 round trip fares to Asia are covering their fully allocated costs. The real story is that rising fuel expenses threaten to overwhelm carriers, and at least for now, travelers in premium cabins are catching a break from an unpredictable expense. This led to my next question, what do I do with this information?

Travel Managers must be able to plan. For this reason, well-known Industry forecasts are always in high demand and fuel is often featured as the largest unknown variable. Since fuel is a volatile input it makes sense to create a sensitivity table that shows us the per mile fuel expense to provide information that allows us to predict pricing action in a particular market. You can find current fuel price information at the US Department of Energy website. To use the table: 1. find the current fuel price in the left column; 2. select the price per mile rate that corresponds to the cabin your travel policy allows; 3. multiply the O&D distance for a specific market. You can find mileage information in your GDS, or at Flightaware.com. Flightaware is an excellent source for real-time operating statistics about most flights – consider adding it to your bookmarks.

Fuel Price data table v2

At $2.50 per gallon, the fuel expense works out to little more than 3.2¢ per mile for each coach seat, double that for business class and around 13¢ for a seat in first class. Although I ignored the revenue generated by cargo, which would reduce the cost burden on passengers, I also left out a load factor adjustment that would drive the per seat costs higher.

The next time someone asks you about a fuel surcharge, you’ll have everything you need to show them how reasonable the expense is – or isn’t.

If you’re interested about commercial aircraft fuel economy you should read another post from me:

Boeing 737 vs. Toyota Prius (this might surprise you)

Strategic Travel Managers Know Chemistry

Aviation Travel Management

You Won’t Believe This About Southwest Airlines.

You won’t believe this. I didn’t, and I’ve spent more than a decade staring at airline industry data, so maybe I’m the only one who didn’t see it coming. I’m going to show you something that runs counter to conventional wisdom and what we know and hear about at every ACTE conference or GBTA convention.

It’s well known that airlines operate on lean margins. They lose a lot of money during recessions and only break into double digit profits during the more profitable second and third quarters, but rarely on an annual basis. As airlines continue to squeeze more revenue from every seat the average load factors have increased to the point that the summer surge isn’t even noticeable. Airlines combine the 100% achieved on Sunday’s, Mondays, Thursdays, and Friday’s with the low 80’s on Tuesday, Wednesday and Saturday to achieve an 88% load factor for the month. Any hiccup or foul weather leads to hours of delays since there are so few spare seats to accommodate stranded passengers. Strong finance organizations are required to manage the complicated flows of people and capital. Young airlines act as if marketing will be in charge forever, but losses and maturity have a way of sobering investors, and eventually the CFO will take over.

Prior to deregulation in 1978, the Civil Aviation Board (CAB) approved routes, frequencies and pricing. The government intervention created monopolies that allowed airlines to provide the white glove service and fine dining that so many people describe as the golden age of air travel. This was a time when a 50% load factor was profitable and it was acceptable to smoke from takeoff to touchdown.  Filet was served on china and accompanied with real silverware. So which competitor exhibits this kind of pricing power today? Legacy carriers? The “low cost carriers?”

Every time Spirit, Jetblue, Southwest or Virgin America enter a market the local press wave banners announcing that low fares have finally arrived in Madison, Longview, or Springfield. How do they know?

The CAB reporting structure survived deregulation and data is still required monthly to be reported to the Department of Transportation on Form 41.  Every US carrier with scheduled operations and revenue greater than one billion dollars must submit the form.  It contains detailed information about the carrier’s financials and operating statistics.  The data provides a rich view about how the airlines operate their equipment and move passengers and cargo between every city pair they serve.  Here’s a link that describes the available data sets. You can create your own reports here.

A table I found recently was particularly interesting since it contained information about average departure airfares, taxes and fees for passengers departing the top 100 US airports. Since this table doesn’t distinguish between International and Domestic traffic it would be difficult to support meaningful decisions with this – this is not a comprehensive variance analysis, it’s just a back of the envelope look at four or five major airlines, so you should be cautious about using my conclusions to support your decisions. There is one section that contains information that looked meaningful – a comparison between average fares from 2001 and 2011. Out of curiosity I looked at the price changes for American’s hubs. Most showed a decrease – not too surprising given their financial condition. The data is in the table below (all tables are from BTS 3rd quarter 2011 vs 3Q 2001 – click the link above for the most recent values).

Hi contrast AA Hubs

Next I moved on to Delta’s hubs. They have a fortress hub in Atlanta (under pressure from several LCC’s), but their operations in Salt Lake City, Detroit, and Minneapolis are stronger. Overall a mixed result but they’ve demonstrated more staying power than American. How did that compare to United’s operations in Denver, San Francisco, Washington? Little to brag about here; see the charts below for details.

Delta Hubs

Here’s United (includes Continental – Houston and Newark).

United Hubs

It’s remarkable that Houston Bush was up 12% in a city that hosts a Southwest hub. Meanwhile Newark was up 1% in an extremely competitive metro area. Continental should be applauded for holding their own, especially when the Dallas Fort Worth area offers Continental a pure play to compare against (favorably). American hosts their fortress hub at DFW, while Southwest occupies Dallas Love Field, a situation very close to Houston, yet DFW average fares are down 5% while Houston Bush is up 12%. That’s a big difference in a business that counts margin in basis points. Who has pricing power? It’s not American or United in Chicago; and prices in Denver and San Francisco should scare any competitor away.

Southwest. Industry professionals describe them as the quintessential low cost carrier. This is a company that is proud of their small sales force, doesn’t allow seat assignments and only offers one cabin, and they’re pricing champions.

Southwest Hubs

Those are impressive results. The next time someone excludes Southwest from a list of industry leaders, remember, driving revenue is one of only two ways to increase profits (Profit=Revenue-Cost), and Southwest is terrific at growing revenue.

Aviation Featured Travel Management

Boeing 737 vs. Toyota Prius (this might surprise you)

We’re surrounded by advertising designed to convince us that some product or activity is green. Lighting, transportation, and hot water combine to form a significant portion of our daily energy consumption. Looking outside our homes, transportation is the largest controllable expense and energy user. Efficiency is tricky and subject to opinions and interpretation so I won’t create an absolute efficiency measurement here. Given Delta Airlines’ recent announcement that they will purchase an oil refinery to better manage their fuel costs let’s compare transportation on a relative basis and use empirical data to show us how different forms of getting around compare against one another?

I define efficiency as an amount of fuel required to move one person one mile (a passenger seat mile). On that basis we can rank Ford F150 pickup trucks against Global Express 550 corporate jets and a Toyota Prius against a motorcycle. Two additional ways we might look at this question are: 1. What’s the maximum efficiency a particular mode could achieve? 2. What’s the most likely efficiency a given mode will achieve?

Data and calculations have been updated to include a Tesla model S, and four airplanes that entered service since this was originally published in 2012. The new list includes the 737MAX, Airbus A321 NEO (New Engine Option), a Boeing 787-900, and the Airbus A350-900. When people are asked which is more efficient, a Boeing 737 or a Toyota Prius, most make a common error and allow speed to affect their judgment about efficiency. The answer depends on the number of full seats. In fact, a 737 filled with a typical number of passengers is more efficient than a Prius with a single occupant. The Prius excels when you start to pack people into it, but most respondents assume that modern jet aircraft couldn’t compete against a hybrid car. This exercise showcases how efficient certain vehicles are. Our runaway winner is the world’s fleet of large tour busses. Operated at capacity these vehicles can move one person between Los Angeles and San Francisco with one gallon of diesel fuel, while a 737 will consume five gallons, and a loaded Prius needs more than two gallons per seat.

The other end of this spectrum is interesting too. How does traveling in First Class by commercial carrier compare to the fuel ‘cost’ required for an individual to travel onboard a private jet? Before we answer this we need to calculate the fuel burn for a first class seat. Boeing reports the 777-200 aircraft could hold 440 seats in a coach class configuration, so we know this plane can achieve 81 miles per gallon for each passenger. Assume that Business Class seats use twice as much fuel as a seat in coach, and First Class seats consume four times more fuel than the average seat in Coach, then for the Boeing 777 we would expect to achieve 20 miles per gallon for each First Class passenger.  Compare that to the 13 miles per gallon each seat could generate in a Gulfstream Global Express 550 if every seat was full! Even filling half the seats in the plane would require a fuel burn more than three times higher than consumed by a First class seat on a Boeing 777-200ER and that ignores the frequent ‘repositioning’ flights private jet travel requires.

This table normalizes fuel efficiency based on passenger seat miles. In this example, a Prius with four people would generate four passenger seat miles for every mile driven, while a Boeing 737-800 could generate up to 175 passenger seat miles for each mile flown.

This exercise also points out a paradox in aircraft design – a single aisle Boeing 737-800 is nearly twice as efficient as the larger, double-aisle Boeing 777-200ER. The design requirements for long-haul international flying require more lavatories, large galleys, more storage space, life rafts and a host of other overhead not needed for shorter hops. This paradox creates an opportunity for shorter stage long-haul flying as fuel costs continue to rise. I’ve already shown that absolute fuel burn does not correlate to efficiency the way seating capacity does. Commercial aircraft can move many people very rapidly, and they do it at least as efficiently as cars, and advanced aircraft designs like the 787 Dreamliner, and A350-900 are closing the gap with their single-aisle peers. Motorcycles and minivans are great for moving one or a few people, but it’s very clear that technology scaled for personal transportation doesn’t beat mass transit today. Buses and mini-buses continue to shine in a world where liquid fuels are scarce and expensive and it will be interesting to watch how efficiency demands will shape international and domestic travel in the coming decades.

If you’re interested about commercial aircraft fuel economy you should check out these posts:

The Secret Behind Airline Fuel Surcharges.

Strategic Travel Managers Know Chemistry

Aviation Featured Travel Management