Tycoon Class. Fly business, pay the pirates

The airlines plead that they continue to lose money, though they had a reassuring quarter. There has been a lot of talk about a passengers' bill of rights, and it is true that the airlines are indifferent to substantive complaints of their customers. Yes, they will attempt to give quicker service when asked about flights and departure times, relying fruitfully on the Internet. What they studiously avoid discussing is the piracy that attaches to business class travel. Regulation of airfares is effected by competition, which is as it should be. What is largely unnoticed is that in business class there is practically no competition. All airlines opportunize on the customer who craves uncramped travel.

Getting the price of an air ticket is something akin to shopping in a Chinese bazaar, one traveler recently commented. It is true that there are services — one thinks of Expedia.com — which will line up airfares from Point A to Point B with marvelous speed, permitting you to give your preferences for date and time of departure, and to opt for non-stop. But if you want business class, the fares are pretty uniform. Uniformly high. An example, only one week old. To travel Washington to Phoenix to New York is $600, economy. By business class it is $2800. To travel New York to Geneva by economy is $500, by business, $3,000. The penalty, in the first instance, is about 450 percent. In the second, 600 percent. It's easy enough to divine the undisclosed reason for the high penalty fare — the airlines find people who will pay the price. What is hard to find is an objective reason for the larceny. There is more leg room and hip room in business, but not six times as much.

The perpetual quarrel over the regulation of air traffic eased off after 9/11, in part owing to the sharp decline in air travel. Air travel was severely affected and some airlines had to put a part of their inventory of planes into cold storage. The traveling public sensed that the travails of travel, which include baring one's feet in order to establish that there is no hidden nitroglycerine under your sole, are accepted as part of the price we pay for travel in the Age of Terrorism.

The airlines apparently ignore the resentment felt by those, especially older people, who yearn for the relative comfort of travel in business class accommodations but can't afford the tariff. Of if they can afford it, are resentful at their complicity in the piracy. The traveler to Geneva by business class is accepting a surcharge of about $475 dollars per hour of travel. To pay $475 per hour to permit you to stretch your legs or to lean back in your seat an extra fifteen degrees is resented as idolatrous indulgence. It is the equivalent of paying not $200 for a hotel room, but $1800, because it is twenty-five percent larger. "Why do you travel third class?" I once asked an urbane Austrian intellectual who bridled at self-indulgence. "Because," he said, "there is no fourth class."

The late William Rickenbacker, the inventive and witty son of the war ace and president of (the late) Eastern Airlines, proposed 40 years ago a sensible way to permit the traveler a range of choices and the airlines their deserved profit. The ongoing mistake, he reasoned, is the airline's serving simultaneously as carrier and as marketer. The way to go, he counseled, is for the airline to auction its space in great blocks. "Who will pay $20 million for space on 5,000 Eastern Airlines Flights, New York to Miami, January 1 to July 1. . . . Do I hear $22 million? Going for $21.5 million, going . . . gone."

Let the wholesaler then sell the tickets for whatever price he can get, which takes into account the urgency of the flight and the comfort level. That broker would send you business class to Geneva for $100 — if the seat you occupy would otherwise go empty.

The wholesale broker could, without inflicting pain, vary the price of an airplane passage taking into account all relevant factors. As it stands now, the traveler burns with resentment at being asked to pay six times the cost of the lesser ticket.

But the problems of the business class traveler aren't likely to arrest the attention of our governors, and elderly people are difficult to organize. Perhaps this is one for the AARP.

It's so hard for us common crackers to scare up any sympathy for these poor, uncomfortable folks. Come to think of it, it's also hard to find any for the airlines. If these people are dumb enough to pay exhorbitant prices....well, a fool and his money are soon parted. They have the wallet power to change the airlines' pricing policies if they would refuse to pay outrageous prices.

Priceline.com

The real reform we need is to allow transferability of EVERY airline ticket. The market would then swftly allocate seats to passengers at fair prices. Airlines could watch prices on the secondary market, using them as a guide to pricing new tickets.

This open-resale situation exists, by state law, on every public event ticket sold in Arizona. The system works incredibly smoothly: you can always find the ticket you want, even to the Super Bowl on game day, at a rational market price. If you hold a ticket to an event you suddenly find you can't go to, you can always sell it under the same conditions.

Excellent article, and yet another way the airlines treat their customers as the enemy. Astounding. I hope they all enjoy going bust.

There must be enough business class seats in parked planes for somone to buy up all of UScared? and Untidy's planes and convert them to something comfortable and profitable.

Imagine, an industry capable of caring about their customers less than a telephone monopoly.

Buckley's a smart guy, but he doesn't know much about the economics of air travel.

As far as domestic first and business class go, somewhere between 85% to 95% of those seats are not sold at their list rate, but are upgrades on coach tickets awarded to the airline's most loyal frequent fliers (either by exchange of their miles, or on a complimentary basis, or both). The generosity and reliabiity of domestic first class upgrades are the SINGLE GREATEST factor for frequent travelers in determining their primary airline.

As far as interntional business and first class, a smaller but still significant fraction are frequent travler upgrades (in the 20-40% range), with the balance being straightforward purchases. However, it is the revenue earned at business class which funds all of those cheap coach tickets. You don't think that those $400 winter coach seats to London are actually paying for themselves, or even the $750 summer fares?

So the airlines sells a block of tickets on a set of flights, then loses pretty much any incentive to provide a service anybody wants.

We can thank the airline unions in large part for the frequent flyer upgrade policy. Management couldn't persuade the flight staff to be friendly, courteous and servile; the Fe'ral Congress and the FAA made sure that the passenger must suffer like a whipped dog, cowering in fear and silence by the threat of being charged with a felony or branded a terrorist; so management had to lure repeat business to their flying hell-holes by handing over upgrades to valued customers who underwrite most of the cost of airtravel. The peons in steerage can just suffer since they don't really amount to much on the bottom line and their loyalites are to the cheapest price, not to a particular company.

No thanks, I'll drive.

Amen to that.

Recently my wife had to travel to a training seminar in Omaha. Her employer bought her ticket and rented a car for her at the going rate for business passengers.

I figured the distance (300 miles) and estimated that with the extra time spent waiting in airports, transferring flights, waiting for luggage, and picking up the rental, she would arrive 1/2 hour earlier AT BEST when compared to driving her own car. Throw in a delay due to weather, mechanical trouble, or a random strip-search and she actually would arrive later!

With this in mind, I had her offer to drive her own car at HALF the total cost to her company, a handsome profit for us and a saving to her employer. Not SOP, they replied. She flies or doesn't go at all.

Of course there were problems, there always seem to be when you fly nowadays. She got home grouchy and beat, 23 hours after boarding the plane to come home. Mechanical trouble kept her waiting most of the night until her connecting flight was cancelled in the wee hours. After waiting some more for her luggage, she dragged herself to a hotel at 2 a.m. to get some sleep before trekking back to the airport at 6 a.m. for the next scheduled flight (I also lost most of a night's sleep, since I was to pick her up at the airport and the flight wasn't cancelled until 1 a.m.).

She has to go back to Omaha next week, but she WON'T be flying this time.

The universally-Peter-Principled bureauracracies known as "airline" companies -- by wholesaling their univerally-crappy domestic "first-class" seats to those stupid enough to organize their travel around those bureaucracies' browny points -- actually prove Mr Buckley's point.

And, as one who has spent more than 40 years in the Air Transportation Industry, has flown the equivilent of more than seven hundred global circumnavigations and has not flown a single sector in coach since 1973, I can vouch that Mr Buckley has by far a better grip of " the economics of air travel" than do 100% of the CFOs and their staffs at any of the world's "major" airlines.

I buy practically every one of the tickets that I ever pay for in an Asian country where a return J or C Class [Usually Business/First] USA Return [On a carrier whose operational standards are among the world's highest, every one of whose cabin crew members has attained a minimum baccalaureate-degree standard of education -- and none is a quota hire] may be found for $1,200.00 to $1,500.00 as compared to $3,000.00 to +/-$4,500.00 or more for the same ticket purchased in America.

And that you believe a $750.00 round trip in Coach needs to be subsidised by Premier Class riders is totally industry based, reflects and underscores the contempt directed at its customers by every airline bureaucracy's almost-every employeee -- and ignores every widebody's generous air-cargo capacity.

It's really depressing to see the icon of the conservative movement being so fundamentally ignorant of business and economics. He is well-connected; he has wealth -- what is his excuse for not asking someone at least before writing this nonsense? Arrogance of ignorance, as Dostoyevsky put it well.

G-d help this country.

The penalty, in the first instance, is about 450 percent. In the second, 600 percent. It's easy enough to divine the undisclosed reason for the high penalty fare — the airlines find people who will pay the price. What is hard to find is an objective reason for the larceny. There is more leg room and hip room in business, but not six times as much.

He has learned neither percentages nor REASONING. And does not have a clue about the utility function, the basic building block of economics.

If the temperature outside changes from 60 degrees to 90 degrees --- is it now 50% warmer? It's a 50% if you divide the difference 90-60 by 60. Nonsence, of course. And the reason is that division is meaningless for some numbers (in measurement theory this is called a scale; only the most "developed" scales allow division).

Further, the utility function measures how valuable the choice alternatives are to the decision-maker. It well may be that a TINY increase in leg room is valued a lot; that is, a small increase in the leg room is associated with a large change in utility. That is what we see in ticket pricing.

Such increasing or decreasing (non-constant) returns are common. If you run a 100-yard dash in 20 seconds, you probably can improve it to 19 after a bit of training. But if you run it in 11 seconds, it'll take you years (or, most likely, eternity) to get it to 10 seconds. The cost of the same 1-second increment increases enormously.

That is why I said that Buckley' ability to reason either has always been weak or has atrophied.

The airlines apparently ignore the resentment felt by those, especially older people, who yearn for the relative comfort of travel in business class accommodations but can't afford the tariff.

I agree. I feel the same about the Rolls-Royes: they simply ignore the resentment felt by those, especially with big families and hardened buttocks, who yearn for the RELATIVE comfort of travel in a plush car but can't afford the $250,000 price.

How much more socialist can you be, Mr. Buckley?

To pay $475 per hour to permit you to stretch your legs or to lean back in your seat an extra fifteen degrees is resented as idolatrous indulgence. It is the equivalent of paying not $200 for a hotel room, but $1800, because it is twenty-five percent larger.

He insists on the same fallacy that I described in the previous post. I really wonder whether there is a better way to express socialist views than is done here by Mr. Buckley.

The market indicated the value of a good or service. The belief that there is core intrinsic value in the good itself --- such as that characterized by the length of the seat, legroom, etc. --- is at the heart of Marxism.

Not also that the above-quoted words are followed immediately by these:
The same fallacy "Why do you travel third class?" I once asked an urbane Austrian intellectual who bridled at self-indulgence. "Because," he said, "there is no fourth class."

How on earth are they related to the foregoing? All he says, "I found someone for whom it is not worth it to travel in the business class." So? What does that prove? Are these words supposed to be informative because the person that spoke them is "urbane?"

I did think better of the author. The arrogance, ignorance, and shear stupidity of this piece astonishes me.

OK, suppose this "good thing" is implemented. Now suppose the airline has bought the wholesaler. Both functions are under the same roof. Now what?

This William Rickenbacker would probably fail to get an MBA today. It's not his fault --- he spoke these words 40 years ago. But Mr. Buckley repeats them today.

Charm Quark,

What if Microsoft bought all the computers that ran it's software? What if Exxon bought all the cars that burned it's fuel? What if the PRC bought all the Wal-Marts that sold it's crappy manufactured goods? What if a 3-mile wide asteroid passed through the Stratosphere?

All these things would really do damage to the average consumer. That's the problem with hypotheticals.

I'm sorry you got so worked up over my humble posting, but I hope you were able to vent without kicking the dog too many times.

I guess, you are correct: I wasted my time.

First, a clarification. What I said was not a hypothetical: it's call a merger of two companies and it happens every day. The point was that delegating wholesaling to another company is not a solution, as any MBA case would've taught. You've clearly have not thought about it and could not recognize the depth of the issue even when you heard it. That's fine. But I did apparently wasted my time.

I'm sorry you got so worked up over my humble posting,

It's amazing that you could've missed EVERYTHING in my post. I cannot get "worked up" your or anyone else's post: you think of yourself too highly. In fact, I found this article and wanted to post it myself to make some of the above-stated comments.

I am fairly worked up to see that socialists in this county are becoming fascists and the conservatives are becoming socialist. That makes me worked up; that's no small matter; that's the future of my country.

Sorry that you can't read even your eyes are scanning the page. Try not to move your lips next time --- people say it helps.

Charm Quark,

Thanks for providing depth to the issue. You have risen to such an august level of intellectual brilliance and specialization that you clearly know everything about nothing.

Of course, companies undergo M&As. Some of them work, some of them get spun off. Many others get blocked under the auspices of The Sherman Anti-Trust Act. That tends to happen when they form a vertical integration.

But thanks for your insights and have a wonderful morning.

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