I flew to Amsterdam on Monday on United in a coach seat, for which my company paid $2200 or so for the round trip ticket. I was in an Exit Row, in the window seat (I’m an aisle seat guy), and while it had plenty of legroom, I feel slightly confined in the window seat, compared to the (relatively?) more open confines of the aisle. All-in-all, the flight was fine, I slept for a few hours, watched a movie, and arrived as exhausted as anyone would be after a not-long-enough flight to Amsterdam that arrived at 2am Eastern Time. I just flew back in a quite empty coach cabin, where I had a row to myself.
After we landed, I was thinking about the people sitting in Business Class. They likely paid $7,000 (the typical no-Saturday-night-stay fare on the route, though it can be as low as $5,000, and I see it as high as $11,000), or rather their company paid $7,000 for the flight.
In other words, they paid about $5,000 more for their ticket than I paid for mine.
Stop. Think about that for a minute. Five. Thousand. Dollars. Five thousand dollars can buy you this rather beautiful Cartier Ballon Bleu watch. You will likely have this watch for your entire life, at the end of which you will leave it for your children.
Let’s pause here for a moment. I’m not saying the airlines are charging too much. Not at all. They’re charging what the market will bear, and that’s totally fine. I have no problem with them charging $7,000 for that ticket.
But I was thinking about that price, and I was thinking that $5,000 gets you either a luxury timepiece that will survive generations, or it will buy you a bigger seat and some food on a 7 hour flight to and from Amsterdam.
Until quite recently, United would have given you that seat in exchange for 100,000 miles, an amount of miles that no one would reasonably say is “worth” $7,000. Upon checking in for my flight home, United offered to sell me an upgrade for $689, which suggests to me that they believe they can fill up the empty seats for a $689 premium over the coach price, which is to say that Business class is “worth” $689 more than a coach seat.
I realize that most of those $7,000 seats are only “worth” $7,000 because someone’s business is paying for it. And perhaps the argument here is not that people are very willing to spend $7,000 of their company’s money, but rather that companies believe their employees are $5,000 more productive after flying business class versus flying coach. I’m not sure about that, though that seems like the most reasonable possibility for why people would pay a Cartier more for a business class seat than a coach seat.
Which makes me think that international business class tickets are actually a pretty complex product to price. The price of them is wildly dependent based on who is purchasing them, and the airlines need to come up with ways to segment pricing based on what people will pay. I know that sounds a bit obvious, but it’s a challenging question. By all means, there are businesses that will pay the $7,000 because they believe their employees are $5,000 more productive when they fly business class versus coach. But they probably can’t sell all their tickets at $7,000. So they make those seats available for $689 to those customers.
This is a recent development – United has only been selling those upgrades for the past couple of years, but it represents an enormous opportunity for them. It also gives us a glimpse into what they think the business class product itself (rather than the increased productivity) is worth – which is to say, $689 more than coach.
I don’t have a huge point here other than I think it’s interesting that people pay $7,000 for the seat, not because of the product itself, but because of secondary benefits (staying awake in a meeting).