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Hm…Why Do Business Class Tickets to Amsterdam Cost $7,000?

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).

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17 Comments.

  1. That is a poor argumentation. Was expecting more. There is nothing else than repeating the price.

    • Huh? There’s no argument – I’m just saying I think it’s interesting how widely people value the business class product. For some people it’s worth $5,000 above coach, for others $1400, and that the reason they’re traveling seems to have an impact on how they value it. This is true with lots of product, but that huge disparity – $3600 – is what, I think, makes it interesting. (ie, $3600 is a lot of money). A room at the Four Seasons for a business trip doesn’t cost $3,600 more than a room at the Motel 6 that you reserved for a vacation, although product-wise they’re not even close. It’s interesting that an airline can get $3600 for a better product, but a Four Seasons can’t get $3,600 for a much, much better product.

  2. It’s also a way to attract talent. Would you rather work for a company that’s willing to pay for your business class fares (all else being equal)?

    Also, if the company can bill the travel, why not do it?

  3. A few weeks back I was thinking along similar lines, as I was booking hotels for my trip at the end of the month to Amsterdam. I bought a business class ticket (SAN-IAD-AMS roundtrip) and considered that even though I’d be getting a transcon first class flight, I’d only be spending about 7 hours in a slightly bigger seat that also lies flat and comes with slightly better microwaved food.
    Of course, I got that ticket during the star alliance fare sale for only about $1400, and I paid personally for this vacation, so to me it’s totally worth the (very small) premium over coach. But I was considering whether I would ever again have the opportunity to fly a revenue ticket across the Atlantic, since I can’t imagine my company or myself ever valuing that seat/bed and meal as $5k-$6k more than one that only reclines and comes with a one course meal. Yet clearly some do.

  4. Well, I’m paying a bit more than 1400. RT AI for a J seat from BOS next month. P fare sale. That is definatly worth it.

  5. You completely missed the point. It is about real estate. Business class seats displace the same amount of space as 3-4 economy seats and first class suites displace the same area as 5-6 economy seats. Do the math, the airlines have the have the same yield by selling a smaller number of seats in business or first class in comparison with economy.

  6. You’re assuming the company is run efficiently and there is transparent knowledge throughout the company. I don’t know of a big company like that. Usually the employee is booking the travel for him or herself, and employees generally care a lot less about spending the company’s money for their benefit than they do their own.

  7. This is the classic air travel conundrum. Nobody, except the super rich or super pampered, would pay the $5K out of their own pocket. It’s kind of dumb for corporations to pay it, but I guess they don’t want to look like cheap SOBs. I’ve always wondered whether companies could make the following deal: fly coach, work from Europe for an extra day, and we’ll pay you $1000. I think most people would take that offer. I would.

  8. It’s certainly interesting what the perceived value of things is to different people. I typically will pay more to fly business class when going overseas, but I won’t pay $100 more a night for a better hotel, even though I’d spend more time in the room than I will in the seat.

    I’d also never pay $5,000 for a Cartier watch – a Breitling maybe, but not a Cartier. With Cartier I feel you’re paying for the name rather than the quality. Again, it’s all about perceived value. My father has worn a no-name watch that cost $50 for ten years now and is perfectly happy with it.

  9. I don’t know how any company can justify paying for their employees to fly $5,000 business class tickets. I’d like to hear their argument.

  10. You are partially correct, but the thing is you can travel on business class flights almost at the cost of economy class. If you do some research before booking your ticket, you can avail the best discounted fare. I got it from asap tickets http://www.asaptickets.com/business-class.

  11. I would also add that it’s rare for a company with some reasonable travel volume on a route to pay anywhere near the listed price.

    I used to work for a European airline (among others) that would charge $5,000+ for an east coast to Europe flight in Business Class for a single ticket buyer, but $2100-$2500 as its corporate discount negotiated fare.

    Just like hotels, the only people who pay the rack rate / listed price for a suite are the super rich…

  12. I agree with Joe…if you work for a company that has a reasonable amount of travel volume across the pond, then the negotiated fares for business class can be up to 60% off the listed fare. I worked for a large multinational and $2.5K-$4K fares for biz were fairly typical. Even going to Asia, it was not much more than that and I could often secure those low fares on the day before departure. Totally worth it IMHO because you can be productive all week from the moment you hit the ground and not falling asleep in meetings due to jet lag.

  13. I found a super low coach fare from IAH to CDG, and was offered the upgrade for a fee (miles weren’t an option). The upgrade price was $500 o/w ..steep, I know. It was on a brand new 787, and the all-in upgraded cost came out to be around $1400 .. certainly not a horrible price for a r/t ticket to Europe (and in biz class!) I’ve also been offered the $500 upgrade for flights like IAH-SFO on a 738 … absolutely ridiculous.

  14. As much as I used to love to sit in Business class on TWA when upgrades were the norm, I just can’t imagine paying $7-11,000 for a business class seat for a 7 hr flight. I think the answer is Premium class which offers reasonable space and comfort and costs a lot less.

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