I’ll be honest – I’m not entirely sure how to write this post.
Mainly because I’m not sure that you can justify the expense of flying business class, or first class, or whatever Singapore Airlines calls the class that comes with double beds. I’m also not sure what the value scale is that says: yes, makes sense, spend a small car on that ticket, mastercarded.
But that’s not going to stop me from trying.
I read this last week: “What’s it like fly the $23,000 Singapore Airlines Suites Class?”
It’s basically a stream of photos. And from what I saw, the only answer to that question is something apophatic. Or “not tawdry”. Or this:
To The Matter At Hand
Let’s say that I’m going to travel to London from Johannesburg in early November (specifically: the 6th to the 12th). And no – I won’t be going via Dubai or Doha – I want a direct flight. Here are the ticket options that I found this morning:
- Economy Return – R10,860 ($970)
- Premium Economy Return – R22,163 ($1,970)
- Business Return – R48,905 ($4,350)
- First Return – R96,706 ($8,610)
In effect, there looks to be a kind of exponential doubling with each class of travel.
Usually, this kind of pricing gets the horrified look and the “How could you possibly justify that kind of expense – it’s disgusting” etc etc. Which is, you know, a point of view. But for something that is so apparently grotesque, there must be some reasoning.
Is it the product offering?
- Arrive at the airport many hours ahead of time.
- Queue to check-in, where you have to partially unpack your suitcase in order to wear some items in order to avoid paying for being over your 23 kg allowance.
- Go to airport security.
- Go to immigration.
- Wonder around Duty Free in search of a reasonably-priced sandwich.
- Be horrified at the price of sandwiches.
- Make many comments about how much you could pay for sandwiches in the real world.
- Begrudgingly buy the sandwich and complain loudly at the teller.
- Suddenly notice that your flight is meant to be boarding.
- Gallop in search of the boarding gate.
- After much panic, arrive to discover that your flight is not yet boarding.
- But there’s already a queue.
- Trudge through boarding.
- Turn right.
- Walk down to the back of the plane, getting more and more concerned as the seats diminish in size and multiply in quantity.
- Squeeze your hand luggage into an overhead compartment, then squeeze yourself into a seat, where you get lodged next to a passenger whose body is rapidly attempting to fully dehydrate through sweat.
- Fight for a bit of arm-rest.
- Lose to the sweat.
- After take-off, you’re told that there will only be one bar service. And due to cost-cutting, there are no longer spirits.
- Spend the flight being both irritated by the squalling infant in Row 69 and panicking about disturbing Sweaty next to you if you need to go to the bathroom.
- After landing – queue to leave the plane.
- Many queues later, wait for your luggage.
- Leave, exhausted, in search of a train.
- Arrive when you like – but preferably early in order to spend some time in the lounge.
- Get whisked through your own dedicated check-in (and often, security and immigration) sections.
- Proceed straight to the Business Lounge.
- Enjoy dinner, champagne, proper coffee, and the peanut butter fudge.
- Make use of the private washrooms – because why not.
- Get informed that your flight is boarding.
- Proceed to the check-in gate, and pass directly through Priority Boarding.
- Turn left.
- Hand the air hostess your jacket, and take a glass of something in return.
- Peruse the menu.
- After take-off, order round 2 of dinner.
- Lay your bed flat, watch a movie, generally luxuriate.
- After landing, get off the plane first.
- Be first in line for all the queues.
- Collect your luggage (which was raced through from the plane).
- Step out looking like a daisy.
Now obviously Business is a nicer experience.
But is it four-times-the-price nicer?
Let me reframe that: if I said “You can either fly Business Class, or you can fly Economy Class and I’ll throw in an extra $3,000 of spending money”, wouldn’t you prefer to be paid to travel with the infant?
Which means that we need to look for something else.
The internet had some suggestions:
- No one pays for business class – they’re either a government employee, a corporate employee, or they upgraded with their miles.
- Tax write-offs.
- Business class is flown by people that are taller than 6.5 and/or need to go straight from the airport to a meeting.
- People fly business class because it’s a great value proposition relative to First Class – you get almost the exact same offering for half the price tag.
- It’s a status thing.
- The diminishing marginal utility of money.
And to me – some of that is a bit confusing. Mainly the value proposition one – because saying “this overpriced thing is less pricey than this overpriced thing, but they’re almost the same thing, so you should buy it” is not really a successful argument.
Anyway – I think that what the internet is trying to say is:
- In Business Class, you get two types of traveller: businesspeople, and rich tourists.
- Businesspeople have their reasons.
- Rich tourists have their reasons.
- But still, it’s all very disgusting.
The Economic Argument For Businessfolks
- Employees that travel for work are not paying for their tickets.
- Their company is paying.
- Therefore, employees will want to fly Business Class.
- Which still doesn’t explain why companies would allow their employees to fly Business Class.
- But there are three explanations that I like.
- The first has to do with employees that travel a lot. If you travel a lot, then you’re going to hate your job if you fly coach, and no one will want to do your job (imagine doing long-haul economy class flights twice a week?). Making travel time comfortable is just part of the cost of having frequent-traveller employees.
- The second is that your time is actually more valuable than the ticket price. If you’re a hot-shot international lawyer that charges out at $1,500 an hour – travelling a day early to acclimatise means that you’ll lose more money than you’d save.
- The third is a question of tax-efficient perks. No employer could pay you the $3,000 differential – that’d be taxed. And if we take a 40% individual tax rate, it means you’d only get $1,800 back. And because companies are who they are, they’d probably split the difference with you – so maybe you’d get $900. Making it a $450 effective upgrade cost to you as the traveller for each leg of the trip. And now we’re talking – because paying $450 for experience business over experience economy is ±$40 an hour and “Hellz yes – get me away from the infant and Sweaty”.
- If you combine all three, or even two of the three – you’re looking at some pretty solid reasoning, I’d say.
The Economic Argument For Tourists
- Tourists generally do have the time to acclimatise.
- But nevertheless – diminishing marginal utility of money.
- As people get richer, it seems to me that the money-saving matters less.
- If you earn a million dollars a year – what does an extra $3000 matter?
- It terms of overall perspective, that’s 0.3% of their earnings.
- As an equivalent, if you earn R360,000 a year, we’re talking about spending R1,080.
- And you’re on holiday.
- So why not.
While I was writing this, it occurred to me that maybe I’m thinking about this wrong.
Because not everything in life is a financial decision, and nor should it be:
- Instead of going to a fine-dining restaurant, I could just save the money, buy that sandwich, and not-be-hungry at the end of it. But that would miss the point – because I’m not fine-dining in order to sustain myself – I’m going for the experience and all the awesomeness that accompanies it.
- Instead of buying a nice car, I could just save the money and buy a Tata Indigo, and I’d still get to where I wanted to go. But that would also miss the point – because I’m not buying the nice car in order to move from A to B – I’m buying it because if I’m going to spend lots of time in a vehicle in traffic, I don’t want to be in a Tata.
So perhaps it’s worth bearing in mind that while saving is generally a good idea, it needs to be balanced against having fun.
Because otherwise, what’s the point?
Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.
Kosta October 7, 2014 at 09:20
Anonymous October 7, 2014 at 09:27
Great post – I guess it largely depends on your utility function
I thought you might find this article interesting:
Perhaps you could post your opinion?Reply
Yoyo (@yoyo_w) October 7, 2014 at 11:15
Airlines – 3rd degree price discrimination all day!.The economics of airlines. Revenue = price x quantity. You only have x number of seats per flight. So you play around with the price, there are those that would pay a higher price for a more luxurious experience.Reply