Plane Conversations

Until we can price all air transportation correctly, we will not be able to price any air transportation correctly.

Social Flights is the premier air transportation company that sells private jet service on a per seat basis.  This is important because there is no other way to compare the time-value of a private jet against the time-value of a commercial jet unless they are priced in the same manner.

Unfortunately, highly competitive markets determine the price of a seat on a commercial airline, not necessarily distance of the flight.  This does not make very much sense – for nearly any other product, you pay for how much you consume. If only commercial airlines were priced like private aircraft: by the mile.

Why does an airline ticket need to be 400 dollars 6 weeks prior to departure and 600 dollars 2 weeks prior to departure, except to maximize profit? Nothing else changes except as a proportion to distance traveled. But think of all the accountants, marketing personnel, and strategic planners constantly manipulating price inputs that have nothing to do with passenger satisfaction.

Every airline use essentially the same types of aircraft, they pay the same cost in fuel, and they have similar direct costs in labor, landing fees and gate contracts.  You would think that a 3000-mile trip would cost X amount more than a 1500-mile trip… all day long, for each and every airline.

This chart shows the actual fuel cost to carry a 200 lb payload 1750 miles between DFW and LAX for various types of commercial aircraft assuming jet fuel price is about 3 dollars per gallon (at the time that this industry study was published).

I did some back o’ the napkin calculations and concluded that a Lear 35 burns 5 times more fuel per 200 lb passenger than an MD-80.  A Phenom 300 is about half of that, or 2.5 times that of the MD-80.  The average would be around 3.3 times the commercial jet.

The Golden Ratio

This is a terribly difficult calculation to make so bear with my assumptions here.  But suppose all things being equal, we can say generally that a private aircraft cost is 3 -5 times greater than the commercial airplane while the door-to-door time is  1/3 – 1/5 the time of the commercial flight.  The factor of 3 – 5 (depending on the comparable averages) puts the cost of the traveler time in parity with the cost of the airline time.

Why does this matter?

Now, some honest comparative market analysis can take place by simply adding and subtracting time and money from both parts of the Golden Ratio to account for various attributes of the trip.  For example: shorter drive to smaller airports, no long lines, non-stop flights can be added or subtracted from the “time” part of the ratio.  Meanwhile; the cost of parking, airport taxes, cost of food, cost of lodging, and the cost of traveling to your final destination, etc., can be added or subtracted from the cost side of the ratio.

The Data will set us free

To liberate this information is to empower the traveler, the operators, the community and the hospitality industry to make rational decisions.  Communities can design rational incentives for tourism.  Corporations can make rational decisions for employee travel, and economic planners can make rational investments in intermodal transportation.

Few people take into account the social value of air transportation.  There are very few studies that can measure the impact on a community when they are immobilized due to lack of a service that had previously been available. There is no true economic category to describe such loss except as a tax on travel.

A regressive tax is taxation that takes a larger percentage from low-income people than from high-income people. A regressive tax is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder. Social Flights can restore this value with a regionalized public jet charter system.

Now we can add “Travel” to the list

Sales taxes that apply to essentials are generally considered to be regressive as well because expenses for food, clothing and shelter tend to make up a higher percentage of a lower income consumer’s overall budget. In this case, even though the tax may be uniform (such as 7% sales tax), lower income consumers are more affected by it because they are less able to afford it.

<via American Eagle to park planes, reduce service – Dallas Business Journal>

The small city gets the regressive travel tax

American Eagle announced that they would reduce frequency in a few select markets, they would discontinued seasonal service from D/FW to Augusta, Ga. Eagle would also discontinued service from Chicago to Tri-Cities, Tenn as well as discontinued service between Miami and Savanna, Ga., and Miami and Fort Myers, Florida.  American Eagle would also hasten the cancellation of Los Angeles-Boise, Chicago-Calgary and D/FW-Fayetteville, N.C., service from Feb. 9 to Jan. 31.

So how many people would these reduction in service decisions impact? If we just add up the populations of the smaller metropolitan area in each city pair, we can estimate economic loss of opportunity under the assumption that the larger city would have alternate options. Fair enough?

Augusta, GA: 556,877

Tri Cities, TN:  500,538

Savanna, GA: 347,611

Ft Meyers, Fl: 618,754

Boise, Id: 616,500

Calgary: 1,230,248

Fayetteville, NC:  366,383

The Creeping Costs

The total is at least 4 million who will lose one more degree of economic freedom.  4 million people will pay a regressive tax denominated in time, money, and dignity in some form or another for the benefit of stockholders in American Eagle. 4 million people will lose the economic benefit of travelers from large cities.

On closer inspection, with the exception of Calgary and Boise, all of these cities are well within 1000 miles of each other.  Each of these cities is well within 1000 miles of cities just as large as those that American Eagle is diminishing service.

While a hub and spoke model may break down economically, a regionalization strategy may work quite well.  It has been proven that people are willing to pay a premium for direct service (otherwise the airlines would not be dropping less profitable indirect service).  It is also obvious that people place a premium on their time and hassle as demonstrated by trends in online shopping, communication, and social organization.

These ingredients simple add up to a regionalization air transportation route structure enabled by online social organization tools such as Social Flights where community airlines can form around community priorities.  Social Flights can restore this value with a regionalized public jet charter system.