Plane Conversations

When you go into a store to buy anything, the rational person will always compare the quality of the object against the price of the object versus any alternative products or markets.

When you buy a home, the property is characterized by descriptions for “quality” (construction, neighborhood, schools) and a series of  ”quantities” (number of bedrooms, square footage, price)

When you cross the road, you look both directions in order to assess the quantity and the quality of the traffic that may or may not kill you.  Are the traffic slow moving pedestrians or are they fast moving trucks?

When a bank makes a loan, they “quantify”  all of your valuable things like your home, cars, 401K, and personal income and they use the credit score to measure the quality of your finances (debts, credit pulls, past history, bankruptcies, etc).

Supply and demand cannot, absolutely cannot, be determined by any other means other than by measurements of quantity and quality.

In fact, economics is the science of incentives where the fundamental graph is the supply and demand curve.  Both supply and demand behave according to inputs of quality and quantity, specifically price and availability.  Supply and demand for anything absolutely cannot be determined by any other means than by coordinates of quantity and quality.

Investors manage risk.

Risk is an asset, if it weren’t, insurance companies would not exist.  There are three things that an investor must know in order to manage risk.  1.  They MUST be able to identify their exposure to peril.  2.  They MUST be able to estimate the probability that the peril will or will not impact them.  3.  They MUST be able to determine the cost of the consequences in the event that the peril happens.

Again, within the definition of risk – to which ALL INVESTMENT RESPOND, are the characteristics of an asset; what is the quantity (1) and (3) and what is the quality (2) of the peril.  If the investor does not CLEARLY SEE these three positions, they will not invest. Period.

This is what drives successful markets and what kills unsuccessful markets.

To ignore the fact that all rational human behavior, intentions, decisions, reactions, conversations, relationships, education, ideology and every other state of human consciousness in a market, corporation, community, family, or social network ARE NOT characterized in the form of a quantity and a quality, is frankly, ignorant to ones market, irresponsible to one’s community, and incompetent to one’s profession.

Yet so many people do not see themselves as an asset.  Maybe someone should give people permission.

The commercial aviation industry in the United States, as a whole, experienced a net loss in revenue in 2008. The key metric to watch is the Revenue Per Mile (RPM) since the predictable behavior of the commercial airlines, individually and as an industry, will largely be in response to RPM.

Revenue Per Mile may be impacted by internal efficiency, modernization, and technological change. However, RPM may also be influenced by shifting cost back to the passenger in the form of lost amenities.

For the purpose of this analysis, we’ll call that shift a social cost denominated as a social currency. For example, charging extra for that oversized bag does not move from the loss to profit column of the accounting statement; rather, it is simply shifted to a social burden column which will manifest in social media as a future public relations nightmare, a poor review in a social network, loss of loyalty and goodwill, or learned travel behaviors such as denying the carrier of extra revenue by not carrying that extra bag.

At first, social costs will act as a liability against the offending carrier (such as the five hour tarmac tours). Over time, as tacit collusion among the carriers unfolds, the social currency liability shifts to the industry as a whole where the aggregate decision is to simply not travel, to bundle travel events, gang travel legs, or choose alternate modes of transportation.

Few people realize that Social Media itself is a competitor to commercial air travel.  Today, groups of people can integrate and coordinate more tightly, ultimately reducing the need to travel or organizing their travel more efficiently.  Meanwhile, business travelers are adopting a host of technologies that keeps them informed and connected virtually.

The commercial airline response to financial strain may, in fact, lead passengers to alternate modes of transportation; physical and virtual.

While commercial and private aviation is reacting to RPM denominated in dollars, the customers are responding to a social currency.  Private aviation has accurately identified the burdens imposed by the commercial airlines industry to distinguish itself as a viable alternative.  Now, the challenge is to express this as a social currency denominated asset prior to converting back to dollars denominated ticket price, not after.