Here’s a lesson in marginal costs.
If you buy business class seats rather than coach on AirTran, you will pay $100 to $200 more. However, if you upgrade at the moment you check in – whether online or at the airport – you’ll only pay $50 more. An empty seat in business class earns the airline $0 once the jet takes off, so why not capture those marginal buyers? This is an example of price discrimination – charging different prices to buyers with different preferences. Someone who wants to guarantee a business class seat has to pay $300 or more; someone who’s willing to gamble on a seat opening up the morning of can pay half that.
And the profit margins must be tremendous. For that extra $50, I got:
- Two gin and tonics;
- My choice from an overstuffed snack basket (I took a bag of T.G.I. Friday’s Chedder + Sour Cream potato crisps and some Milanos)
- More than enough leg room
The nips of Tanqueray can’t cost more than $3 apiece – probably less, through wholesaling and B-to-B pricing. Add to that $0.50 worth of soda and $2 worth of snacks, and that’s $8.50 worth of food and drink. I can’t imagine the inches of extra leg room would accommodate another row of seats, so they’re not losing much in the way of additional passengers. Let’s price the extra attention from air stewards at $1.50, just to make the numbers round.
This makes $50 in revenue vs. $10 in costs, for a 400%
profit margin return on investment. Not bad!
I cannot stress enough how wonderful two gin and tonics make me feel. It’s that warm acceptance of everything that crosses my path – a pleasant, liquid balance. Any less than that and I feel nothing; any more and I start rolling down the slope toward sloppiness. I suppose alcohol’s power over me should frighten me more, but I felt too happy to mind. Tanqueray, a comfortable chair and low lighting – that’s the life of the jet-setter.