Wednesday, January 30, 2013

Why Does Anyone Fly Business Class?

I have done it twice in recent years, once to New Zealand and once to London, both times at someone else's expense. The main advantage was a seat comfortable enough to sleep in, fully horizontal in the case of the long flight to New Zealand, reclined in the case of the shorter London flight. I could imagine paying a hundred dollars or so for that, plus a little more for dinner, drinks, an electric socket at my seat to keep my laptop charged, and extra attention—perhaps as much as two hundred dollars each way, four hundred for the round trip. I no longer remember what the cost was for the flight to New Zealand, but I am pretty sure the difference between business class and tourist was considerably more than that. The London flight was more recent—I am currently on it—and the difference was about four thousand dollars.

Which raises the puzzle of the title. I am a reasonably well off inhabitant of one of the world's richest countries. Where do the airlines of the world find enough customers willing to pay ten times what I would be willing to pay to fill their business class (and first class) seats?

One possible answer is that I am not as well off as I think I am, relatively speaking, that there are a lot of people a lot richer than I am, willing to pay a much higher price for comfort. Another is that many people are more profligate—alternatively, less stingy—than I am. A third is suggested by my own experience—that a lot of those people are not paying for their own tickets. But that only replaces the question of why they are willing to pay the price with the question of why someone else is.

Perhaps that someone else is flying the passenger somewhere to do something important the next day, and having him rested and competent is worth the price. I doubt that can be the explanation for very many passengers. I expect that, in most cases, the cost of an extra day or two of recovery time would be considerably less than the extra cost of a business class fare.

Perhaps the explanation is the value of status. Passengers paying a business class fare are buying the feeling that they are Very Important People. Organizations that pay a speaker's fare are demonstrating that they consider him a Very Important Person, and the fact that their speakers are Very Important People makes them Very Important Organizations. That fits my later observation—I am now revising this post on my return flight—that several of the organizations I gave talks for over the past two weeks put me and my wife up in much fancier, and much more expensive, hotels than we would have chosen for ourselves.

Perhaps I'm just a tightwad. Or perhaps, as my wife suggests, the advantage of business class seats is greater for passengers who are more than five feet three and a half inches tall.

22 Comments:

At 5:30 PM, January 30, 2013, Blogger Navin Kumar said...

The simplest explanation is the first: as income rises, the marginal utility of the additional 900 dollars keeps declining until, for some people, it is less than the value of more leg room.

 
At 5:38 PM, January 30, 2013, Anonymous Anonymous said...

Over 90% of people in business class are frequent flyers who cashed in upgrades or miles. Most of the rest have the cost paid by someone else.

 
At 5:39 PM, January 30, 2013, Blogger Michael Strong said...

Another variable is the desirability of sleep and being well-rested: Some people function reasonably well while being poorly rested, whereas others really do need to be well rested to perform well. If one's per diem value is, say, $5,000, then an extra day (for rest for having flown coach) on either end of a trip makes it worth paying an extra $10K for business class (assuming one sleeps adequately to perform well for that extra $6K).

 
At 5:57 PM, January 30, 2013, Anonymous Perry E. Metzger said...

I generally have flown first and business only on other people's dimes or using upgrades. However, when I have been traveling regularly on business, it was actually important to me and I made considerable efforts to get upgraded. As has already been said, in my experience most of those around me were upgrades or flying on someone else's dime, with a relatively small number of people paying themselves.

The difference in my productivity if I got enough rest was significant, and on overnight flights the difference in my ability to sleep was very significant. When I was flying that often, not being upgraded could mean effectively losing a night's sleep at a time when I got very little rest already -- it was a serious issue to me.

I suspect your comment about your height is also more important than you think -- for sufficiently tall people, coach is a lot more uncomfortable than you might expect.

 
At 8:22 PM, January 30, 2013, Anonymous mdavid said...

Paid by somebody else generally means business. This expense is tax deductible, and inexpensive perk that would cost your or I much more.

 
At 8:26 PM, January 30, 2013, Anonymous blink said...

Back in the late '90s there was a down-grading scandal among NBA referees. Apparently those refs at least agreed with you and preferred the money to the seats. (The scandal was failing to report the difference as income, and the amounts were significant.)

 
At 10:51 PM, January 30, 2013, Blogger Brad said...

For international flights within my employer, it's automatic that anyone with a director-level title gets business class. (At least when times are good -- that's a perk that ebbs and flows over the years). It's both a perk of the title as well as the fact that people are expected to perform at a high level when they land. "An extra day" doesn't happen. People have families that they don't want to leave, and losing a work day is losing very valuable productivity. So it's worth it.

That said, I don't have a director-level title. So I'm fighting the "frequent-flyer" rat race scraping for upgrades whenever I can get them. And to your last point, yes, being 6'5", the extra legroom is *MUCH* more valuable to me than it is to most people!

 
At 11:50 PM, January 30, 2013, Anonymous ZHD said...

You are greatly over-thinking this. To poorly paraphrase Freud: sometimes business class is just business.

Most of my cohort who regularly fly business class (or better) do so on expense accounts of corporations. These expenses receive favorable treatment when it comes to tax time.

The other big group are the Airline Mile Turners, who frequent websites (e.g. TheMilesGuy) to find the most efficient way of getting airline miles. One of my friends who does this was boasting recently about a Chase Ink card loophole that allows you to accumulate 250,000 miles a year for $400

Cheers

 
At 3:15 AM, January 31, 2013, Anonymous Giles said...

If business class passengers are flying on business, then while "someone else" is paying for them, for non-small companies then the person authorising the payment isn't the person whose money it is. Essentially, it's a case of someone spending someone else's money on someone else.

Add the fact that it's one of the few non-taxable benefits in kind, and it makes sense.

 
At 5:08 AM, January 31, 2013, Blogger BG said...

I have personally had this same question for years and have tried to find the answer. I found one time, that the reclining seats on a round trip to Australia would cost an additional $7,000. So I've asked every possible source I can find in the airline industry and the business world and the consensus was government employee's are number 1 with business executives number 2. Government employees seem like a no brainer, but I believe that corporations use perks like 1st class travel as means of attracting talent (without the taxes on additional income?) Rounding out the rest are the frequent flyers that have so many points that this is a good way for them to spend them.

 
At 8:50 AM, January 31, 2013, Blogger lelnet said...

I do have to wonder where one finds these employers who cover the cost of business-class tickets. I've dealt with policies ranging from the tolerant end of "we'll pay the coach fare, and if you want to upgrade you can spend your own miles or cash to do it" to the extreme "if we catch you flying anything other than coach, even on your own dime, you will be immediately fired". But never, under any circumstances, would any of them have PAID for upgraded seats.

Fortunately, none of them has ever wanted me to fly internationally for them...and even on the longest flights within CONUS, it's tolerable to get an aisle seat, arrange myself sideways so that my knees are in the aisle at all times when doing so doesn't put me in violation of federal law, and then use drugs to cope with the days of back and neck pain that result from spending hours and hours in such an unnatural posture. (Yes, for those who are not unusually short, leg room matters.)

I've also found that United's "Economy Plus" seating is almost good enough to avoid this, and thus eminently worth the relatively small price premium...still way cheaper than Business class.

 
At 10:38 AM, January 31, 2013, Blogger HispanicPundit said...

A point I haven't seen specifically mentioned is that business class seats are largely purchased by employers for employees. The employee gets the "rewards", which is significantly more for business class purchases than non. So the employee wins.

The employer gets a happier employee and a tax write off. Win win.

 
At 1:38 PM, January 31, 2013, Anonymous Anonymous said...

Your late father answered this question:
http://www.youtube.com/watch?v=5RDMdc5r5z8

I think it's primarily from business employees who're using their business's money. The employee doesn't care about spending more and the business, controlled by managers somewhat disconnected from the pain of being relieved of the money don't care much either

 
At 5:30 PM, January 31, 2013, Blogger Patri Friedman said...

The "tax-deductible" explanation doesn't really work, when David is saying that the cost is 10x what he'd pay. Employers don't make money from the tax writeoffs of extra expenses, it just means that they are compensating the employee without the employee having to pay income tax, so it's worth a bit more than the same amount of salary.

I also think the "employer pays" explanation is very weak unless you add "status jockeying" and "there are principal/agent problems in stockholders preventing excessive bonuses".

And during the couple years when I traveled a lot, it was not uncommon for me to get a free business class upgrade due to my frequent flyer status. Think of those seats as primarily being rewards for loyal customers, and having a crazy cash price as a way to also occasionally price-discriminate and catch someone rich, or tall, or flying on another's dime.

 
At 10:47 PM, January 31, 2013, Blogger Paul McLellan said...

I used to fly 120,000 miles per year, going to Europe or Asia more than monthly. That's a lot of hours in those seats (about 240, or 6 work weeks). You work on the plane. You have to function the day you arrive.

 
At 8:23 PM, February 01, 2013, Anonymous ChrisA said...

The reason that many give here for the use of business class by businesses, that the cost can be deducted by tax, does not really explain the issue. After all expensive hotel rooms are also deductible against tax but mostly firms are not allowing their employees to stay in $5,000 suites.

The real reason is really that frequent travel in economy long distance sucks. It sucks really bad. If you have to travel to, say, Japan once a month in economy, you will quickly find reasons and excuses not to go. Travel is incredibly disruptive, both on your private time and to you normal work schedule. People react to this by trying to find ways to avoid travel, either by finding excuses or basically jobs with less travel.

In my experience senior people don't travel enough to really keep tabs on things. Companies need employees to travel frequently. Despite the internet and videoconferencing, there is really nothing like actually going to a place to understand what is really going on and what needs to be done to keep things on track.

This is why busineses allow business travel on long flights, in economic terms it decreases the marginal cost of travel to the employee so increases their tendency to travel.

Now there are problems with using business travel to incentivise your frequent flyers to fly when they should. You also have to offer this same perk to people who don't fly frequently at the same level. And also it is actually quite inefficient in terms of cost, you are spending a lot to incentivise someone to fly by a roundabout way using a third party.

By the way I once had an employer who recognised this, you could downgrade yourself to economy and the company and the employee would split half the difference. This recognises that actually there are other ways that the employee could be compensated for have to endure frequent flying. However the tax people did not like this and also the other people in the company who didn't fly as much started to complain about the folks who were making more money than them.

 
At 9:58 PM, February 02, 2013, Anonymous Nightrunner said...

Standard economy seating on international flights ought to be a crime. People actually die from it.

 
At 12:52 AM, February 03, 2013, Anonymous ZHD said...

This post is now really interesting. Patri, do you typically refer to your father as David?

The "tax deductible" argument can seem weak if you're not an accountant. Business expense accounts are have an expected value, it is a benefit to the employee. People hiring consultants also understand the amount of waste they are purchasing.

 
At 1:31 PM, February 10, 2013, Anonymous Anonymous said...

Some corporations managed to negotiate reasonable deals. One firm I used to work for had a deal with AA to get first class seat LDN<->NYC for 1000 USD each way.
Also as others have said above - business class really make a difference if you're tall enough.
Also as for the AA - at least some time ago considerable number of travelers were AA and Sabre's employees who are using their employee perks - eg: I saw one guy buying first class ticket from Dallas to some city in Europe for his wife for $100.

 
At 10:11 PM, May 22, 2013, Anonymous Anonymous said...

Kevin stood up and said....I am paying to fly business class for (two seats) out of my own pocket and it is not work related for the following reasons. Shorter lines at check in and security. Use of lounges. Comfort of travel, meal choice and service. First on and off the aircraft. (I probably wouldn't bother if the flight was less than 3 hrs).
I don't think it is necessarily a cheap way to fly but I am willing to pay for it
I partially blame Lufthansa who once upgraded my economy ticket for $600 for the outbound leg of the journey. Which rather spoilt me. I made a photographic record of my trip and level of service. Outbound business class, tablecloth, silver ware and 3 course meal. Return economy class, sandwich in a paper bag.
That's my take on it for what it is worth
Thank you

 
At 10:03 AM, October 17, 2013, Anonymous Anonymous said...

I previously worked for a large organization that purchased business class tickets for trips in excess of 10 hours. When you are doing several of these per month and trying to keep on top of work, you need the space. You simply can't work for 8 hours in economy on a laptop with the person in front of you reclined. I also insisted in scheduling my trips so that I arrived on Monday morning in Europe and would go directly into work for the day. I also tried my best to stay the Saturday night to get the discounted fares.

For me the most critical part of the J fares was when something went wrong like a cancelled flight. I was always rescheduled, rerouted, or put on completely different airline to get me where I had to be on time. Meanwhile I would see economy class holders getting delays of several days because everything was booked up.

Now that I work in a different job with lots of personal travel and very little business travel I get a few free upgrades from the silver card and I do occasionally pay for the trip in business out of my pocket. There are some sectors that have upgrade costs of about 50% over the typical economy class fare but there are other sectors that are more than 10 times the price....I wouldn't think of these types of upgrades. Also, travelling by yourself is nicer in business/first but travelling with a friend might not be nice if the seating (lie flat seats) don't actually allow you to talk with the person you are going with.

 
At 11:29 AM, March 11, 2014, Anonymous Anonymous said...

Like one of the other posters, my first trip using Business Class was more or less unplanned - I flew close to Christmas once, and I had to return on a specific flight to get back for work in the New Year; the only available seats on the return flight were in Business and I gulped and paid. My total journey time door to door is about 48 hours, so being able to sleep for maybe 12 of those, and a shower at the halfway point, is really tempting despite the cost...

 

Post a Comment

<< Home