Photo: Pink SherbetI typed this from 10,000 feet, while on my way to the annual econ gabfest known as the ASSA meetings. I was lucky enough to score an upgrade to first class, and as I settled into my seat I was informed about the most astonishing cost-cutting measure: U.S. Airways has taken the coat hangers out of its planes.
Arriving uncrumpled used to be one of the few perks for those at the front of the plane, but now the racks behind seat 4B sit unemployed. It can’t be that these hangers had much value on the secondary market, and the number of flight attendants hasn’t changed, so I can only guess that the cost reductions come from the fuel savings that come from carrying a few less ounces. (How big could these be?)
But U.S. Airways beware: If I were an aspiring entrepreneur, I would be rushing a collapsible travel hanger onto the market; and if this occurs, passengers will simply be adding that extra weight onto their carry-on bags, undoing the airline’s cost savings. And that’s the difference between the simple accounting of cost-cutting and the economic approach, which takes account of how behavior responds to incentives.
In fact, I had a hanger in the bottom of my bag, and so I arrived in San Francisco, recognizable as the least-crumpled economist.
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When will airline marketing departments understand that chiseling on full price passengers (or any other) is a good way to drive them to discount airlines.
G
In attempts to keep profitable, these guys have been doing all sort of ridiculous things…no pillows, blankets, now hangers. US Air even did away with movies on long domestic flights after measuring the fuel savings from not having to lug around that 10 pound DVD player.
One would think that the airlines would try to reinvent themselves as transportation companies and eliminate short routes and invest in rail.
I know what the problem was … They would have probably wanted the hangars to be free …
I published something on this question a while ago but it is still applicable: The real question is what is losing a pound worth? Here’s my rough estimate:
Let’s say your aircraft is worth $100 million and weighs 200,000 pounds empty. Does this mean your airplane is worth $500/pound? Probably not.
A better way to estimate the savings is to look at the total lifetime operating cost of the aircraft. In this case let’s imagine the aircraft will go 100,000 hours and costs $3500 per hour to fly. That’s $350 million. At the end of this time we assume the aircraft will be worthless and parked for parts salvage in Mojave. So that’s $350 million/200,000 pounds; or $1750/pound.
Let’s apply the reasonableness test to this: Does 1750/pound mean that your typical Boeing 767 sitting on the ramp is worth $1750/pound? No. This figure says that the cost of flying one pound of airplane all over the sky for 100,000 hours $1750. That’s perfectly reasonable.
So how much should you pay up-front to avoid the $1750/pound expense? If you invested $860 compounded annually (with zero inflation) at 4.85% you would have $1750 in 15 years. So the answer to how much losing a pound of fixed aircraft weight could be $860.
There are many ways to figure this, but this should help.
Well, for passengers in coach, Northwest Airlines is no longer offering milk or lemon/limes. A couple behind me on a 3.5-hour flight predicted a disaster situation with their 18-month old when they were told milk was no longer available as a cost-saving measure. They were right.
I don’t think this will result in any new products or shift in demand for milk or coach tickets (although there is a surplus of milk right now), but it makes me wonder what they’ll cut next.
Maybe it was a typo in a cost reduction memo:
“maintain fewer hangers”
versus hangars.
Crumpled suitcoats abound.
interesting but irrelevant mainly. The person making the hanger decision probably coud not have done Eric’s math. Somebody that well trained would have understood that adding a pound of hangers (probably less) to the 200,000 pound aircraft might have an impact of 1.7 cents per hour on operating cost (I believe the actual operating cost of the craft is quite a bit higher than $3500/hr as that was a year 2000 estimate). US Airways has about 360 active aircraft, let’s assume they average $3,000/hr to operate (those old 737s they operate are cheaper to run). Across the entire fleet they have saved about $27,300 per year assuming 360 active days and 12 active hours per day per aircraft, which I believe is generous. Thus they have jeopardized the goodwill of their passengers for an amount roughly equal to 40 transcon coach tickets or 7 paid first class tickets.
This is a great demonstration of why whatever we teach in business schools doesn’t always seem to come through in actual firm behavior. Next time I’m sentenced to fly USAirways (an acronym for Unfortunately Still Alleghennu In Reliability) I’ll find the heaviest hanger I’ve got and carry that on board for my jacket.
Perhaps there was an policy set to free up some hangers within the company. They just freed the wrong kind of hanger.