December 15, 2008

penny wise and pound foolish

Things are tough all over these days. Foreclosures at record highs. Unemployment soaring. Dire projections for holiday retail with consumer confidence in the toilet. It's so bad that people are now throwing shoes at heads of state. (Where do I sign up for that? Is it like a dunk tank or something?)

So I get that companies need to cut expenses. I get that. But come on.

First, I read about the NFL laying off 150 of its 1,100 workers. First, who knew that the NFL employed 1,100 people that weren't players or coaches? Second, assume the average salary of those laid off is $100,000. That's a pretty generous assumption since it's rare that the highly paid management get laid off in these situations. But let's say that's the case. The league has revenues of $6.5 billion. 150 fewer employees at $100,000 a pop amounts to a savings of about $15 million. So the league, under pressure from the severe economic hardship around them, dumps 150 employees for the enormous savings of 0.2% of revenue. By the way, $4.5 billion of that $6.5 billion goes to player salaries. What's next? Because of the economy, will the NFL start charging for coffee in business meetings? Speaking of charging for coffee...

A few years ago, many airlines stopped serving meals on board for "free." Your $500 round trip fare no longer entitled you to having food provided, even on long trips. OK, whatever, I can see how serving hot meals may actually be a pretty big expense and a huge pain in the ass. Then many airlines even stopped handing out peanuts, ending a tradition dating back to 1904, when Orville threw a handful of peanuts at Wilbur after losing the coin flip to see who would make the first flight. Recently, many airlines have begun charging for luggage... some only charge for checked bags if you have more than one, others have begun charging for even one checked bag. Who came up with this stroke of genius is unknown. I bet it's made gate-checks amusing for the airline staff as more people try to carry on their luggage.

Today, though, I discovered that US Air has not only done all those things, but they've come up with the most ingenious cost-cutting, revenue-producing move of all: charging for drinks! I'm not talking about the $4 for beer, $5 for wine (which on US Air is now $7 each). I'm talking about what used to be "complimentary soft drinks and coffee." Now soft drinks are $2. And a cup of coffee is $1. A dollar for a cup of coffee. On the airplane. Stop the madness!

If they served 10,000 free cups of coffee a day, let's say their cost of serving it is maybe $5,000. Now, instead of losing that $5,000 a day, they're earning $10,000 a day. Heck, quadruple that and say they're making a $60,000 daily bump on their books. Over 365 days, that's $2.2 million. And the soda... For simplicity, let's assume that's $2.8 million a year, amounting to $5 million a year difference on the books. Compare to their revenues of $11.7 billion and net income in 2007 of $427 million.

Let me ask you: How much is free soda and coffee worth?

Yeah, I'll think four or five times before picking US Air for my business travel. I can't wait until Southwest reaches Minneapolis and Charlotte.


Anonymous said...

I think that soda probably costs about $.02 per ounce...or $.24 a can. Can we verify that US Airways is actually selling whole cans or just those little cups?

Chris Eldin said...

Yes, you're right. Those 'small' things are what differentiates one airline or hotel from another. It's marketing stupidity.

writtenwyrdd said...

I know the cost is nothing compared to the cost of the tickets, but I feel so abused ponying up $2 for a can of cola or a buck for coffee. I generally bring a liter of water with me onto the plane, for which I had to pay about $5 in the terminal, which is bad enough.

At least they don't charge seniors for water...or they didn't used to.

Blogless Troll said...

There's always some silly ass thing airlines are doing.

We recently flew Delta and you get to check one bag free. If it weighs more than 50 pounds they charge you $90. But they only charge you $25 bucks for a second bag. I have no idea what they're trying to encourage/discourage or if the department that came up with the $90 charge knows what the department that came up with the $25 charge is doing.

Plus, we bought 5 tickets and they charged us for 5 tickets. Then two days later they credited the amount for 2 tickets back to us. I spent upwards of two hours on the phone trying to convince these jokers I owed them money and that I didn't want to show up on travel day 2 tickets short. But their computer said I paid for 5 tickets so I got 5 tickets for the price of 3. Woo hoo! I used the extra money to buy everyone on board a round of $2 Cokes. (Not really.)

Sarah Laurenson said...

Airlines added the price of checking luggage because the price of fuel was so high. But have they noticed the price of fuel these days? You betcha. Does that mean they're getting rid of the extra cost? Not a chance. Once it's in, it's in. End of story.

I usually fly American when I visit family, but wound up on Continental once, can't remember why. They were so much better, so much nicer that I can even forgive them having Houston as their hub and getting people bit by scorpions.