Thought for the day. The UPS method of pricing for airlines.

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Businesses usually try to set prices in relationship to costs. The things that cost more to create and sell usually are priced higher. While competitive pressures can change this “rule,” a business that departs too far from the cost / price relationship can experience a serious loss in profits and business viability.

I remember when stock brokers charged on a per-share basis, so trading 100 shares cost more than 10 shares. But, for the brokers, the cost and effort of trading a large lot were nearly the same as for a small lot, so today, brokerages mostly charge on a flat, per-trade basis.

Losses are a key cost of insurance, so insurance companies generally charge more for higher risk. Machine-made generally is more costly than hand-made, so prices for hand-made things usually are higher.

For UPS, one significant cost is fuel. UPS charges more for heavier packages going farther, and less for lighter packages going nearer. Makes sense.

Airline costs are even more fuel-related than those of UPS, because airlines don’t have truck delivery considerations. Yet, airlines don’t price according to costs – or at least not as closely as they could.

All passengers, heavy or light, pay the same, with the differences not related to weight, but rather to how they purchase their tickets (On line or through a consolidator like Orbitz or how far in advance or season, etc.). Some airlines have begun to charge for luggage, which considers the reality that luggage has weight, therefore uses fuel. Spirit airlines comes closest to the cost/price relationship, by unbundling almost everything – luggage, food, seat location — but even they don’t charge extra for some weight-related things like purses and under-seat packages.

What if an airline went all the way with cost-related pricing? Every passenger would pay according to total weight. At check-in, the passenger would step on a big scale, along with all his/her luggage, carry-on, lap-top, coat, hat, briefcase, snack, magazine, crutches, wheelchair – everything. The total weight multiplied by the total miles would determine the price of the ticket – in short, the UPS method of pricing.

Men mostly would pay more than women. Football players would pay lots more. Anorexic models would pay less. Children, much less. Heavy purses, more. Heavy boots, more. Morbidly obese people, who flow over into adjoining seats, way more.

Ultimately, the thinner, less-baggage-encumbered flying public would gravitate to the lower priced airline, which because it would use less fuel per passenger, could afford to charge its lower prices.

So in summary. Price is the prime motivator for consumer airline choice. Fuel is the prime airline cost. Weight and distance are the prime fuel determinants. So the airline that charges by weight and distance can afford to charge less, thereby attracting more passengers.

I think UPS has it right. They charge packages by weight and distance. After all, today’s airlines already think of us as nothing more than freight, don’t they? Why not copy UPS?

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.