What happens when all the rich people stop traveling?

by Laura Townsend Elion on January 14, 2009

What would happen if the affluent travelers stayed home, businesses cut way back on trips, and everyone else had to cover an airline’s expenses? It’s a scary thought.

I think about it often. I have one of those ‘niche’ jobs – I study the very wealthy. Usually this is pretty fun, but lately it’s been pretty dismal with the revelation that the recession is causing even the super rich to re-think their way of life.

The pages of the Wall Street Journal are rife with examples of ‘it’ fashion designers eschewing costly runway events, art auctions experiencing record low sales, and luxury homes suffering multi-million dollar markdowns.

The harsh truth is that industries from fashion to finance to, dare I say it, travel, are subsidized by those folks who are willing to buy those high ticket items. When the economy was flying high, this was good news. Now that those free-spending ways are taking a dive, though, it might mean some changes are in order.

It’s not just the wealthy cutting back, either. Many businesses are slashing costs, too. I know the large international firm I work for has made some draconian policy changes – using Skype and teleconferencing to cut travel costs, as well as making executives fly coach and cutting out meetings deemed non-essential.

As Janice Hough recently pointed out, folks sitting in front of the curtain pay the lion’s share of an airline’s operating costs. Ditto goes for all other types of travel, like hotels and cruises.

What happens when full-fare customers disappear faster than Bernie Madoff’s billions? It won’t be pretty.

Airlines have long realized the vulnerability of their fare constructs, but kept with the status quo as long as it seemed to work and because no one could come up with anything better. Making all fares the same seems like a great idea. Very democratic and American. But in reality, it’s unappealing to both the average travelers (who already feel they’re paying too much) and the first class passenger (that resents the lack of choice and being treated like everyone else).

Some cruise lines are gravitating that way with ‘guaranteed low fare’ deals. Although this provides comfort to the passenger, it also takes away the thrill of bargain hunting and thwarts those gambling that a fare will go down much closer to the trip date. This is getting suspiciously close to a one-price-fits-all pricing strategy. It’s less of a convenience for us than it is a safeguard for them. Add to that all the mergers taking place (and the reduction of competitors), and what do you get?

So, in light of volatile fuel markets, the recession, terrorist concerns, airline and other travel industry company consolidations, and all the other ‘perfect storm’ deterrents to travel, will 2009 or 2010 be the year of new pricing structures? And what do you think they will look like?

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Tagged as: economy, ticket prices

  • Frank

    I think about it often. I have one of those ‘niche’ jobs – I study the very wealthy. Usually this is pretty fun, but lately it’s been pretty dismal with the revelation that the recession is causing even the super rich to re-think their way of life.
    ===========================================================

    FYI, the very wealthy DO NOT fly commercial. They fly private jets, either rented or owned.

    I dont think I’ll ever see JLo and Mark at Security, or for that matter, in First Class even.

    New Pricing structure? I highly doubt it. Most carriers anticipated the reduction of flying and reduced CAPACITY.

  • marge

    Frank! You’re always so cheerful! How do you do it?

  • Carlo

    That’s not true, by the way. Have you ever read some of Wysong’s columns. I think he’s mentioned a celebrity or two, and not just the B-list variety. Some of them are concerned about their carbon footprint, for example, and wouldn’t dream of flying a private jet just for themselves. I believe there was some dust-up a while back over Prince Charles and a flight he took to the US not too long ago, which, I believe, was also on a commercial flight, not on a privately owned jet.

  • SirWired

    I would argue that the elite travelers do NOT carry the majority of the operating costs (the link doesn’t work, so I can’t read the referenced article), they merely supply the majority of the profit. As such, any resulting fare increase due to the reduction of the highly profitable front-plane passengers would result in relatively modest fare increases for coach.

    If the business class passengers provided the majority of the revenue (in addition to all the profit), why does coach exist at all? The airlines aren’t carrying those passengers out of charity! If coach provided no benefit, those seats would have been replaced a long time ago by air cargo or a plane full of business seats.

    SirWired

  • Chris

    The Uber rich fly private aircraft, and do not use the major airports. It is the upper end of the upper middle class that flies first class – if they can get their firms to justify paying for it. Everyone else is stuck flying coach (as I do for business).

    If a business is lucky, it will have enough people flying from one city to another on a regular basis (as my firm currently does) to hire a private aircraft and have a regularly scheduled charter between those cities. This makes financial sense as well as practical sense, as the costs are fixed *and* it is much easier to fly when you don’t have to wait on long lines at TSA security points.

    This leaves the average traveler with all the headaches of commercial air travel. Since 9/11, I have found it more of a nuisance to fly than it has been worth to me. As a result, I have taken vacations where I can avoid using public aircraft to get where I’m going. (Three cheers for Amtrak – it’s not up to the standards of the rail travel of old, but I don’t feel like I’m herded into a cattle car as I do when I’ve taken commercial flights.)

    We are likely to see continued pressure on the airlines to cut costs, and reduce service. And this will likely cause 2009 and beyond to be more dismal than ever for air travel. (Too bad that the airlines still focus on market share to all markets instead of serving the markets they can profitably serve well. )

  • Steve

    You say your job is to study the very wealthy and quip “What happens when full-fare customers disappear faster than Bernie Madoff’s billions?”
    It never was Bernie Madoff’s billions!

  • Frank

    On January 14th, 2009 at 2:47 pm marge said Frank! You’re always so cheerful! How do you do it?
    ===================================================

    Since when does anyone have to be “cheerful” when stating an OPINION.

  • Frank

    On January 14th, 2009 at 3:02 pm Carlo said That’s not true, by the way. Have you ever read some of Wysong’s columns. I think he’s mentioned a celebrity or two, and not just the B-list variety.
    ==================================================

    Trust me, Carlo. The super rich dont even go near “commercial”. I’ve had dozens and dozens of celebrities over the years, but, few of THEM are in that crowd of riches.

  • Amy

    Both the wealthy and superwealthy fly commercial. It depends on what their needs are for the time. Chartering a plane can cost hundreds of thousands of dollars, so unless it’s specific, one person cannot consistently foot the bill for a private plane. Some stars own planes (Travolta, Jolie), otherwise it’s the companies that foot the bills for the private planes for tours and press junkets. I have worked for airlines as well, and I’ve had Oprah and P.Diddy in first class with us – and both have companies with their own planes. Celebs don’t exclusively fly private, but they likely don’t fly coach, either. And the “super rich” will choose their carriers better. They’re not likely to fly American Airlines to London if they can take Virgin Atlantic’s mega first class instead. (Unless you’re Charlize Theron, who I understand had some sort of deal with American Airlines.)

  • Frank

    On January 15th, 2009 at 12:49 pm Amy said Both the wealthy and superwealthy fly commercial. It depends on what their needs are for the time. Chartering a plane can cost hundreds of thousands of dollars, so unless it’s specific, one person cannot consistently foot the bill for a private plane.
    ======================================================

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