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Ever since Wilbur and Orville’s first flight …

June 19, 2012

The airlines industry — in aggregate — hasn’t made money.

Think about that for a second.

There have been some brief periods of prosperity, but longer stretches of losses … some  pretty deep.

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Makes sense when you think about the number of airlines that that have consolidated, gone through bankruptcy or fallen off the radar screen (think, Pan Am, Eastern, TWA)

The irony is that we feel gouged by airlines … especially when they start charging us for bags and peanuts.

Side note: “ancillary revenue” supplements the flight by another $18 per person on a 100-passenger flight.

That includes fees for checked baggage, seat assignments, ticket penalties and revenue from cargo.

According to the Bureau of Labor Statistics, baggage fees for the U.S. airline industry last year totaled a hefty $3.4 billion, or roughly $5 for every passenger boarded.

Cancellation and change fees totaled $2.4 billion, or more than $3 for every passenger.

Source: WSJ

What’s the problem?

First, there are pricing pressures.

In the past 15 years, fares haven’t come close to matching inflation.

In other words, “real” prices in the industry have stayed flat or declined.

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That makes sense …

In the airlines, there’s a huge amount of capacity … something close to a commodity product … with high fixed costs and virtually no marginal costs.

Since one more  passenger.doesn’t cost you anything except, maybe a cup of coffee, there’s great  temptation to sell seats at rock bottom prices — just to fill them.

Further, there’s the Southwest factor.  Legacy airlines (think United or American) have big infrastructures, huge hub-and-spoke networks, old fuel – inefficient planes, and high cost, unionized employees.  Southwest’s cost-effective operations — point-to-point network, fuel-efficient 737s,  happy employees — changed the pricing game.

Then, think about fuel costs — generally high, and subject to wide, unpredictable swings.

According to the WSJ, “fuel now is by far the biggest cost for airlines. , the tickets and fees of 29% of passengers pay just for the fuel to make the trip.

Airline gas mileage has improved over the years, the result of filling more seats on each flight, replacing multiple trips on small planes with fewer trips on larger aircraft and replacing older planes with newer, more fuel-efficient jets.

In 2000, U.S. airlines burned 28.6 gallons of jet fuel per passenger. Last year, that improved to 22.5 gallons per passenger. “

Add on maintenance that keeps the planes safe and government fees and taxes (think TSA) and the bottom line is that there is very little wiggle room on the plane for profit.

Put it all together, and airlines — the well run ones — are only able to convert  less than 1% of revenues into profits.

Decoding a Flight
Source: WSJ

Probably not what Wilbur & Orville had in mind …

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Next time you open a menu … spot how they’re playing with your mind.

July 15, 2010

In his new book, Priceless: The Myth of Fair Value (and How to Take Advantage of It), author William Poundstone dissects the marketing tricks built into menus—for example, how something as simple as typography can drive you toward or away from that $39 steak.

1. The Upper Right-Hand Corner
That’s the prime spot where diners’ eyes automatically go first.

Restaurants often use it to highlight a tasteful, expensive pile of food.

2. Pictures

Generally, pictures of food are powerful motivators but also menu taboos — mostly because they’re used in downscale chains like Chili’s and Applebee’s.

Red Lobster ditched pics when it started trying to inch upscale

3. The “Anchor”
The highest priced item on the menu may not ever get ordered.  That’s ok.  It’s purpose is to make everything else near it look like a relative bargain.

4. In The Vicinity
The restaurant’s high-profit dishes tend to cluster near the anchor.  They’re items at prices that seem comparatively modest (when compared to the anchor).. They’re the items the restaurant really wants you to buy.

5. Columns Are Killers
It’s a big mistake for restaurants to list prices in a straight column. “Customers will go down and choose from the cheapest items.”

Consultants say to omit “leader dots” that connect the dish to the price; and to drop dollar signs, decimal points, and cents

6. The Benefit Of Boxes
“A box draws attention and, usually, orders.

When you see an item in a box, think “high margin”

7. Menu Siberia
That’s where low-margin dishes that the regulars like end up. They’re there, but relatively easy-to-miss  … or so the restaurant hopes..

8. Bracketing
A regular trick …  it’s when the same dish comes in different sizes.

Because youre never sure of the portion size, you’re tempted to to trade up … especially from small to “regular” size.

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Excerpted from Priceless: The Myth of Fair Value (and How to Take Advantage of It), to be published in January by Hill & Wang, an imprint of Farrar, Straus & Giroux. © 2010 by William Poundstone.
http://nymag.com/restaurants/features/62498/