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Tuesday, July 10, 2007

Those peanuts can add up!!

I remember the American Airlines Bistro Bag (tm?) which was basically inedible but at least it was a gesture. The Bistro Bag is long gone and so too is the basic snack (peanuts, pretzels, or what have you), at least on American (which I fly mostly because of its huge presence at DFW).

Of course, even peanuts can add up to something that makes a difference. Airlines.org reports cost data for the recent past (quarterly) and back to 1990 (annually). One of the cost components is - food!

Here's a time plot of annual expenditures on food for the airline industry (as a whole) in millions of dollars:

Here's a time plot of the spending (in pennies) per seat mile:

The amazing drop-off after 2000 could have numerous sources: post 9-11 industry problems, a transfer of assets into security and maintenance, or the increasing commonality of flying. I haven't the time to grab average price per seat mile, but my bet is that since deregulation the prices have been falling, perhaps moreso since the so-called discount airlines have had deep impacts on the airline industry.

Before deregulation and the upstart discount airlines, American, Delta, and such, could use food (and other services) as a form of non-price competition. As regulation precluded lowering prices, airlines would offer more perks to induce customers to fly with them. Deregulation removed the price floors on airline travel and thus prices fall and non-price competition becomes less important: firms compete in price rather than in food.

Stata data file

What is the most likely cause of the drop in cost between 1990 and 1995? NAFTA? Fuel cost? What do you think happened?
I don't recall the exact citation, but I distinctly remember reading an economics tome -- coulda been a paper, coulda been a text -- arguing that the stereotype of pretty stewardesses emerged as a result of regulation's precluding price competition. That is, it was argued, airlines offered "amenities" in the form of attractive stewardesses, and from thence came the stereotype.
I think it's more plausible that Americans on average, including stewardesses have gotten less attractive in the last 10-15 years.
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