The Wiki Man

Never seen the need for a class system? Take a long-haul flight

17 August 2013

9:00 AM

17 August 2013

9:00 AM

Usually it is annoying when you have to board an aeroplane via a shuttle bus rather than an airbridge. The exception is when the plane is a 747. That’s because, with the single exception of Lincoln Cathedral, the Boeing 747-400 is the most beautiful thing ever conceived by the mind of man. Any chance to see one at close quarters is a delight.

But aside from the engineering, the most beautiful thing about a long-haul airliner is the economic wizardry which keeps it flying. On board are a variety of seats from the sybaritic to the spartan for which people have paid wildly varying amounts of money, even though each seat will reach the same destination in the same length of time. You may find this class division offensive. However, if you were to try to make aircraft egalitarian, the system would collapse. Without the people in the front paying handsomely to sit in splendour, many of the people in the back could not afford to travel at all. An airliner is in some ways slightly socialist — it redistributes wealth through voluntary means.

This redistribution works in both directions. You can operate business-class-only flights. Indeed, if you can fill them, these are highly profitable. But there is a problem here. Business travellers prefer airlines which offer frequent flights to their destination, since they value flexibility and wish to avoid needless hours or days spent away from home. Without economy class passengers, you cannot operate sufficiently frequent flights to suit business schedules. Hence almost all long-haul airliners are symbiotically configured for mixed classes.

I sometimes suggest that we would similarly benefit from having different classes of travel on the London Underground. If the first two carriages in each train cost three times as much as the others but offered free Wi-Fi, and were furnished not with basic seats but with the sumptuousness of an Edwardian-era New Orleans brothel, you could afford to run more trains. Almost everyone finds this idea repellent.

But I’d like to issue a challenge to any libertarians, economists, ethicists or software gurus reading this column. How do you get people with wildly differing willingness or ability to pay to fund some common good other than through redistributive taxation? I am thinking specifically of my daughter’s bus journey to school.

I have twin daughters who go to different schools. One school offers a bus service, the other doesn’t. In the second case, along a 14-mile route, we need as many parents as possible to sign up to fund a bus pool. The problem arises because parents have a widely varying ability and willingness to pay — I would guess between £15 and £3 a day, depending on wealth, distance and available free time. It is still worth picking up children whose parents would only pay £3, since it reduces the cost for everyone. If we were to adopt the airline system, it would be easy. Children paying £15 would sit on thrones at the front of the bus enjoying a shiatsu massage while those whose parents paid only £3 would be forced to sit on a spike. But school buses aren’t kitted out like this.

My contention is that it should be possible to devise software which solves this problem: everyone secretly reveals what they would be willing to pay, and an algorithm generates a mutually agreeable ‘fair’ pricing scheme. An online auction would not work, since there are more seats on a bus than there are children on the route. How can you avoid people gaming the system? The price each parent pays could theoretically be kept confidential, but in reality would not remain so. Suggestions on a first-or second-class postcard, please.

Got something to add? Join the discussion and comment below.

Rory Sutherland is vice-chairman of Ogilvy Group UK.

Show comments
  • Matthew Woods

    “it redistributes wealth through voluntary means”….so it’s a libertarian airliner then, not a socialist one? The socialist airliner would have half the plane travelling for free and everyone else paying £5000-return to sit in economy class.

    • iambateman

      yea, definitely not socialist.

      But the idea is interesting. I’d be interested in exploiting income inequality for other types of transit (or restaurants too maybe?)

      • JCNow

        Because under a socialistic system, there would be no differences between the types of seats since it would be the passengers themselves who would own the plane.

    • JCNow

      On the other hand, the capitalism model would provide full-pull out beds, champagne on ice, and gourmet meals for the wealthy, with everyone else squatting on bicycle seats ten to row. Wait, that’s actually pretty much what it’s like already, right?

  • Donovan Hide

    Rory, I suggest you apply for a job at RyanAir or Virgin Trains where yield maximisation is the norm. The simple answer to your questions on public transport funding is that the source should be the exchequer and the funding of that is direct and progressive taxation. Every member of the public then has equal access to high quality public transport. Also suggest you visit France or Germany for more enlightened inspiration.

    • rorysutherland

      But equal access is silly when you have unequal needs, unequal demand, unequal everything. This isn’t healthcare – there is nothing inherently virtuous about travelling about.

      Yield management solves the problem far more neatly than redistributive taxation. By varying prices depending on when you travel and how early you book, it makes rail travel affordable to those flexible enough to plan a journey and travel at off-peak hours, while alleviating overcrowding at peak times. What’s not to like?

      • davidshort10

        Nowadays there is something very levelling about air travel – security or the appearance of it. No fast lane to speak of any more. You have to get to the airport so long in advance now and spend your time with lots of other people that it takes away the comfort of biz or first-class, even on long-haul, as you can be frazzled and exhausted by the time you get to your seat. The days of wafting through to airside and swigging free champagne in the lounge before speedy boarding are gone. I remember being stuck in what resembled a cage in the middle of the night at Nairobi airport and realising that people who had paid seven to ten times what I had paid were sitting with us. As for Ryanair, I never travel with it unless there is no choice, as there is not when travelling to much of southern Europe, but I was quite pleasantly surprised by a return Palermo-London-Palermo trip lately. The aircraft was new and clean and I had plenty of legroom. I had paid to book my seat and chose a seat above the wing, so I suppose that’s the equivalent of business class – not having to scramble for a seat or risk being stuck between two fat chavs.

  • kmonnie

    About the people on a plane. I’m not very familiar with airplane economics, but isn’t a first class ticket just a fair price for the extra service and leg space you occupy when you sit there? You’re suggesting that the people in first class are doing the rest of the plane a favor. I’m suggesting that it would be perfectly economically feasable to replace 20 first class seats with 40 regular ones.

    About the children on a bus. This case is about human emotions, which in our society we try to respect. We therefore allow richer people to enjoy their riches, as long as they don’t make poorer people FEEL BAD. No-one cares if a rich kid is dropped off around the corner by his own personal limousine driver. It’s when class differences become to (visually) apparent, that the poorer kids will start feeling bad and people will protest. (simply imagine your daughter having to stand in the bus everyday, as all the seats are filled with rich kids of arabic sjeiks who can easily outspend you)

    About the people on the subway. This one looks like a proper functioning market to me.. I’m guessing the reason that there is no first class on the subway, is that there already is one, on the normal way. I mean, when you have to pay three times the price of a regular ticket, couldn’t you just have taken a cab? How many people will walk to the subway station if they can get in a cab wherever and whenever they want, to be dropped off at their exact destination?

    While I agree with you that the economical ecosystems are very interesting, I disagree with your ideas about forcefully implementing them wherever. Capitalism and markets will do that job splendidly for us.

    • Some good points, although the airlines do generally get much better margins out of first class seats, even when accounting for the extra space and service.

    • itdoesntaddup

      A quick search for a flight LHR-JFK direct outbound 10 Sep return 12 Sep showed a fare of about £1200 in economy, and £7800 in first class. I don’t think they get six times the space – and if you book in advance with some flexible dates/times, a sub £300 economy fare is possible.

      Of course, the Paris Métro used to operate with first class carriages. Here’s what happened to it:

      • rorysutherland

        The 1st-Class on the Paris Metro was, as I remember from the 1980s, deregulated at peak hours. So a 1st-Class ticket only applied when travelling at, say, 11am, when there was no risk of overcrowding in any case. So hardly surprising no-one bought these tickets. (The 1st-class carriages were identical in every aspect to the rest of the train, though the seat fabric may have been a different colour.)

        By way of contrast, this is one of the Pullman Cars from the Metropolitan Line in the late 1920s. There was an adjoining restaurant car as well, serving a full cooked breakfast.

        • itdoesntaddup

          I recall an era when the Métro first class was more rigourously enforced, and when those carriages were rather less crowded even in prime rush hour. Pre 1982, I’m told, when the regime you describe started. The trains were never quite as elegant as the Pullman, although some of the stations do rival the Moscow metro for design.

        • george

          Lordy. Apart from the medicine and the politics, those were the days….

      • kmonnie

        Ok so, they are overpriced. If you can sell seats for 6 times the regular price, why not? The point I really want to make, is that this ecosystem isn’t Necessary to keep the airplane in the air. Consider budget flights where every passenger pays around 50 euro’s to fly across Europe! Of course, richer passengers avoid these airlines (think hard-plastic interiors and noisy, barfing teens) and they can, because the market provided them with a more expensive, more luxurious alternative. What I get from this piece is that there aren’t enough class distinctions. I would say there are exactly the right amount, as many as the market allows. It is simply not feasible to have a mega-luxurious extra compartment in London Underground trains, because no-one would pay for it. It is also not feasible to have a first and second class school bus, because creating class differences between school children will make sure someone get’s bullied to death on the schoolyard.

        (What might be possible though, is to pay the bus driver extra to visit your house last, so you have more time at home 🙂

    • El_Sid

      Nope – airline economics are a classic example of how premium pricing works, charging a lot more for a relatively cheap/small improvement in service. In very rough terms, cattle class tickets pay for their share of the fuel bill, whereas the premium seats pay for their share of fuel plus everything else – the plane, the airport, back office and (hopefully) a profit margin. The marginal cost of providing a few glasses of champagne and some steak are trivial in comparison to the additional price of the ticket, even when you allow for the reduced seat density.

      How many people will walk to the subway station if they can get in a cab
      wherever and whenever they want, to be dropped off at their exact

      Your terminology suggests a lack of familiarity with British rush hours – where rail is much the quickest way to get places. Plus our cabs are rather more than 3x the cost per mile.

      Capitalism and markets will do that job splendidly for us.

      err – Rory is trying to find a market-based solution to the problem, that’s the point.

      • kmonnie

        Because Ryan Air doesn’t have planes, air ports and back offices? Right.

        Indeed, I am largely unfamiliar with the British rush hour, but I’m guessing it’s a scaled up version of the one we have in Holland, where I am from. Over here, we have first class compartments in (regular) trains. The passenger load there has been declining for years. Most people who do take advantage of it, are (railway) employees who benefit from some corporate arrangement. And it’s the same story with airlines. They’re all downsizing their first class compartments, because the only people using them got in with frequent flyer miles.

        Bottomline: there is no market for the first class anymore. If anything, they should try adding a 3rd class. (you could argue, that that is what Ryan Air has been doing all along)

        • Jim

          Your comments demonstrate you know very little about the topic. To be completely and brutally frank, I recommend reading and learning more before posting such obviously uninformed opinions.

        • El_Sid

          Short-haul airlines are a separate category and the economics are different – we’re talking about those routes where there is sufficient demand to justify premium cabins. For an airline like British Airways, premium seats provide about half their revenue from 10% of the seats.

          As an aside – one of the keys to Ryanair’s business model is that they don’t pay for airports if they can help it, in fact the airports pay for Ryanair to land there – ultimately the cost of the airport is paid for largely by local taxpayers in airport subsidies.

          British rushhours – in particular in London – are not simply a scaled-up version of NL’s. The NL is notable for having lots of individual centres, whereas most of London’s commuting is to a single central zone. And London is a lot more cramped – Greater London has a bigger population than the Randstad, in one third of the area. That has all sorts of implications for the relative merits of rail versus cab/road – traffic jams in the centre are even worse than in Holland thanks to the concentration effect, but the economies of scale mean that southeast England has around double the railways of NL, and the London Underground has 10x the track length of the Amsterdam Metro. So around 50% of commuter journeys into London use overland rail (and around 90% of all London commuting is by public transport).

          As for first-class rail use – in the UK it has increased from 6.7m journeys to 11m journeys in the last decade, a little more than the overall growth in rail travel. Obviously those headline figures cover very different types of first class travel – the intercity market has very different factors to the London commuter lines – but it suggests that far from there being no market for first class, a significant number of people are prepared to pay some kind of premium.

          • kmonnie

            Well, when you scale things up (linearly), the most problematic factors are usually the ones that grow exponentially. I know your traffic jams get bad, we’re actually thaught in primary school about London butterflies that turn white in the winter and black in the summer, adapting to snow and smog respectively.

            Anyways, given the amount of people that need to get from A to B during London’s rush hour, how much would a first class seat have to cost? Let’s say that a ticket has to guarantee a comfortable seat with plenty of leg space and there has to be some minimal form of service. Would thrice the price be enough? First class tickets on airplanes are 6x as expensive as regular ones. Both very expensive options… A first class seat on a dutch train is about twice as expensive as a regular one (and they’re not selling very well at full price – maybe because it’s more expensive than taking your car). I like your analysis but I still am very very sceptical of the economic feasibility of this idea.

            Btw, in the article you quote it also says why so many tickets are sold:

            Sales of Advance first class tickets, where passengers book in advance to take advantage of discounted travel, have increased from 3.6 million in 2008 to 6.3 million in 2012

            First class journeys made by passengers using a Railcard, which provides discounts of up to a third off most fares, have risen by 52% between 2009 and 2012, from 1.3 million journeys in 2009 to 2.0 million.


            In Holland we see the same. Our first class was empty most of the time, so the railway company started discounting it. Now it’s sort of working again, but people aren’t paying the oh so profitable premium prices anymore.

          • El_Sid

            I suspect you may be thinking of the peppered moth story, which happened not over months but over decades. They became black as a response to the soot of the Industrial Revolution, and more are now white as the pollution has been cleared up since the 1950s.

            As I say, the commuter first class and intercity first class are different things. On the commuter trains first class means nothing – the seat is a different fabric but that’s about all, no champagne at your seat or anything. All you get is fewer tickets sold per seat, so you’re more or less guaranteed a seat. For that you pay a 50% premium – for a typical 30 minute journey the yearly ticket is GBP5000 rather than a bit over GBP3000. Certainly on the peak rush hour trains, the first class seats are pretty full (and second class is standing-only and packed) – people are prepared to pay it.

            On long-distance trains the premium is usually a bit less (40-45%) but you get separate carriages with nicer seats and more facilities. Yes a lot of the growth since the crash has been on discount upgrades – but there was still a lot of growth in first class before the crash, which points to an underlying demand even if the economy isn’t in its favour at the moment. It sounds like first class in NL was a real disaster zone, whereas here it was growing in every year except the one year after the crash. And most of those discount upgrades aren’t taking money away from full-price first class – they’re not available on the main business trains, it’s more people like my elderly mother giving herself a little treat at the weekend. It’s a way to get £10-20 extra out of people who would otherwise go second class.

          • kmonnie

            You’re absolutely right (it was a long time ago :). I always envisioned rush hour London like a sort of smokey, dirty place – guess it’s not that bad 🙂

            First class in NL is exactly how you describe your commuter first class. For most people here, it’s just not worth it. Especially since trains are rather expensive already. Like I said – our second class is in the same price range as driving your car.

            The real question though, is this: how do you know in which circumstances the benefits of a class based system outweigh those of a (for lack of a better term) singular system?

          • El_Sid

            Our trains are also comparable in price to travelling by road – but going in to London I almost never go by road, from here train is significantly quicker and less hassle. Most of the time, anyway!

            For the commuter trains it’s pretty easy – as the first-class seats don’t take up any more room than second, nor are there any marginal costs associated with providing champagne, then it’s simply a way to charge x% more for the same seat. A percentage of your passengers will continue to pay that premium as long as they feel they are guaranteed a seat (and that they would have to stand in second). So you just monitor occupancy levels and adjust the x% until you’re nearly filling the first class seats at peak times.

            The main cost in this example is non-financial, all the second-class people who would be able to sit down if first class was abolished – but given the response to any kind of price increase I suspect they would rather pay less and stand than have a 5% more chance of a seat for 8% more cost (or however the numbers work out). I can’t see it happening on the commuter trains, just because there’s near 100% occupancy of first class at peak times. There’s more of a debate to be had about first class on intercities, where first class occupies much higher % of the seats, occupancy is less and there are extra costs associated with it. But the commuter trains are closer to how I’d imagine first class on the Underground would work.

          • kmonnie

            Less hassle, that’s true. Also less parking costs I guess. But also no screaming babies, people listening to music too loud, people talking loudly on their phone and no chance of annoying delays. I jsut dislike public transport.

            In the end, the math should be the same for the commuter and intercity trains. Only the parameters change.

            If the objective is to make as much revenue as possible, the solution is easy:

            revenue = Sum over classes: ( people * classTicketPrice )

            The optimum is to have everyone standing in 1 super expensive first class.

            The tricky bit is that the true objective is profit.

            profit = Sum over classes: ( people * classTicketPrice – seats * classSeatCost )

            Granted, it’s a simple approximation, but already MUCH harder to optimize.

            (have to go to work, more later)

          • rorysutherland

            The really weird thing about Dutch railways is that, except at Schiphol and Amsterdam Central, you can’t use credit cards to buy a ticket.

          • rorysutherland

            On the other hand, Dutch nightime rail journeys are disproportionately enjoyable owing to that peculiar Dutch tradition of not installing curtains in downstairs room. It’s like a moving version of Rear Window.

            Is this a Calvinist thing?

          • kmonnie

            The dutch don’t like credit cards (because of the interest you have to pay..).

          • rorysutherland

            I am a huge fan of off-peak first class travel by rail. For a very simple reason: it is the only way you can get me out of a car and onto a train. To be brutally honest, first-class intercity rail is mostly nicer than driving, whereas (except on journeys into central London) second-class rail travel is generally a little worse.

            Even my 83 year old father, for many years a rail hater, acknowledges that a £20 1st class journey from Newport to Paddington is one of the few things in life which is slightly underpriced.

            Incidentally there are times on these advance journeys where 1st Class is cheaper than 2nd: people browsing the website don’t bother to look at 1st class prices, assuming they are stratospheric.

          • monty61

            Here was me thinking that this piece would be about bad behavioud in Chav class …. feral children running up and down, idiots with iPods being lobotomised plugged into carriage-filling drum & bass, kids and young adults with their feet on the seats, munching stinking rubbish from Burger King … this is the norm on the tube and most stopping commuter lines.

            It could all be stamped out of course with a bit of willing. THESE are the things that keep people in their cars, as much as ever-increasing train fares. A Chav class vs respectable class option would be a definite plus.

    • matt

      You rightly acknowledge that you are not very familiar with airline economics. I am and I can categorically assure you that First Class passengers pay way over what their seat, space, service etc etc is really worth. 40 economy class seats would not provide the airline with anything like the same return as 20 first class seats do. It is the Business and First class passengers who create the profits at the major scheduled airlines worldwide.

    • Rico Masters

      It costs more to travel per mile by London taxi than Concorde did from London to New York. And Back.

      And you can see more analysis here:

      • simhedges

        Well, I would hope it would cost more. The true equivalent cost for a taxi would be a private jet all to yourself.

  • Alistair Vince

    How about if parents offer to pay a range online (£3-£5) that they would be willing to pay on a daily basis. Some people might try and break the system and say between £3 and £3 but the system takes the average between the two figures and totals it – if the total is lower than needed to make bus run, then those with the lowest variation (including those who put £10 to £10) are asked to increase the upper range. Average is recalculated. As soon as total is achieved everyone pays their averaged number (so if they selected £5-£10 they’d pay £7.50). Everyone feels like they are getting a good deal at they are paying below their top whack. Those who say £5-£15 would pay £10 – ‘I’ve got it a fiver cheaper than I would pay’. Those who say £3-£4 pay £3.50 and still feel like they’ve done ok. No one has to sit on spikes.

    • John Court

      You can’t have everyone paying different amounts for exactly the same thing. everyone would just put £3-£3 in and wait until someone else got ripped off and the bus was funded.

      What you need to do is find something that is of value but not necessity and give more of that to the people that pay more than the people that pay less. For airlines that includes: being treated well, bigger seats, better refreshments, flexibility of tickets, more room, access to lounges.

      For the buses the tricky thing is finding equivalents. Consider: 1. Length of commitment to the bus sharing arrangements (pay less, commit for longer). 2. Proximity of collection points to your address (pay less, combine stops). 3. Directness of route (pay less, get picked up earlier and go via more stops) 4. Flexibility (pay more, no penalties if you don’t need the bus for a week).

      The algorithm just applies weighting to each constraint and finds the route / schedule / price that best fits the constraints.

      The main problem is that it’s only a bus route so who needs all that complexity, and who would pay for developing it?

  • Ajai Karthikeyan

    The Dubai Metro does have a class based subway system. It ends up being more of an ego issue to be in 1st class than anything else. Though the seats are better and such, it does come down to the fact that during Rush hours, it is standing room only. So, are you going to be standing in first class or second class?

    • kmonnie

      Is there more standing space in first class? 🙂

  • Joseph

    Well Rory, there is a pretty simple solution to the problem of who should pay for your daughters bus to school – you!

    • rorysutherland

      I could in theory just hire a uniformed chauffeur. But is both cheaper and more efficient to share the task with others. There is money enough to provide the service, but it is fiendishly difficult to apportion the costs in a way which is perceived as fair.

      • kmonnie

        Maybe, you could ask the school to organize it and pay for it from tuition fees, like the other school.. 🙂

      • kmonnie

        Rory, if I understand correctly, in essence you are saying that: if certain markets malfunction, economic ecosystems are prevented to arise, in turn preventing us from enjoying maximum economic efficiency.

        I can tell you from first-hand experience that the math and algorithms to design such ecosystems are much more complicated than what you suggest in your conclusion and a large research field of mathematical biology. The reason that I don’t like your examples are that they are highly speculative and nowhere do you prove (with numbers) that the markets you are talking about are actually malfunctioning.

        Foregoing the examples though, I would say you’re right. In theory it is possible to calculate whether a market is functioning optimally and if it isn’t, what kind of ecosystem would optimize it.

      • itdoesntaddup

        Cost apportionment would be a far easier problem. Simply note the estimated journey cost for each postcode to the school on an individual basis (you could use e.g. google maps directions to provide an impartial source). Add up the total, and then pro-rate to the cost of the bus. Families with siblings would of course benefit.

        If you wanted, you could add in a time saved element from the same process: that might have a differential value imposed by reference to the list price of the vehicles they drive as a proxy for income.

  • Nick

    Dress it up however you like but travelling economy class on a long haul flight is absolutely ghastly.So much so,that my wife and I can’t bear the thought of flying to the States or Carribean again due to the cramped conditions in Pig Class.
    We once flew to Barbados in Premium economy which is in the bubble of a Virgin Jumbo jet and was really spacey and comfortable but it cost us a bomb.
    And what’s more,I don’t believe that it’s necessary for better seating to be so more expensive than Economy class……………..It’s just a rip off that the airlines know they can get away with.

    • itdoesntaddup

      Try flying in e.g. February. I’ve had lie-flat space across the central bank of 4-5 seats in economy out of ORD and EWR. You need a cabin where you can fold up the armrests. It’s not quite as good as lie-flat in the front of the plane, but it’s often very cheap – aside from the APD at least.

      • Nick

        Every time we fly to and from the UK,the planes are jam packed.So maybe if we win the Euro millions we’ll try fist class to New York for a week followed by a week in Naples,Florida.

  • Ian Walker

    For the bus, you presumably don’t want to either make a profit, or charge more for longer journeys. So your ‘algorithm’ is ‘divide the cost of the bus by the number of passengers’
    An alternative might be to organise fund-raising events, where those with less money to contribute could instead donate valuable time.

    • El_Sid

      You’re missing the point. It’s a marginal service, so say you only have 10 children willing to pay £4/journey, and another 30 willing to pay £2/journey, but you need to raise £100 to pay for the bus.

      Saying that you just need to divide the cost of the bus (£100) by the number of (potential) passengers will lead you to charge £2.50 – but then you will only get the 10 rich kids on the bus, and you’ll only make £25. If you charge £2, then you’ll get all 40 passengers, but you’ll only make £80.

      Rory is trying to work out how to take £4 from the rich kids and £2 from the poor kids, so that you make £100 in total. It should be achievable in theory, but you need a more sophisticated charging mechanism than a simple fixed charge per passenger.

      Personally I like the idea of using social engineering with extreme transparency – invite parents to pay £4 (or even £5) per head as a voluntary thing, with a minimum charge of £2 – and their payments are recorded on a public website. Then let social forces do their bit.

      Contributing time could work, it depends on the parents – are they ladies of leisure or working three jobs at minimum wage? Rather than specific events, you could have a sort of Nectar points system, where everyone gets charged £2.50 but you can earn points to reduce that cost (and the missing money gets paid for out of the budget organising the point-creating activity).

      In terms of trying to get more money out of passengers I think you need to go more for the parents than the kids. Play on their fears, make life easier for them, whatever. So for £4 you get the custom journey that delivers to the door, whereas for £2 the kids are dumped outside the local paedophile retirement home. You only need 10 custom dropoffs to make this work, and I guess some will be siblings, reducing the number you need to do and hence marginal cost. Or maybe run a separate premium minibus after after-school club to get more money out of families with two working parents, and charge enough to generate that extra £20 needed to charge £2 for the main bus.

      On Tube classes – not sure it’s that easy as having a first class to allow more trains, as at rush hour the system is already running at capacity so there’s no “easy” capacity to be had by throwing relatively small amounts of money at the problem. If there was a bit more capacity to be had, then maybe a system like you get on London commuter trains would work, where in effect a first class ticket means you get a seat rather than stand.

      • Ian Walker

        Any product that can’t cover its costs with sales is a loss-maker, no matter how much wishful thinking you throw at it.

        So you either scrap it, subsidise it, or drive up sales some other way. Personally, I’d get the ‘rich’ parents to pay a bit more to get the service running for a trial period, then hand our some leaflets to the others advertising the ‘fair’ price. When people see it running, they might change their mind on value.

  • TenPillocksInARoom

    “An airliner is in some ways slightly socialist — it redistributes wealth through voluntary means.”

    This is the funniest thing that I have read in a while, and I hope it is a pisstake.

    If this is right, and that’s a very very very very very very very very very very very very very very very very very very very very very very very very very very very big if.

    Then 18th century England was about the closest mankind has ever got towards Marx’s paradise.

    However, if you are in earnest, then let’s tax the arse off driving over 70 mph. After all, it shows that you can afford the fuel.

    • kmonnie

      ‘Driving over 70mph’ becomes the highway’s first class, hahaha. Very creative 🙂 (but let’s not actually do it)

      • El_Sid

        We already have it with toll roads. Either take the congested, slow, but free road, or the less congested toll road. The M6 toll road around Birmingham is a good example – the average speed is noticeably higher than any other UK motorway, aside from the fact you’re avoiding the notoriously congested motorway through Birmingham itself.

        Same can happen with railways – in Kent you can pay a ~20% premium to go on the Eurostar line from Ashford (London in 37 minutes) or pay standard price to go on the old 1840s line (London in ~75 minutes).

        • kmonnie

          One could also argue that traffic fines are a way of taxing fast drivers. (In that regard, the Swiss system is interesting, where the height of a fine is relative to your income – you can actually be fined tonnes over there)

          Toll roads are interesting. Who is better off, drivers paying for road upkeep through taxation or drivers paying for their specific road usage in toll booths? (come to think of it, that question is way too complex to be discussed on this medium, but it is also very central to the original question posed in the article)

  • Kate Gowers

    “The price each parent pays could theoretically be kept confidential, but in reality would not remain so.” Interestingly though, the last bastion of financial confidentiality is pay. At least in the UK, it is considered extremely bad form (and can be, in some companies, a disciplinary issue) to share details of what you get paid. This means that in many companies, people who do exactly the same job get paid wildly different salaries. Companies that don’t have specific pay scales simply pay employees what they think they can get away with (‘how much are you looking for?’) I agree, Rory, that in your hypothetical scenario the secret wouldn’t be kept, but such secrets in the corporate world can and are kept. On pain, sometimes, of dismissal.

    • rorysutherland

      Someone emailed me and suggested that parents should offer to pay for the bus service in proportion to their Council Tax Band…….

      • Kate Gowers

        Interesting thought. However, just as happens with the various forms of indirect taxation we have, there will be people who will feel hard done by – people who feel their house is mis-banded or that because they (say) inherited an expensive house it’s assumed that they have a lot of disposable income.

        It would be interesting to know whether we are talking private or state school. One assumes that if it’s a fee-paying school, in theory the families are on average more affluent than a state school (huge, sweeping generalisation I know).

    • Rico Masters

      @kategowers:disqus – Yield management for a school service in taxibuses solves this issues. Depending on how many seat-trips you buy and how far ahead, you pay a different amount. Of course there is the issue of the “ghetto tax” to overcome, but primarily this problem could be solved and outdo our catchment areas –

  • Gambling Econ

    Rory – some points in regards to the school bus problem.

    As it is a long run repeated game, gaming is prevented provided effective punishment is available. Given this requirement, I would heed against anonymity. Transparent bids are best as there is a social element – it involves your offspring’s classmates’ parents. You do not want to rip off each other for fear of social backlash – providing the punishment discussed above. By gaming your bid price, your run the risk of your child getting less birthday party invites than usual. (This all assumes that said classmates parents aren’t meticulous, game theoretic optimal seeking economists that can run a term’s worth of backward induction in a flash. However, if this is the case, the school bus is the least of concerns).

  • Shoe On Head

    i loved this.

    take note fraser. genuine ideas.

    beats the normal diet of limbic-system inducing terrorism pieces, largely by armchair social anthropologists from minor oxbridge colleges, working think tanks, on a short ladder as career politician.

    rory is a REAL working man, has done something and has something to say.

    more please.

    (shoe on head)

    • rorysutherland

      I don’t know about the rest, but I do consider myself an armchair social anthropologist!

  • catherine Bee

    In a socialist system surely redistribution of wealth would happen through a fair share out of profits from companies employing people. Then all could probably afford to travel in comfort – neither luxurious nor spartan.

    • Jim

      Just to start, your assumption that redistribution would be fair has been proven false in practice in virtually all socialist implementations.

      • catherine Bee

        I am not against a regulated capitalist economy but you have to admit that it has not been proven to be fair in practice in virtually all capitalist societies. “The rich man at his castle, the poor man at his gate’ sums it up. History has not proven either socialism nor capitalism to provide a society which is fair to all – not because the systems (and I did say a system) cannot be made to be fair but because the ruthlessness of the elite at the top takes over – greed for wealth and power seems to corrupt wherever it is found. Perhaps we need robots to implement the systems.

  • rupertstubbs

    As the Mayor of Bogota said recently:

    “A developed country is not a place where the poor have cars, it’s where the rich ride on public transportation.”

    The trick is how to get public services to think of their users before their own convenience. And that has, historically, been a rather big problem.

    But it’s not socialist to observe that competition in many services has been a failure. What possible benefit does it bring to us to have several different companies jostling to supply our gas? They don’t produce the gas, nor do we get different gas from different suppliers: it’s the same ruddy gas, whoever we choose. All we are paying for is many different corporate hierarchies, and many different marketing budgets. How does the consumer benefit from that?

  • Jim KABLE

    What a large degree of nonsense. I’ve been on many flights in steerage (bearable because I am not obese nor am I tall) with the business/first class section/s filled with business folk (paid for by their companies – not themselves) or else filled with people using upgrades (again from ticket mileage points earned from tickets paid for by their companies) – or by airline employees using their contacts. A little more leg-room and filling those spacious zones with more seats would more than compensate for the cost those front-class folk are supposedly subsidising. What is it about those from such a class-ridden society as exists in England who want to argue for such an un-democratic system! A man’s a man – and a woman’s a woman – for a’ that!

    • El_Sid

      Why does an airline care if a ticket is paid for by a company or the passenger in a private capacity? As long as the cheque doesn’t bounce, the company’s money is just as good.

      And the fact remains that notwithstanding all the freebies/Airmilers etc, the European flagcarriers make around half their revenue from the 10% of seats at the front. There’s just no way that you can rearrange the seats at the back to double the revenue from them.

  • Hexhamgeezer

    Why not the facilities as well as ‘the sumptuousness of an Edwardian-era New Orleans brothel’ on the evening Tube services (I don’t think there would be a market for the morning runs)?

    • El_Sid

      I could tell some stories of the evening commuter trains from Charing Cross, but probably not on a family forum…

      • Hexhamgeezer

        My old stretch from Charing X to Greenwich was obviously missing something……

  • James at Liberty League

    Rory I probably fit somewhere in your ” libertarians, economists, ethicists or software gurus” group.

    Your auction system does exist in micro economic theory and is a developing area of thought for dealing with ‘public’ and ‘club’ goods / market ‘failures’. The area is known as Preference Revelation.

    William Vickrey won the Nobel Prize for his work in this area in 1996.
    Clarke and Groves used the same idea in the context of Public Goods.

    Unfortunately, the Wikipedia page isn’t very clear and is just masses of maths

    But, in simple terms:

    1] Everyone simultaneously submits the value they place on a service (sealed-bid)

    2] The maths decides if you are pivotal, and if so, you pay a tax.

    3] This tax is designed so that you’d have to be mad not to tell the truth for how much you actually value the service.

    4] Telling the truth is the strategy that will leave you best off regardless of what everyone else believes.

    • kmonnie

      This is very cool.

    • iviv44

      I don’t think these would work simply in this case because there are more children than seats and so there is no “auction” to win, and so there won’t be any “pivotal” people in the traditional sense.

      Rather there is going to be a threshold point at which the total money pledged is greater than the costs of running the bus, and there are political issues concerning people who subsequently feel that they have over-paid (or that other people have underbid, which they can afford to do if they think the total pledged will be greater than the costs anyway).

      From Rory’s comments, it appears that the politics (inter-parent and inter-child) may be a major consideration, and so the key in many ways is to ensure that the pattern in which excess money pledged is redistributed back results in a final distribution of payment that as many as possible see as fair (and so are willing to participate in the scheme; it would be pointless if all the biggest contributors dropped out once they saw what some other people are paying).

      If the problem is political, then an algorithm may not be the best answer. However, maybe one approach would be to allow people to label their pledges as hard or soft. Hard pledges get included at their face value (they are effectively “patrons”). Any excess pledged goes to reducing the highest soft pledges to the lowest value that meets the total costs.

      In addition, it might be worth making the process iterative; if a first call for pledges does not raise enough to meet the total costs then a second call may make those who have “underbid” reassess the value of the service to them.

  • 車龘東

    You didn’t cite a specific number on cost to the airline company. How do I know your assertion that the upper class airfare covers the economy class is true without some numbers? Could you give an example?

  • Mike Barnes

    Irrelevant hippy point, but if you’ve ever sat on a plane you are upper class in global terms. I saw one estimate that only about 10-15% of the world’s 7 billion people have ever experienced flying. The billions of peasants in India, China, Africa don’t tend to jet about much.

    So stop moaning about small seats and terrible food, to them you’re living the dream!

    • kmonnie

      You’re even more special when taking a cosmic point of view. Just consider all those millions and billions of planets and stars without a single airplane on them! How lucky are we?

  • dalai guevara

    Brilliant piece. Let’s have public transport, mainly buses, kitted out with a first class zone. That would silence the snobs and clear the roads in an instant.

  • Jackthesmilingblack

    You`re more likely to be ungraded when you check in late.
    Now that`s what I call rewarding the undeserving.

  • Q46

    The class system on a plane does not redistribute wealth, it creates wealth. Wealth is created during exchange. In any exchange we get something we perceive to be worth more than what we handed over to get it, and that makes us wealthier: it works on both sides of the exchange.

    In a capitalist society you get richer by making others richer, not by design but as a consequence. If you run a business to make yourself richer, you can only do so by employing people and making them richer; if you buy a flat screen telly you make yourself richer and in so doing make whoever you bought it from richer.

    Those in the cheap seats of a plane get something of value greater to them than the value of their money to them, which they handed over in exchange, and they are the richer.

    The same applies too to those in the front who in making themselves richer made it possible for the people in the back to get richer using their own money and who otherwise would not be able to do so.

    If the plane was an example of socialism, all the seats would be the same, but each passenger would pay according to their means.

    Your school bus scenario falls because you fail to understand how a market works. What anyone is willing to pay, is ‘as little as possible’. In order to determine what that is you need a price system in a competitive market so people can assess value for money by comparison.

    It is impossible to suggest a solution to your school bus problem because you do not supply enough market information, like how much does it cost parents to get their children to school without a bus and ‘cost’ includes time, convenience, child safety, not just money. Different people value time and convenience for example differently.

  • davidshort10

    When I first started travelling by train from the North East to London when I started at LSE, there was an almost incredible service even for we yobbos who were paying student fares. My trunk would be picked up from my home address (a Tyneside slum not a coal owner’s mansion) and delivered to my hall of residence as far as I remember for very little money as part of the train service. We would pile into the dining car for a slap up fried breakfast for £1 and in those days the dining car was first-class. We would do the same for lunch or dinner and hang around quaffing for almost as long as the three hour journey (HS2 supporters – it is still three hours now despite the introduction of the 125s, the HS2s de ces jours), meaning we had a first-class journey for student fare economy….Aah, the days of nationalisation. Now, there never seems to be a dining car even for first class; you just get sandwiches thrown at you at your seat and disgusting coffee and lots of jinkling coffee mugs at every table regardless of whether anyone is sitting at it.

  • Rico Masters

    “Without economy class passengers, you cannot operate sufficiently frequent flights to suit business schedules. Hence almost all long-haul airliners are symbiotically configured for mixed classes.”

    No Rory. This is simply not correct. Today GoogleVentures announced a $258m investment in Uber – the Ride Logistics Startup. Yes, some know it as “Taxi Hailing” but that was never what they were 100% about – perhaps only 10%.

    There is a way to make everyone have the type of travel experience for which they are prepared to pay – on demand. It is called a Transit Exchange and this is what the plethora of taxi-hailing & ridesharing startups since 2008/2009 are heading towards.

    Uber has received $0.411bn (yes BILLION) in funding since its inception. Its co-founder (one of the founders of StumbleUpon) is also trying to do the same thing for Private Jets which should inform you of what is possible.

    Transport – A New Beginning:

    • rorysutherland

      I have used Uber in London (and Toronto, too). Wonderful thing. I have a friend who tried creating an exchange for private jet travel in the US in the late 90s, funnily enough – typically selling seats on the unused return leg. The problem he faced was that the primary users of private jets are incredibly unpredictable in their demands, change their minds on a whim, and are fantastically irascible if even slightly inconvenienced. So most of the jet operators were understandably nervous of taking secondary passengers if it might risk upsetting a full-paying user even by five minutes.

  • Rico Masters

    About your daughter’s bus journey to school. There is an app for that ->

    • rorysutherland

      One interesting idea worthy of note in facilitating collective funding of public goods is the Dominant Assurance Contract – an idea invented by the Canadian economist Alex Tabarrok – see here

  • simhedges

    More capacity on London Underground costs far more money than reducing capacity on some existing carriages by two thirds and then charging 3 times as much (note: no net increase in income) plus spending money on Edwardian plush. It’s signalling, platform length and the number of lines that are the limiting factor, and these all cost from hundreds of millions (DLR platform lengthening) into the billions (Crossrail) to improve.

  • bhuemer

    One could argue that it’s more cumbersome for wealthy people to drive their children to school. Their opportunity cost is higher so quite naturally they should be willing to pay more – even without any thrones for their offspring in the buses.

    Other than that I am not entirely convinced either that the example you give with airlines can be applied to other scenarios as well. I think it’s less a convenience thing that makes business travellers buy business tickets. Instead it’s because of the flexibility they get (easily re-arrange flights, book them on short notice, etc.). At least that’s what I have been told when I was working for a management consultancy ..

    Business travellers have relatively inelastic demand whereas tourists do – that’s how they discriminate the two. The same thing doesn’t even apply to trains though, which is probably why first-class compartments are not working all that well (I suppose, I don’t know the numbers to be fair).

    However, I still very much enjoyed reading this article and I hope to see more of this kind. 🙂

  • bhuemer

    One could argue that it’s more cumbersome for wealthy people to drive their children to school. Their opportunity cost is higher so quite naturally they should be willing to pay more – even without any thrones for their offspring in the buses.

    Other than that I am not entirely convinced either that the example you give with airlines can be applied to other scenarios as well. I think it’s less a convenience thing that makes business travellers buy business tickets. Instead it’s because of the flexibility they get (easily re-arrange flights, book them on short notice, etc.). At least that’s what I have been told when I was working for a management consultancy ..

    Business travellers have relatively inelastic demand whereas tourists do – that’s how they discriminate the two. The same thing doesn’t even apply to trains though, which is probably why first-class compartments are not working all that well (I suppose, I don’t know the numbers to be fair).

    However, I still very much enjoyed reading this article and I hope to see more of this kind. 🙂

  • rtj1211

    Trial the system on HS2. AS all the NIMBYs say they’ll be loads of empty seats, demand constraints won’t exist. Have two carriages as ‘family ones’ with one carriage as a nursery/playroom and one for parents to relax. Have two as ‘horny footballer shagpiles’ with money no object the price for a Russian escort, a King Size bed and champagne, HDTV, stereo etc etc part of the price. Have two as ‘mini board room suites’ designed for business meetings. Have two for business executives to work at a table. Have 4 as bog standard second class. Have two for the great unwashed, no seats at all, sit on your rucsac, all squeezed in together but cheap as chips. Make sure the great unwashed aren’t allowed anywhere near the rest. Ditto the children screaming. Make food/drink facilities available only to 2nd class and business class (the Russian hooker suites will have food in the suites anyway).

    I”m sure you could have a few more kinds of carriages: bog standard second class where the seats turn into a double decker alpine bunk-style sleeping area. Good for overnight trains to the continent. Then you could have the trains for the pissheads – no cushions or nice finishes but tables and seats, so no matter how pissed they get they can’t do too much damage.

    Then you could have the lung cancer suites: never allowed anywhere near anyone else but smoke yourself into an early grave. No children allowed in.

    Finally, you could have the politicians’ suites: they come with a tax accountant thrown in to help them fiddle their expenses, dodge paying tax and taking advantage of every dodgy investment scheme going. Paid for by the taxpayer, of course!!

  • I agree with your analysis. The only thing that puzzles me is why on earth you think libertarians might disagree with it.

    • rorysutherland

      Have a dekko at Robert H Frank’s book The Darwin Economy. He is an interesting man, in that he is massively in favour of “charging for things” – he believes willingness-to-pay is a vital indicator – but poses some quite intelligent critiques of “pure” Libertarian ideology.

  • Roderick

    Rory, just a tiny disclosure request. Could your fulsome praise for the Boeing 747 be in any way related to your agency’s client list?

    • rorysutherland

      Not this time. Unless you include BA, which is I think the largest operator of Boeing 747s. I think we last did work for Boeing in the early 1990s when we had an office in Seattle. And in any case my assertion is still true! (We don’t work for Lincoln Cathedral either, as far as I know).

  • Cornelius Bonkers

    Come on now, what about people who won’t/can’t pay anything, or don’t grasp western concepts of secularism and the free market; the court of human rights will determine they are being discriminated against. Then those of us sitting “up front” will be forced to put up with children called Jadine and fat mums with their child’s names tattooed on their backs, and those from other cultures travelling with their goats and water pitchers. No, a good try but needs some work…

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