I'm not in Kansas anymore

I’m somewhere over Kansas right now – at least I was when I started writing this. I’m flying across country to visit with clients for the week. As I sit in this seat, fingers and toes numb, I find myself thinking about marketing.Keep in mind that all my numbers are fictional and are unlikely to reflect the actual numbers – they are more illustrative than anything.

I’m flying Delta. I’ve never flown on this carrier before and, at a glance, am impressed. The team there have really come up with some innovative ways to help make the company money. On my main flight, 5 hours worth of my trip, I am in a 767. Each seat has a small touch screen monitor in the back that allows you to view details about the flight (it is -59 degrees farenheit outsite and we have travelled ~1050 miles), watch a limited number of satellite television stations, listen to a small variety of CD’s, or rent movies and game time.

The implications of this are interesting to me. Let’s say that each touch screen costs $1,500. This particular plane has what I estimate to be roughly 385 seats. So if my estimates are correct then we can come to a sum of $577,500, just to purchase the screens. We will assume that installation falls under operating costs and will ignore it, for now. So at this point the break even for the purchase of the screens is just shy of $600,000.

The first interesting point of this setup is that instead of offering a standardized in-flight movie each passenger has the option to choose their own movie, game, television, and more. From what I can tell you must purchase movies and game time. The games are $5 for an “inflight subscription”, which allows you to play all of the games throughout your flight. The movies range from $5 to $7, from what I have seen. Now they can recoup some of the costs of their touch screens.

Let’s say that out of the 385 passengers 10% of them choose to purchase in-flight games. This means that 39 people, rounding up, will make purchases of $5 each, resulting in $195 of revenue. Now let’s be aggressive and say that 50% of passengers purchase a single movie during the flight, all for $7. This adds an additional $1,348 in revenue, bringing our in-flight total to $1,543. Let’s assume that this particular aircraft is able to make three such flights per day, all with the same revenue. This now brings the daily income, from just movies and games, to $4,629 for just this aircraft. If we make an assumption that this plane will fly 250 days out of the year, all with the same daily income, we can posit that the aircraft would recognize $1,157,250 in revenue each year, soley from movie and game rentals. Subtract out the cost of the touch screens and the actual profit, excluding subtraction ofoperations costs, is $579,750.

This number is undoubtedly high as we took some liberties with the numbers and failed to take into account the cost of installation, maintenance, subscription service fees, etc. So let’s take those into account. Let’s assume that each monitor costs $75 to install with each plane requiring a one time $2,500 fee for wiring. This brings installation to $31,375. Assuming that maintenance is required on one monitor a day, every day, and that this maintenance costs $45 we can now account for an additional $11,250 in annual costs. Subscription service fees for Dish Network, which is what is offered, are pretty cheap for basic packages – around $19 per month. So let’s say that Dish Network charges a full rate for each of the monitors. This brings an additional $7,315 per month or $87,780 per year. Adding up our operations expenses we now have an additional $130,405 in expenses.

This takes our annual profit from the system down to $449,345. This, to me, is a pretty impressive return on investment. But let’s say it wasn’t. Let’s say that the system actuall cost them $100,000 more a year than they brought in. This would now be a bad investment right?

Wrong. Here’s where the impressive marketing comes into play. Each time I access the system I see ads – ads that some company must pay money for. Television, radio, and other advertising mediums are quite expensive, despite the major drawback that the target audience can choose to pass over the ad at will. Imagine the rates that would be charged for showing ads to a captive audience. I have ~5 hours that I am stuck in a seat with their ads in front of me, assuming my TV is on the whole time.

I find it impressive to look at something like this and think, “Well its really nice, but I’d rather have had larger seats.” Then I realize that they never did it for me – its only there because it is one more way for the airline to make money.

I’m impressed – but I’d still like a larger seat.