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[CallawayGolf]

Interesting posts Callaway. Thanks for helping make my point regarding business models.

As most here know I have a friend who is a General Manager at Wendy's. Last time I spoke to her I asked her, "You know those Biggie Size Cokes? How much does it cost without burden rate"?

Her reply was. "I'm not sure off the top of my head but our cost for the Cup, Lid & Straw exceed the cost of the pour. All In you're talking about 15 cents tops" Keep in mind the Coke in question sells for $1.79.

So if US Airways adds such a high burden rate to its drinks that the fully loaded cost is $8.00 then I'd argue that US Airways has a flawed business model. Done correctly each Gin & Tonic sold should have a 50% profit margin minimum. If not then somebody is doing something wrong.

I suspect a profit is being made on the glass of wine sold, but probably not nearly so much as one would expect when one sees a FA opening a bottle and pouring some of the contents into a glass. Plus there are still supply & demand principles at work here. If you lower the sell price do you actually sell more wine and make a bigger profit? If you raise the price do you sell less wine but make more of a profit on it anyway? I don't know the answer to that but I'll bet someone in marketing or dining and cabin knows what the market will bear and what it will not. My SWAG analysis tells me that the airline could lose big time on selling this product, but making a material profit (something to write home about) on the sale of alcohol is probably not in the cards with a price elasticity model in play.

I suspect Wendy's considers the profit made on drink sales to be substantial. The airlines, not so much.

 

[SparrowHawk]

I suspect a profit is being made on the glass of wine sold, but probably not nearly so much as one would expect when one sees a FA opening a bottle and pouring some of the contents into a glass. Plus there are still supply & demand principles at work here. If you lower the sell price do you actually sell more wine and make a bigger profit? If you raise the price do you sell less wine but make more of a profit on it anyway? I don't know the answer to that but I'll bet someone in marketing or dining and cabin knows what the market will bear and what it will not. My SWAG analysis tells me that the airline could lose big time on selling this product, but making a material profit (something to write home about) on the sale of alcohol is probably not in the cards with a price elasticity model in play.

I suspect Wendy's considers the profit made on drink sales to be substantial. The airlines, not so much.

You suspect correctly. The "Actuals" are staggering in fast food. That "pour" accounts for nearly 100% of the profit on a meal combo. Want to "screw" a fast food joint? Order just food and no drink and their profit is often a loss or 1 to 2 percent net profit. In this regard they face the same commodity pricing issues as US Airways does. The primary difference is we are seeing smaller chains like 5 Guys, Culvers, In & Out, Whataburger actually deliver a premium product for very close to the same price. This is part of the reason the Big Three fast food chains are struggling for more growth.

IMO, US has the opportunity due to it's size to be a solid better scale provider in a commodity business. Yes changes would have to occur. One would be US would no longer fly to West Dog Pile, PA. The route structure would look like WN's with TATL and much more international routes than WN in order to get what revenue premium there is out there.

There model actually operates as a mirror to the airline model. Which is partly why I brought it up. Second part is carriers like Ryan Air have a stated goal that one day 100% of revenue will come from what are now called "Ancillary Revenues". They also freely admit that the goal may not be attainable.

 

[BoeingBoy]

Her reply was. "I'm not sure off the top of my head but our cost for the Cup, Lid & Straw exceed the cost of the pour. All In you're talking about 15 cents tops" Keep in mind the Coke in question sells for $1.79.

It helps that the burger chains (and airlines) negotiate directly with the beverage company, not the local franchise. Normally, the chains get the beverage - which includes warehousing and delivery by the local franchise - for less than it costs the local franchise to produce, warehouse, and deliver the product. You'll notice most of the burger chain "restaurants" now offer free refills - the cup/top/straw is most of the cost so there's little extra cost to doing so.

If I recall, and I could be wrong, it was said that bottled water was the most expensive pour in coach - alcoholic or non-alcoholic. But I believe that that was in the days of the 16 oz or smaller bottles when most passengers got the entire bottle.

Jim

 

[SparrowHawk]

It helps that the burger chains (and airlines) negotiate directly with the beverage company, not the local franchise. Normally, the chains get the beverage - which includes warehousing and delivery by the local franchise - for less than it costs the local franchise to produce, warehouse, and deliver the product. You'll notice most of the burger chain "restaurants" now offer free refills - the cup/top/straw is most of the cost so there's little extra cost to doing so.

If I recall, and I could be wrong, it was said that bottled water was the most expensive pour in coach - alcoholic or non-alcoholic. But I believe that that was in the days of the 16 oz or smaller bottles when most passengers got the entire bottle.

Jim

You are correct and move to the head of the class. Way back in ancient times when US was run out of CCY and as the "Head Cockroach" I was in the meeting a US executive who is very much involved in aviation said "Coke, Practically gives us the product, it's the logistics that cost money not the can of coke"

It was also mentioned that bottled water was/is/remains the most expensive "pour" on an aircraft when presented in 16 oz individual bottles.

 

[Dont call me Shirley]

http://www.creditloan.com/blog/2010/11/15/airline-tickets-the-cost-of-first-class/

A glass of wine costs the airline eight dollars? Hmmm....

My point with the "Hmmm..." in the OP was to cast a bit of doubt about the accuracy of the quoted article. I think it also said something about an F/C coffee cup costing $20, can of Coke one dollar, and a 12 oz beer on $0.27. Those numbers seem out of whack.

 

[BoeingBoy]

"Accuracy" is probably partly in the accounting. In the burger chain example the cups/tops/straws/soda are delivered to the using location and doesn't include the cost of the people to take the order and possibly serve the drink. If you include every cost involved in handing a passenger a Coke/beer/whatever, including each step of the delivery chain to get the product from the wholesaler to being on the plane, the prorated amortized cost of either a catering capability or the catering charges, and the cost of the FA's that serve it, plus the cost of carrying that weight on the plane (burned fuel), those prices may not be terribly far off.

Jim