Airlines Depend On Bankers

Image: Stuart McClymont

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As Wall Street remade itself last week and world financial markets buckled, I pored through some interview transcripts to reacquaint myself with the Horny Banker Theory of business travel.

It goes something like this: Airlines can charge corporate fliers 10 or even 12 times more than vacationers because business travelers need to get where they are going fast, with no advance notice and no price questioned.

Surely, I said to an airline chief executive a couple of years ago, there was a breaking point. As corporations cracked down on travel and entertainment spending, wouldn't they demand airlines stop soaking them?

"Joe," the C.E.O. said knowingly, "there's always an investment banker who needs to get home in time for a date."

"You're saying the entire airline pricing system rests on the mating practices of horny bankers?"

"Well…uh…well…I wouldn't say it exactly that way. But what's a couple of hundred dollars or even a couple of thousand more or less to someone who's working a billion-dollar deal on one coast and has a dinner date that evening on the other coast? Breakfast meeting in London to lock up a deal and then a flight home to New York in time for the opera—what's that worth to someone generating billions and earning millions?"

I've never been convinced that the Horny Banker Theory held water, but we'll certainly find out now, won't we? No one argues that bankers and brokers, hormonally charged or otherwise, make up a disproportionately large slice of the airlines' most profitable segment: walk-up, full-fare, and premium-class fliers. In fact, the frequent-flying financial sector is what makes markets such as New York, London, Hong Kong, Shanghai, Tokyo, and Dubai so attractive to profit-hungry airlines.

"This will be ugly," one glum airline executive distractedly mumbled last week as I was interviewing him on an unrelated matter. "If your highest-paying fliers disappear, your reason for flying the plane disappears."

Although airline math is often slippery and approximate, it's not difficult to figure out why it's hard to replace a banker flying on business. Take the NyLon (New York to London) route, for example. Off the record, airlines say their best corporate clients pay about $5,000 for a business-class round-trip. While that's about half the published walk-up business-class fare, it's also about 10 times the lowest advance-purchase fare that leisure fliers pay.

In other words, for every Lehman banker or Merrill Lynch broker who was laid off last week and now won't fly on business between New York and London, an airline will need to find 10 vacationers to take his place. And while 10 fliers paying $500 each in coach equals the revenue of one grounded banker, the profit margin isn't the same. Discretionary fliers are more difficult to reach, more expensive to convert into customers and must be advertised to and sold to again the next time they fly. Not to mention all the extra space, extra luggage, extra fuel, and extra attention that 10 leisure fliers require.

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