One aspect of this "great recession" that is of particular concern is the inflation rate. A broad term of inflation is "too much money following too few goods". When there are too few goods, people that want these goods will pay more - thus driving up the price. In the United States, inflation is looked at several different ways, but the important indicator is the CPI - Consumer Price Index. The CPI is a "basket" of goods and services and the prices are tracked for upward and downward trends. Unfortunately, the CPI excludes the volatile price changes of gasoline and food - which are two of the basic commodities of the typical Americans basket.
What has brought this topic up for today's blog is the ever increasing cost of air travel. I was planning a future vacation trip out several months, and the flight costs was out of this world. A trip that not long ago would have cost me $250 is now costing close to $900. This also does not include all of the insidious "rider costs" or surcharges of air travel. I don't want to buy the plane, I just want to get from point B to point A in a timely fashion for a reasonable cost.
At Synchro ERP, we track the flight costs of the implementation and training team very closely. Synchro has a unique method of insuring that all of our customers pay a fair and equitable rate, irregardless of how we are getting to your location. We use a rolling average rate for the North American market and the Far Eastern market. It is important to note that Synchro ERP DOES NOT use any travel expenses as a profit center. A rolling average is used for airfare costs and actuals are used for lodging, rental car, ground transportation, etc.
With the airline carriers having substantially reduced capacity by removing planes from service and changing the cabin configuration, there is "too much money chasing too few seats on an airplane" as illustrated by this graph.
The trend on the graph is not very favorable, especially with the cost of oil continuing to climb and be uncertain due to global economic concerns in the Eurozone and the areas of the Persian Gulf, Iran, and Syria.
Again, with advanced planning and scheduling, Synchro ERP is doing everything possible to control costs on travel. We have even initiated a "ceiling" rate which is below the rolling average rate to help out our customers as much as we can.
Airlines are an interesting business. One of the most remarkable things that I find is that, economically, when that airplane pulls away from the gate, any empty seats are lost revenue that can never ever be recovered. There are huge opportunity costs for having empty seats. Thus, this is why the airlines do everything possible to cram as many people onto an airline as possible and have zero empty seats. This is known as profit maximization. However, it is somewhat disheartening that the airlines have adopted the surcharge model for checked bags, certain seats, exit row seating, food and beverage, etc. What I am most concerned about is that other companies and retailers may start adopting these same type of surcharge and including them into their revenue model.
Imagine having to pay the base price for the gasoline that you put into your car, plus additional fees for the delivery of the gasoline, the worker behind the counter, etc. It's an old business trick that many companies are revisiting - and that is getting rid of all of the cost drivers and the CODB - costs of doing business, and placing them on the consumers neck.
Example, when I go and get an oil change, I am charged for the oil recycling fee and a "rag fee" of misc. rags and lubes that they use while changing my oil. Some companies might even toss in a energy recovery fee. These are costs of doing business, but the oil change place can "recover" these costs by tossing the CODB onto my bill.
Anyway, enough economics 101 for today.
Until next time, see you on down the road.
Shane Allen
Head of Synchro ERP North American Operations
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