The article states that interest rates were high back then. If you assume that the buyers would use them for 40 years on average, and use a cost of capital of 15%, these things would make sense if the cost of providing the flights was expected to be less than about $37,000 per year. Change the assumptions to 30 years and 20%, and that figure becomes about $50,000. It’s not insane for the airline to think that typical buyers’ flights would cost less than that, especially since the marginal cost of even a first class seat would be low. It is true that the same people, who are probably rich, might have bought full price tickets anyway, but then again they might have traveled on other airlines.
especially since the marginal cost of even a first class seat would be low
The cost all depends on whether or not they would have two spare first class seats to throw away on someone (and his bag) that they are never going to get a dime from again. Even then they could use those seats to offer upgrades to loyal business/coach customers.
$37,000 per year doesn't go very far when divided by the price of two first-class tickets.
I think this is a classic case of short-term vs long-term thinking.
