Flying Coach to China is your Competitive Advantage 9/12/2010

So you are starting a business or doing business in China.  The opportunity to leverage cheaper labor costs, address a market with a middle class the size of the population of the entire United States, and expand your global footprint has presented itself and you are now ready to make the leap.  This leap, like most things in China is big.  That’s because the only thing separating you from endless possibility and success is 6,000 miles of the deepest ocean on earth.  Or, if you’re one of our friends joining us from Europe, 6,000 miles of daunting terrain, including the world’s largest mountain range and some of the most dangerous places in the world.

I am writing this post from United Flight 889 from San Francisco to Beijing, cruising at 598 mph some 38,089 feet above a sea I cannot name.  But that’s likely irrelevant – I’m pretty sure no one ever swam there and lived to tell about it anyway.  Seat 23E today – a seat that wouldn’t excite most people (including myself).  It’s an economy plus seat.  A seat in front of the “Main Cabin” that provides slightly more legroom than my friends in the way back of the bus.  They don’t charge me extra for this “luxury” because I fly with them so much, but they charge an extra $200 or so for those “not-so-frequent” fliers to sit here.  I paid about $1500 for my ticket today.  A pretty good price considering I was flying on Sunday with many of the other businesspeople headed to Beijing.  The average price I pay seems to be about $1700 per round trip from Southern California to Beijing.  I make this trip quite often – usually between 8 to 12 times per year.  Some of you are going to read that lest sentence and cringe.  At an average of about 12 hours each way, that means that I spend 24 hours per trip, up to 290 hours per year on this exact plane criss- crossing this ocean.

The first question I get, without fail, every time someone new learns about my travelling, is “Well, at least your company probably pays for you to fly business class….right?”  The answer, unfortunately, is no.  But I’m not complaining!

I don’t buy business class fares to china, because our company has a travel policy.  A travel policy that was adopted from day one.  Our travel policy reads:  We fly coach.  We fly coach because we make smart business decisions.  Please let me explain.

$8,000 USD.  This is the average cost of a business class ticket from the United States to China.  That’s a $6,300 difference from the average coach ticket that I purchase.  $6,300 USD CASH.  [].  When you take into consideration my average 10 trips per year, that’s an annual savings of $63,000.  From another perspective, let’s say that I was a manufacturing company with average margins…say 12% operating profit.  Under this scenario, $63,000 is approximately the same amount of profit that I would generate on about $484,000 in sales.

Let’s look at it from another perspective.  Let’s say you are targeting to hit $2 million in sales from your new venture in China in year 2.  You achieve above average operating profit margins that hover around 15%, or $300,000 in this case.  You hired a local Chinese General Manager, but you, the CEO/COO/President expect to be there 4 times next year.  Your #2 also plans on attending the quarterly meetings.  Your engineering and quality groups also need to make trips (let’s say a total of 8 over the 2 year period), and your customer asks you to meet them at the facility next June, and you do so along with your head of sales.  In addition, in order to get them the proper training, you flew your production lead, head of engineering, and head of Quality to your USA facility for training (8 trips in total).  This represents a total of 26 trips to China over 24 months.  You were smart, and before you opened your office, you made sure that everyone understood one thing – that you, and your staff fly coach to China.

The 26 business class tickets to China would run you a total of $208,000. During year one you weren’t expecting to make money anyway, and had accounted for this expense.  However, in year 2, let’s say that approximately one half or $104,000 was spent on business class airline tickets.  Looking at your 15% standard operating profit number above, you gave 1/3 of your profit to the airline companies.  Had your team flown coach, your total costs for airfare for the identical trips would have been about $20,000.  That $84,000 you could have saved by flying coach would have represented a 25% improvement in operating profit.

I won’t get into further details about the opportunity cost of the money that was wasted above, but I will tell you why I wrote this post today.  I am currently sitting next to a gentleman who works for a Fortune 500 Company.  He actually got “Down-Graded” from business class…..yes that is the opposite of business class, and it happens when they are oversold.  He and 6 or 7 others from their company are on this  flight, all booked in business.  Our company is spending $2,500 for me to be here this week, which means that for every trip one of these Fortune 500 employee takes, I can take about 4.

I know that many of you will bring up the age old argument that it’s tougher to sleep in coach and if you fly business you will wake up more prepared for your meetings, etc.  I completely agree with you.   It is much easier on the body to fly in business.  That’s why I try to get upgraded (at no cost to me) as often as I can.  And that’s why I am a little angry about being in seat 23E today.  It’s been almost a year since an upgrade didn’t go through.  I’m not used to coach anymore, but I’ve still got a big smile on my face.