Friday, August 1, 2008

How Much Does It Cost To Get There/Anywhere?

About 5 hours from now I will clamor onto a bus in Washington, DC and four hours later emerge in New York City. 12 hours after that I will board a plane at JFK airport and get off 16 hours later in Hong Kong. Soon after that I will climb aboard another jet and 5 hours and one layover later I will emerge on the tarmac in Penang, Malaysia, the merciful end to my journey at least for a few days. Surprisingly, every mile of that trip will cost roughly the same amount, whether it is traversed 37,000 feet above the North Pole at 600 miles an hour or at 55mph on the Jersey Turnpike. The cost per mile, based on a back of the envelope calculation, is somewhere between 9 and 13 cents.

Here are the calculations (all distances are as the crow flies, more important than the actual route):
· DC to New York: 205 miles, Bus $19 = 09 cents/mile
· New York to Penang: 9230 miles, $1200 (Cathay Pacific) = 13 cents/mile
· Bonus calculation: Penang to Kuching, Malaysia on Malaysia Air: 948 miles, $100 = 10 cents/mile

The similarity between the per mile bus fare and the per mile airplane fare is striking, and perhaps coincidental. But it raises some interesting thoughts about whether there is a rough baseline cost to travel across modes, something of a “natural level” as economists might like to call it. Are the most competitive fares per mile about equal across modes? In reality, at 9-13 cents per mile this trip to Asia falls somewhere between the cost of other trips and modes. For example, my daily metro ride into downtown DC costs about 51 cents per mile. Driving around in my car costs 34 to 38 cents per mile. When I sometimes fly home to San Francisco on a cheap ticket it can cost as little as 6 cents per mile. Looking at this wide variance, the similarity noticed in the Asia trip seems to become mere coincidence.

The calculations:
· Metro ride Van Ness to Metro Center: 3.6 miles, $1.85 rush hour fare = 51 cents/mile
· Mazda 3: 7500 miles a year, 25-35 mpg, $4.20/gallon gas, $1700 annual insurance = 34-38 cents/mile
· DC to San Francisco on Virgin America: 2437 miles, $150= 06 cents/mile

Taking a step back, what can account for these differences? When it comes to transportation, you are really paying for three things: convenience (i.e. proximity to where you begin you trip and end it), quality (like space, service, and privacy), and speed - plus the provider’s overhead costs of labor, capital, fuel, etc. Obviously there are significant differences in all of these categories between cars, trains, subways, buses, and planes; logically they should be priced very differently.

Yet there remains that surprising price similarity between the bus and two different airlines on this upcoming trip. What does it mean? It’s still unclear to me. But I will have plenty of time to think about it during my upcoming flights, so hopefully I will have an answer two weeks from now.

-Daniel Lewis