Thursday, January 05, 2006

The market for beautiful air hostesses!

Not too recently, I had the opportunity to fly by four airlines in India: Jet, Sahara, Deccan, and apna Indian Airlines. Deccan Air was a revealing experience, no pun intended.

One look at the air-hostess serving (or selling) goodies and one can see a phenomenon playing itself out. Earlier, being an air-hostess was synonymous with being beautiful (atleast for most, and I am not talking particularly of Indian Airlines here). That will change. And it is not only due to the falling air-ticket prices but also the available opportunities for those who want to become air-hostesses. There may be other factors at work like union regulations, labour laws, and passenger preference (or indifferences). Would the market go the way of modelling, where those in the top slot earn really well but there is also a market for the average looking girls? It would be interesting to observe it. When I mean looks here, I would also implicitly tie in the other desirable attributes for airhostesses.

Here is a good article that talks about the same issue in the Western context and in an economic vein. There is a free-market slant but the economics makes sense. The useful parts are quoted below.
Taking up the study of economics can help unravel many mysteries of history, among which the pressing issuing: Whatever happened to sexy stewardesses? Today? To be a "flight attendant" is just a profession like any other, sexless and devoid of meaning beyond passenger management. ...

Let's review the basics.

A price ceiling, when legal prices are not allowed to rise to their market-clearing level, causes shortages. There are more buyers at the legal price than there are sellers. Only the most efficient producers can afford to produce the controlled goods, because only they still have a margin between their costs and the legal price. Less efficient producers stop producing the controlled goods, steering those resources where there's more profit, or at least less risk of loss. Price ceilings explain bread riots and the so-called oil crisis of the 1970s. (No, it wasn't French aristocrats or Arab sheiks at fault.)

A price floor, when legal prices are not allowed to fall to their market level, causes gluts. There are fewer willing buyers than there are willing producers at the inflated prices. For agricultural goods, the result is that the government buys up all the surplus with coercively acquired funds. This hurts domestic taxpayers and foreign farmers. It also steers resources away from the goods people actually want, thereby hurting consumers as a whole. A too-seldom recognized form of price-floor-fixing is minimum wage law. Unemployment is a labor glut. Same economic laws apply. So that's the review of basic price fixing, but the above summary assumes uniform goods at established quantity and quality.

With many goods, quality can vary significantly, not always in easy-to-measure ways. If people are used to paying 25¢ for a Baby Ruth, ... then the Baby Ruth company is going to be loath to raise the price to 50¢, even if inflation has doubled all their input costs. What they do instead is cut whatever costs they can to keep the price at a quarter. Maybe they cut the number of peanuts in half, dilute the chocolate with cheaper vegetable oil, and make the candy bar 10% smaller. The product looks the same on the outside, and many people won\'t notice the difference on the inside. But fans of the Baby Ruth chocolate bar will notice that the quality has fallen.

If price ceilings drive quality down, do price floors drive quality up?

Suppose you used to be able to employ 3 unskilled, fresh-off-the-boat immigrants to perform a job at $1/hour each. And suppose a skilled craftsman for that job can do the same work as 3 unskilled men, but he charges $5/hour. Some people will employ the more expensive, higher quality craftsman, and others will employ the 3 less expensive, lower quality unskilled workers. Historically, the craftsmen don't like the unskilled competition, so they launch a minimum wage campaign: how dare anyone pay less than $4/hour? With the new price floor on labor, the 3 marginal workers are all unemployed while the demand rises for the "higher quality" labor product of the craftsmen.

It's not exactly the same thing with sexy stewardesses, but very close. ... when the airlines were all cartelized, it was illegal for them to compete with each other on price. The result was that (1) only a certain jet set could afford to fly with any regularity, and (2) the airlines competed for these wealthier passengers not by cutting costs and lowering prices, but with comfy seats, free booze, and stews who looked like fashion models. Once the industry was deregulated, however, the inefficient giants went out of business and the survivors found that they had to compete by cutting costs and lowering prices. At cheaper airfares, we unwashed masses started to fly more often, and airline flights became commoditized. Get me from here to there. I'll pack my own lunch and bring my own booze, thank you very much. If I want to stare at unattainable fashion models, I can bring a magazine. There are plenty of people who will see this as an inherent failure on the part of the market -- Just look at how small the bag of peanuts is! Can you believe they charged me for that tiny bottle of scotch? -- but more people can travel more conveniently for less money.
Thanks to Bindu for the tip-off!

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