You can get The Gist on this story here
Picture the cabin. 100 seats, 11 miles up, a Machmeter on the bulkhead reading twice the speed of sound, and a load of bankers, film stars, oil men and the odd spiv drinking champagne over the Atlantic.
Down the aisle comes a man from British Airways with a question:
What do you think your ticket cost?
In the most expensive cabin in the sky, almost nobody knows. The bank paid. A secretary booked it. The invoice landed on a desk 3,000 miles from the person in the seat. Their guesses came back at a fantastically high cost, far above the printed fare. Jock Lowe, who ran the operation, later described what BA did about it: "We just started to charge them what they thought they were paying anyway." The fare climbed almost as fast as the plane did, until a standard London-to-New York return stood at £6,636. Concorde lost money in 1982. It made £14m in 1983 and £54m by 1987. Just cos they asked how much people thought it was worth.
Wee Jock
Last week, we concluded in 1979, when the Treasury handed the plane to BA and kept 80% of the profits. Thinking there would be none.
Sir John King arrived as BA's chairman in 1981, with the government telling him Concorde had 2 years to stop losing money or stop flying, which is the only time in the whole saga the state came close to asking what the thing was worth, and even then it only asked what it cost.
King commissioned the passenger research instead. His researchers came back with the finding above: the richest aviation customers had no idea what they were paying, and the rest is the fastest turnaround in the industry's history: an ultimatum, a clipboard, and a fare moved up to meet a belief. Perfect Saturday night out.
The MBAs among you will recognise this as value-based pricing, and what the textbooks never say is why it's rare: asking feels dangerous.
Pricing from your costs feels decent and rational: add up what it costs and chuck a bit on top for yourself. Exactly how the government priced Concorde for 14 years. Pricing from the buyer’s perspective means looking someone in the eye and asking what it's worth to them, and most people, especially the Brits, would rather undercharge forever than be seen as greedy. You do it too, be honest. Every freelancer who totals their hours, everyone who walks into a salary negotiation armed with what their rent costs every month, is pricing a supersonic seat off the cost of the fuel. The entire difference between the Treasury's Concorde and BA's Concorde was the nerve to ask.
Of course Milton has something to contribute.
For 22 years, nobody connected to Concorde spent their own money. Ministers built it with the taxpayers' money; passengers flew it on their employers' money. Milton Friedman had a famous grid about this (of course he did!): people are careful with their own money spent on themselves, and the least careful of all with other people's money spent on other people, which is the ghastly little box Concorde lived in from 1962 to 1984.
On 1 April 1984, King persuaded the government to sell: £16.5m plus the first year's profits, the spares thrown in, the 80% share dissolved. The plane had turned profitable just a year earlier, so the state sold its share of a 20-year profit stream 12 months after the proof arrived, to the man who had commissioned it. Both sides were looking at the same figures. The buyer believed it, and the seller wanted rid of it, and over the next 2 decades the plane earned around half a billion pounds, roughly £1.75bn of revenue against £1bn of costs, for the first owner in its existence that was spending its own money. Tells you everything you need to know.
There is, however, another plot twist in the fare. Putting the price up made the product better. Which is just delicious. At that altitude, the fare was part of the furniture, and a return that cost £6,636, a number that made the newspapers' eyes water, did more for the man on expenses than the bottle of Bollinger polished off before take-off ever could. Most products die when prices rise. A few are bought partly because of it, and Concorde was the purest case. More than 2.5m people paid fares like that across 27 years, and by 1996 BA was charging $7,574 for the return from New York with no shortage of takers.
But then, as the French say, ‘It is the fait of glass to break.’ Then the bottom fell out of the entire affair, for reasons no one could have predicted.
On 25 July 2000, an Air France Concorde ran over a strip of metal on the runway in Paris, a tyre burst into a fuel tank, and 113 people died. 14 months later came 9/11, and the core passenger base stopped flying. BA's cabins ran under half full, Air France filled a fifth of its seats, and in 2003 Airbus announced it would stop making the parts after October.
Richard Branson, being Richard Branson, offered £1 a plane, then £5m. BA answered that it had paid over £155m for its fleet and put £1bn into flying it, that Concorde was not for sale, and that without parts there was "no realistic prospect" of anyone operating it.
What BA never said, however, and everyone believed, is that it would sooner see the fleet in museums than in Virgin red, and museums is where the fleet went, for nothing. The last BA service landed on 24 October 2003 with Joan Collins aboard, which is the most Concorde thing ever. The owner that saved it by doing its sums honestly retired it the same way.
A fallacy
The textbooks had already delivered their verdict, 27 years early. In 1976, the year Concorde first carried a paying passenger, the biologists Richard Dawkins and Tamsin Carlisle published a paper in Nature about animals that stay with doomed nests because of the effort already invested, and they named the error after the most famous money pit on earth. The Concorde fallacy: judged a byword for waste in its first year of operation, by people watching the government's half of the story. The second half, where it actually turned out to be a fantastic business case, never made the syllabus. The fallacy persists because the court adjourned in 1976 and never sat again.
Britain, of all parties, accepted the verdict hardest. The lesson it took from Concorde: 14 years of not being able to stop taught it that not being able to stop is the problem, and it has governed accordingly ever since. On 4 October 2023, it cancelled the Manchester leg of HS2 mid-build, correctly, if you look at it by pure outgoings and immediate ROI. The fallacy has been avoided perfectly. So has everything the fallacy ever given anyone.
The question at the core of this: ‘What do you think it costs? ’ persists.
It rescued the most written-off machine in Britain in 12 months; it built the second half of a story the textbooks refuse to tell, and versions of it go unasked every day, in freelance quotes and salary reviews and the pricing meeting where someone totals the costs and adds 10% because that feels fair.
We will never see your kind again
The most profitable question in British aviation history is 6 words long, and the people it terrifies most are the ones with the most to gain from asking it.
See you on the next one.
Refs
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