In a recent op-ed, travel industry analyst Michael Gebicki postulates that a decades-old business school lesson may tell us everything we need to know about the end of the golden age of air travel and the rise of ancillary fees, stripped-down service and industry consolidation – all while ushering in the age of no-frills ultra-low-cost carriers.
The tale of the American Airlines $40,000 olive has gained near-urban legend status in three decades since an observant company executive reportedly discovered that the legacy carrier could save a big chunk of change simply by removing the particularly unpopular garnish from inflight salads. Though apparently based in fact, the tale of olive-based cost savings has become an oft-repeated metaphor in business circles and a reminder that trimming even a seemingly inconsequential expense can make a big difference to the bottom line.
In a January 16th op-ed, Stuff’s Michael Gebicki notes that for the airline industry, in particular, the lesson of the surprisingly expensive olive became less symbolic and much more of a day-to-day standard operating practice. He notes that the moral of the olive anecdote isn’t the cost savings obtained, but the fact that savings were obtained with barely a hint of complaint from the flying public.
“They concluded three-quarters of their passengers were not eating the olive that came with their dinner salad so they cut it – and saved $40,000 in one year,” Gebicki writes. “American also concluded that it lost not one single passenger as a result. To keen-eyed observers within the airline industry it was a light bulb moment. Take out the frills and they could offer a cut-price service and beat the majors. Ever since, budget carriers have been scrambling to find new and ingenious ways to cut beyond the olive.”
Thirty years ago, an airline executive did the math and discovered that skimping on salad ingredients could save big bucks. It didn’t take much imagination to realize what trimming other amenities and services could mean to the company coffers and perhaps, more importantly, how quickly even a small fee could add to profits.
The rest is, as they say, is history.