Part II: Eliminating the Opportunity Cost of Travel Time
Gaetano Crupi is the Co-founder and CEO of Cabin Technologies, the tech-enabled long-distance mobility company solving intercity travel. In this four-part series, he presents an overview of how technology will affect intercity transportation and how we live.
TL;DR Autonomous electric vehicles will transform automobiles into functional rooms and travel time into productive time. The subsequent reduction in the opportunity cost of travel will lead to both an increase in travel frequency and travel distances.
In the first part of the series, I examined how large-format autonomous electric vehicles (A-EVs) significantly decrease cost-per-cubic-foot-mile, transforming automobiles into real estate and unlocking affordable high-frequency intercity travel pricing.
However, decreasing the cost of a ticket alone is not enough to massively increase travel frequency if you burn a bunch of time in transit.
It’s hard to dissociate transportation from real estate. A good natural port springs civilization. Railroads seed boomtowns. New highways starve those same towns and feed new ones.
When I first started hearing about autonomous cars, electric vertical take off and landing aircraft (eVTOL) and Hyperloop, I wondered if there was a way that these technologies could change where people could live. The promise of higher speeds, less traffic and not driving meant that areas outside a currently commutable distance would be open to development.
These secondary cities would be self-contained villages; still tied to a larger metropolis but not connected by urban sprawl. Suburbs 2.0 would be affordable, green, walkable, with sustainable schools and local businesses. My cofounder, Tom, was already working on city-building when a mutual friend introduced us. Over several coffees, we encountered two roadblocks:
- The only way to create this transportation-enabled real estate arbitrage was by actually leveraging a supply-side shift in transportation costs. How could we finance land purchasing and development when autonomous timelines were so nebulous?
- We also needed people to spend longer time in transit, albeit not driving. Would people really commute longer distances if they had to be stuck in the backseat of a car?
The first issue would solve itself — billions of dollars were pouring into autonomous vehicle development. However, it was just too early for us to build a viable real estate business model without a clear timetable for level 5 autonomous and there was little we thought we could do to accelerate that timetable. The second issue, in-cabin productivity, seemed largely ignored from a practical perspective.
Above is the Volvo 360 concept, marketed as a regional flight-killer. Every major automaker puts out these visualizations of A-EV cabins but no one is live-testing the regulations, environments, services, operations and technologies that will allow people to transform transit time into productive time.
This alchemy is critical because the cost of travel is two-fold. First you have the ticket price of the trip (covered in the first part of this series). Second, you have the travel time, i.e. the opportunity cost of travel. The latter can be equally important in your travel decision. A $20 ticket to Santa Barbara doesn’t sound as good when it comes with 12 hours in a cramped seat. The longer the time in transit, the higher the opportunity cost — especially once you break the 30–40 minute mark. If you start spending significant time in transit, you want to use it productively to work, play, sleep, exercise…
We founded Cabin to design transportation experiences that would permit high frequency intercity travel. A-EV cabin design should not be a linear progression from current automobile interiors. Architecting high-productivity moving spaces is a very different optimization; you are designing experiences that don’t waste time.
TRAVEL SPACES: LUKEWARM TEA
I don’t remember much from my introduction to marketing class. However, one concept really stuck with me: If 50% of people say they want iced tea and 50% of people say they want hot tea, you should not make lukewarm tea. No one wants that. One-size fits all products are usually not the best approach — they are the less expensive approach.
Travel environments are largely one-size fits all. Even a first class airline seat is designed to function as an office, home theater, restaurant and bedroom. It does none of them well but that makes economic sense — the asset needs to be versatile.
Similarly, when you drive your SUV to the office, to pick up groceries or to take the family on a weekend trip, you either have too much space or too little space. Again — this makes economic sense. You are not going to buy 4 distinct cars to perfectly match your needs.
In contrast, the rooms in your house are more functionally specific. Your bathroom is not a great place to exercise, your office is not a great space to cook and you would never dream of sleeping in your kitchen. The more space you have, the more tailored you can make each environment for comfort.
Optimizing an environment for a particular activity is a question of real estate cost. The lower cost-per-cubic-foot-mile of A-EV will allow spaces to be more functionally designed versus one-size fits all.
When Tom and I were discussing the first experience to tackle at Cabin, we went back and forth between work, sleep and wellness. We ultimately decided on sleep based on survey data (it was the overwhelming preference) and because sleep is the longest uninterrupted activity every human does every day (sleep allows for the largest possible travel radius). From an operations perspective, owning the night leverages low traffic congestion and inverse infrastructure usage.
TRAVEL TIME: THE RED-EYE PROBLEM
The LA to NYC red-eye is a young person’s game. I did it often for work in my twenties, but at this point I prefer flying during the day even though it seems like a waste of time. The issue is not my back. Even if I had a lay flat seat or a king-size bed in the sky, the flight time from Los Angeles to New York City is 5.5 hours. The maximum amount of sleep you can get is probably a tad less since the crew has to get the cabin ready for landing prior to arrival. Adults generally need 7–9 hours. If I take the redeye, I only get five hours of sleep, and am wrecked on the other side. I would pay extra for the plane to just stay at the gate an extra two hours or for the airlines to go slower and make the trip last longer.
However, those planes need to turn around and those gates need to be freed. Airlines make trips the exact length needed to get from point A to point B as efficiently as possible. The only routes that would be great red-eyes are routes that have a cruising altitude time between 7 and 9 hours.
There are very few distances that are perfect for sleep. Either flights are too short (there are no domestic flights matching that criteria) or they are too long. If you want a perfect red-eye flight, you are likely going to Europe and dealing with jet lag.
Prior to airplanes, the sleeper car was an incredibly efficient form of transportation. It was not a redeye product — it was a full day product because travel took days. This versatile asset worked if you were going the 400 miles from Boston to Washington or the 3,000 miles from Washington to San Francisco.
Today, the sleeper car has all but disappeared because it makes little economic sense. The asset is most useful for very long distances that are better served by air. Anything under 7 hours would be better served in seated positions so the asset could be used during the day as well. You could argue that a 7–9 hour redeye sleeper would be efficient, however, like air, there are very few two-city pairs that are exactly 7–9 hours by train.
Sleep is only one example of this ‘fit’ problem. Daily routines and patterns follow established human rhythms. Exercise classes generally last 45 to 60 minutes. Plays and films are generally 2 hours long. People don’t spend more than 3–4 hours of uninterrupted time at their desks. Humans generally sleep 7 to 9 hours.
Human activity and productivity is derived from physical and cognitive capacity. In contrast, transportation time is derived from distance, speed, and cost. Fitting human activity into traditional transportation time is a classic goldilocks problem. You either have too much time in transport and end up wasting it OR you have too little time and sacrifice the behavior.
A BROKEN EXPERIENCE
A final contributor to wasted travel time is how uncoupled the travel experience has become. I still remember when I could get to the airport 15 minutes before my flight. With heightened security post 9–11 and strained infrastructure, flying has become a disjointed affair. Pre-check and Clear help, but it still takes 10 years to build more airport. According to research done in 2017 by the Airports Council International, US airports need to invest $100 billion in infrastructure just to keep up.
Any time you decide to board a flight, no matter how short, you are in for an average of 4 hours in transport. If you could simply watch a few movies or work during that time, it would not be so bad. However there are so many intermittent steps during the journey, it’s hard to do any continuous activity, let alone get into a productive state.
It takes an average of 25–30 minutes to context switch effectively. So every time there is a step in your journey that forces you to get out of your workflow, it takes half an hour to get back to the same level of productivity. For example, being interrupted 4 times while you are working costs you 2 hours of high-productivity concentration.
The above diagram breaks down the average time for each step of the commercial flight journey assuming zero minutes of cruising altitude. Imagine if you had to work on your laptop through this process. You’d almost spend as much time getting it out and putting it away as you would working.
The only time I get any meaningful work done in the air is when I have a large chunk of uninterrupted time on flights over three hours. Even then, the work is limited to email or reviewing documents. I’m not taking calls or coordinating with my team.
THE OPPORTUNITY COST OF TRAVEL
Because natural human activities do not fit into current travel spaces and schedules, travel time is generally wasted time. It’s hostage time.
This ‘opportunity cost of travel’ is just as true a cost as ticket price. However, it does not feel as painful unless you do it at high frequency. The average person makes black-and-white pricing decisions multiple times a day. Opportunity cost decisions are less frequent and more complex.
However, if I told you that you had to fly from Chicago to a client in Minneapolis every week for the next six months, the opportunity cost of travel time would become clear. All that time going to the airport, waiting in line at TSA , etc. means less productive hours in a day, less time with loved ones, less time exercising, etc.
Fortune 500 CEOs, presidential candidates and rockstars need to travel at very high frequencies. A private jet waits till you arrive to take-off and waits on the tarmac for you to finish your phone call before you de-board. If you’re on tour, you can sleep-in on your motor coach and no one will wake you up when you roll into town. It will just park and wait. The luxury of private jets and tour buses is the luxury of spaces designed for your life that run on your time; the luxury of practically no opportunity cost of being in transit.
Unlocking this level of travel frequency means (a) designing spaces to fit human activities, (b) scheduling travel duration to human behavior and (c) providing uninterrupted experiences.
WHO GETS THE MARGIN?
The first part of this series, outlined how A-EV will drastically decrease the cost of transportation. As ride-sharing services, automakers and tech giants compete for your commute with cheaper rides and faster pick-up times, not all of them will survive the bloodbath. For consumers, this will mean inexpensive mobility.
Ride-sharing and micro-mobility have already changed how I move around the city. I have half a dozen apps on my phone and switch depending on need and price. I don’t presume to be the only one checking both Lyft and Uber at 5:30 PM to get the (1) best price and (2) the fastest pick-up time. My choice is strictly based on those two commodities: cost and speed.
However, the opportunity cost of travel is not as simple. The opportunity cost of a thirty-minute commute could be very expensive regardless of pick up time and cost. One hour (round trip) of disposable time a day is the difference between exercising or seeing your kids. Once you break the 30 minute mark, your per-mile cost calculation should include the value of your time.
When I’m choosing a gym, hotel or place to work, I don’t choose the cheapest and fastest option. The downstream consequences of a bad experience are too high. I can sit in a dirty, smoke-smelling Prius for 20 minutes. If I tried to work or sleep in a dirty, smoke-smelling room, I would sleep poorly, feel gross and not be able to concentrate. It might ruin my whole week. The longer you stay in a suboptimal environment, the higher the opportunity cost in lost productivity.
Once A-EV commoditizes transportation cost and speed, the marginal cost of mobility will converge toward zero. Whoever can monetize this mobility ‘time’ will win because margin will come from something other than transportation.
A quick example:
- Your commute is 10 miles (15 minutes).
- Cost-per-mile in a shared A-EV is $0.20.
- Your commute is $2.00 each way, $4.00 per day, and $100 per month (that’s just cost with no margin for the transportation provider).
- Amazon discovers that during those 10 hours of newly found time per month you buy or watch an additional $25 of profit to them including reduced delivery cost by having goods, groceries, etc. in the trunk of the vehicle.
- They launch “Amazon Prime Mover” for $80 a month, losing money on transportation but making profit on their core offerings.
The point is that whoever finds out how to make margin while people are being transported can offer the transportation piece as a cost center and make profit elsewhere.
The future of mobility margin will come from time, not miles.
For shorter durations, the margin will derive from attention (Google, Amazon. Facebook, Netflix, etc.). For longer durations, margin will come from replacing brick-and-mortar activities such as exercise classes, hotel night stays and hot desks.
Even transit time might be more flexible than you think. Let’s revisit our commuter example.
- The distance is the same (10 miles) but we are going to slow things down so it takes 45 minutes to travel the same distance.
- Either the vehicle is parked or it takes a longer, smoother route — it might even get paid to stay off congested highways.
- The operating cost of the trip is $6 versus $2 (to pay for the asset being tied-up).
- Instead of a seat in the vehicle, there are stationary bikes and you are getting a workout PLUS your commute.
- What could you charge for this type of service? $20 would be 70% operating margin.
Mobility services that can offer something more than just transportation will capture profit by monetizing a captive audience in transit.
Your travel decision will not be an Uber vs. Mercedes decision; it will be a Peloton vs. WeWork decision; a sweat vs. sprint-planning decision. This is only good news for consumers as more robust and sophisticated in-transport experiences begin to reduce the opportunity cost of travel.
A-EV technology might push mobility costs toward zero. The right mobility environments and services might also push the opportunity cost of travel toward zero.
TIMELESSNESS AND FLOW SPACES
The psychological distortion of space and time that comes from being immersed in an activity has become a popular concept. The psychological idea of “Flow” was coined by Mihaly Csikszentmihalyi in “Flow: The Psychology of Optimal Experience.” When you are fully immersed in an activity, completely absorbed in what you are doing, time disappears. Everyone has felt this experience and everyone has also felt the irritation of being broken out of a flow state.
During our first few months working together, a friend asked Tom about our new project and he responded that “we first started working on a teleportation machine but discovered that re-organizing atoms was incredibly expensive. Then we tried building a time travel service only to discover that bending space time was a really hard technical challenge. So we decided to put beds in buses.”
It was obviously a joke, however there was some truth to it as well. If we could create an experience that would get you to sleep as quickly as possible and keep you there till you woke up on the other side, you would have no opportunity cost of traveling. There were three pieces to the design of this experience: (1) building a vehicle interior for sleep, (2) making sure the journey lasted 8 hours and (3) getting people physically and psychologically into their sleep cabins as quickly as possible. Our Flux Capacitor is a pillow and nice sheets.
On that third point. a major benefit of ground transportation is the lack of bottleneck infrastructure. You board curbside a few minutes before departure and are in your travel space in seconds. Groundcraft can also take a slower route or just stay parked, making any distance last longer. 200 miles can be a full 8 hours of sleep. So can 400 miles. The transportation time works for you. Going back to the redeye problem, there are an unlimited number of full-nights-sleep-sized ground distances in the United States.
A practical example from my own life is the trickiness of Disneyland for Bay Area parents. It seems close but if you’ve made the trek with kids you know it is oh so very far. I don’t know what is worse, flying or driving down to LA. You would never go down to Disneyland for the day. If you wanted to take your family to Disneyland, you would have to take a full vacation. Even if you love Disneyland you can only afford the time of going once every couple of years. I don’t know any Bay Area families that have annual passes.
If I could put my kid in bed, wake up in Anaheim, spend the whole day at the park, watch the fireworks and wake up back in San Francisco I would be going a lot more often. I might even buy an annual pass.
Functional environments massively reduce the opportunity cost of travel time.
Reducing opportunity cost impacts addressable frequency — it increases the amount you can be in transport over a fixed 24 hour day. Going back to the high-frequency Disneyland example, the price of driving or flying is not as big an issue as the pain of the travel time. The takeaway here is that the impact of A-EV on the opportunity cost of travel time might be even greater than the impact on price.
As A-EV makes travel time productive, people will be able to both (a) travel longer distances and (b) travel those distances more frequently. This combination of increased frequency and addressable market will change how we live.
Intracity mobility might increase your travel within a city 20–30% but you are not suddenly going to have to go to the office five times as often or take the kids to swim class twice a day. Intercity travel might see an order of magnitude increase. Intercity travel may very well 10x in the next decade.
Once the ticket cost and time cost of long-distance mobility allows for an increase in frequency will customers actually travel more often? If we examine how other technology companies have fundamentally changed behavior, we see that they not only changed the product — they changed how people make buying decisions.
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ABOUT GAETANO CRUPI: Obsessed with building teams and organizations, Gaetano currently serves as the CEO of Cabin. Previously, Gaetano was the COO of Betable and founder of Machina Pictures. Gaetano was nominated for a Grammy in 2013 for his work with Foster the People and also produced Beyonce’s “Move Your Body” video for Michelle Obama’s “Let’s Move!”project. Before becoming a producer, Gaetano was a consumer and retail investment banker at Goldman Sachs in New York. Gaetano is an alumni of Wharton and the Stanford Graduate School of Business. Having grown up in Brazil, Venezuela, Canada and United States, Gaetano speaks three languages fluently, and lives to explore.