Many years ago, I was told by a flute teacher that the main difference between beginner (i.e. cheap) flutes and the better models is that the inside of the air hole in the better models is shaped slightly differently to give a very subtle indentation just below the edge of the hole. Since this fine tuning has to be done by hand, it raises the cost (although I suspect that with all instruments now being made in Asia, the labour costs today would be negligible).
I'm sad that I can no longer blame my lousy tone on not having a solid gold flute. :(
