The economics behind "Basic Economy" – A masterclass in price discrimination | Hacker News Reader

The economics behind "Basic Economy" – A masterclass in price discrimination

blog.getjetback.com

107 pointsbdev12345154 comments

It appears that taking advantage of human imperfections and irrationality are taking up more and more of companies' strategies and time.

You've got folks thinking constantly about advertising, pricing strategies, dark patterns, network effects that prevent or discourage churn, etc., in ways that tend to exploit flaws in the consumer's decisioning process or gaps in their knowledge, to the consumer's disadvantage.

It feels rare to see an actual new valuable product or improvement.

Spot on. Surfline gave us a bunch of new features over the past year but you have to pay more for them. Gone are the days of delighting your customers — gotta take every penny you can from each market segment.

You can find people back in 1880 (probably before, but that is as old as I've seen something) saying much the same thing. Yet we have had a lot of innovation since then.

* citation needed

People were saying that in the 1880s, which was the gilded age. People took action at the time to deal with the problem, and it was significantly reduced for many decades.

Just because an issue existed long ago does not mean it has continuously existed or is intractable.

I think the biggest change in general corporate management in my lifetime was the deprioritizing of the concept of goodwill. I’m not naive, businesses have always prioritized profit. However, there used to be this idea that pure profit maximization ruined your brand and reputation. You didn’t want to be known as the asshole company that nickel and dimes everyone or has draconian policies that make people hate dealing with you. Now the corporate mindset is seemingly that if anyone leaves any interaction with you with any positive feelings, you didn’t squeeze enough money out of them.

It may just be a misperception on my part, but it appears to me that on average publicly traded companies are more likely to engage in this behavior and to greater extents than private companies. Startups can be pretty bad about it once the VCs come knocking, too. Maybe bootstrapped and private forever is the way.

Broadly agree, with the one caveat that private-equity-owned businesses seem to be even worse than public companies in this regard.

I agree, although there’s a lot of selection bias at work here: companies usually don’t get bought by private equity unless they’re already in distress, so whatever they were doing before the acquisition clearly wasn’t working.

C.f. Private equity entrance to the veterinary market. Were they all really distressed? The issue is valuation of company vs underlying assets, isn’t it? Distress is one way, but a solid company not squeezing all of the value out of its customers / capital is another.

My gut is this comes down to lack of real antitrust enforcement. If your customers have no choice but to come crawling back to you then why treat them well?

As in, it doesn't matter that you're "an" asshole. It would matter if you were "the" asshole, but all of you together can do what you want.

Seems like the opposite as the origin was Delta trying to compete with Spirit and then all the legacy carriers following.

Those are two different things.

One is, you want a phone with drivers in the kernel tree so you can keep putting the latest version of vanilla Android on it without relying on the OEM. Except the market is too concentrated and then nobody makes that. Competition fixes this.

The other is, if you give people the choice between a $200 plane ticket with two checked bags and lots of leg room and a $170 plane ticket where it's standing room only and you can't check bags because the airline is reselling the cargo area of the plane to UPS, customers pick the second one. And then a competitive market provides you with that option which people choose and then complain about it even though the alternative is available. Choosing differently fixes this.

Everyone loves to complain about flying but generally all search by lowest price sort, click the first one. Flying is quite cheap in inflation adjusted dollars and customers could be a bit more selective, but are not.

The biggest driver i feel is increased financialization of company ownership. Since the 80s, financiers essentially punish any boards or CEO who prioritizes longer term impact items like goodwill at the cost of short term quarterly results. This massively influences incentives - as a CEO or board you may know what is the right thing for long term success but you'll be fired if you choose that over short term results.

I also think that brands are being attacked and devalued.

Look at all the ASKJKL type uppercase brands on amazon.

Meanwhile trusted/established brands are impossible to search for specifically.

And established brands are bought and sold to bad new owners. Pyrex was sold and doesn't make good (borosilicate) glass products anymore. Segway went to ninebot.

I'm sure there are lots of examples of this...

Many established brands now have official stores on Amazon. Like here's one for Bose (not an endorsement). Search takes you right there.

https://www.amazon.com/stores/Bose/page/9E24AFD5-B420-4859-B...

I don't think that Segway was ever considered trusted or established. It has always been kind of a goofy niche product used by guided tour groups and mall security.

Milton Friedman and Jack Welch were pioneers of this nonsense.

Nope. Financiers don't punish CEOs who prioritize longer term impacts, as long as the CEO maintains credibility by communicating a viable business plan and consistently delivering on commitments. The classic example is Amazon which had huge stock price appreciation while being unprofitable. Activist investors only step in to demand changes when the CEO and Board are incompetent.

I have no love lost for airlines but they operate in a commoditized industry where customers sort tickets by price. All of the fat in the industry has been squeezed out and they have to claw for $20 here and there on a sale.

> All of the fat in the industry has been squeezed out

I don't know where you live but in the US this is patently not true.

Airlines are an abusive oligopoly there, with landing slots and the like cementing control of certain markets for certain airlines.

Ticket prices are much higher than they used to be and are much higher than Europe (for instance).

The airline industry is famously unprofitable; it is commonly said that on net, the sum total of airlines have made $0 over the course of their history. It is true that there are periods where they do make a profit, but these periods are offset by times when they make massive losses (such as during COVID, after the Great Recession, and after 9/11).

Globally, big airlines seem to be doing fine:

https://www.aerotime.aero/articles/most-profitable-airlines

I think there are lots of airlines that are propped up by governments that lose money leading to the meme you're quoting. Many industries were affected by the events you quoted, those sorts of things aren't specific to airlines.

There are two issues with doing a static analysis on something like this:

1) Survivorship Bias: you are only looking at airlines that currently exist, and ignoring ones that have gone out of business.

2) Recency Bias: you're examining them at a time of relative prosperity and stability, ignoring their pasts.

Plane tickets in the US are, inflation adjusted, historically low. Further, the airlines themselves seem to be on perpetual life support and have variously gone into bankruptcy and resuscitated.

You see an oligopoly, but the barrier to entry is as much defined by the thin margins and high capital cost as anything else.

Airfare in the US costs less today than it did in the 90s, adjusted for inflation: https://www.bts.gov/newsroom/2024-annual-average-domestic-ai...

Its not even the same product. When one consider the crowd level at airports, the lines at security, the size of airline seats, or size of food tray which matters specially on international routes.

Though I blame no one, if people want comfort they can pay more or travel less (if possible)

> Not included: Fees for optional services, such as baggage fees.

This entire article is about how airlines are unbundling their offerings and doing market segmentation through "optional" add-ons...

Average airfare isn't a useful stat in this respect. What would be useful is comparing fares for individual routes over the years, which would tell a different story.

Average fares are skewed by low cost carriers entering the market.

>Airlines are an abusive oligopoly there

>Average fares are skewed by low cost carriers entering the market.

The large carriers, created through mergers that should never have been allowed, have the most popular routes locked up through ownership of landing/takeoff slots and similar. On those routes, fares have substantially increased due to a lack of competition.

The low cost carriers business model is to fly new routes (to secondary airports if required) at low prices, often creating new demand (Breeze is a classic example of this).

The math is very straight forward if you consider what each group is doing in the market.

Airlines make roughly no money.

OTOH, from TFA: "By 2017, US airlines were among the most profitable in the world, and some Senators pointed to things like Basic Economy as evidence that consumer interests were being undermined for the sake of extra profit."

Both statements could be true simultaneously, of course.

Airlines have substantial earnings (greater than flying?) from credit card marketing and loyalty programs.

The factoid that they make all their profit off of loyalty programmes is just a repackaging of the fact that they make pretty much no money overall. So you can pick any one part of the airline operation, account for it in a way that makes it profitable in isolation, and go "oh ho airlines really make all their profit from fuel price arbitrage between different countries" or what have you, and it's sort of true but not really reflective of reality.

When you have A) a customer who isn't looking for a bargain, and B) a seller who cares about their reputation – then doing business is a pleasure for both parties and very smooth.

If you're the seller, then it's easy to filter out customers who don't fit into category A, with pricing. For the customer it's harder to filter out sellers who don't fit into category B, but generally you won't find them if you're looking for a bargain.

Looking at the S&P500 about 30-40% of us equities value is based on selling customers data back to them or advertising on it, and establishing network effect stuff like developer ecosystems or marketplaces (Amazon) where a majority of the value comes from the outside ecosystem. I'm counting some of nvidia in that as the profitability others get of selling back transformed free data is a big part of enabling their margin.

Having to pay for your bags and meals are actually good for consumers and overall environment.

If passengers are forced to pack lightly because they have to pay extra fees is actually a win-win-win for everyone. Plus it is less discriminatory because my airfare is not subsidizing someone else abuse of the system.

Same goes with food. I want the option to not pay for the shitty airline food.

The daily and seemingly random price fluctuations of tickets are much larger than the cost of meals you'd save, basically noise.

The "noise" is very likely intentional.

A common way to price discriminate is to make the cheaper options take time and effort to obtain. People with less money will put in more time and effort e.g. price comparison, looking for discounts (codes or whatever), taking a few days to check prices, willing to move travel dates/times to get a cheaper price. Those with more money pay more and value their time/effort more highly.

Flight prices are not random - they are highly optimised (even using genetic A/B price generation algorithms that the airlines themselves might not fully be able to predict).

PS: Avoid LATAM Airlines Chile - dark pattern on website - those bastards increased the price while I was entering the credit card to pay (a popup - was ~2% but a dirty trick - maybe discrimination after detecting card owner credit details?).

You got economy or business class, you really don’t have much choice

Aren't flights at an inflation adjusted all time low and most airlines operating at a razor margin? Seems like the market doing their job. Also price discrimination sounds a lot worse than what it really is? Idk, I don't like that air travel is so easily accessible but, the pricing stuff is the least of our worries.

> Also price discrimination sounds a lot worse than what it really is?

I usually think of price discrimination as the first- or third-degree types (how they define them in the article), that is, charging people different amounts based on how much you think they are willing to or can pay, not on any differentiation of the product. That practice always sounded dirty and dishonest to me.

I wasn't aware that something like basic economy could be considered (second-degree, using their terminology) price discrimination; to me that's just offering a different product, with different features and different quality, at a different price. That honestly seems entirely reasonable to me; basic economy is just a different class of service, similar to how business class is different from economy class. I don't think of biz/first class as price discrimination; to me it's just selling a different, higher-quality product for a higher price.

> Aren't flights at an inflation adjusted all time low

Yes, due to improved technology and equipment and because prices have been historically very high.

> most airlines operating at a razor margin

No, many airlines operate in imperfect markets and reap excessive profits compared to other airlines.

>No, many airlines operate in imperfect markets and reap excessive profits compared to other airlines.

Which ones? Practically all airlines are public companies with easily accessible financial data.

All of the one's I've looked at are barely scraping by with single digit profit margins. Delta is around 6% and Emirates is among the if not the best at around 9%.

Which airlines are "reaping excessive profits"?

I would like to invest in them.

I would love to see the following be factored in if it isn't already:

1. airline ticket holder minutes wasted due to flight delays and cancelations.

2. amount of jet fuel wasted on empty flights for the purpose of keeping gate privileges.

3. money spent attempting to acquire or merge with other airlines and attendant FTC defense preparation.

4. (any and all other wastes of revenue that do not get invested in the consumer and instead are paid by the consumer).

There is more to the story than the price per mile. And that's not even opening the can of worms that is the quality and comfort of the flight for the consumer...

From my understanding, I can't find the article, but it seems airlines by default due to Pilots unions take like 95% of profit, fixed. So when fuel or what not meses with profits. Airlines have to declare bankruptcy to renegotiate with Pilots.

1. is that even in the airline's control?

2. sure but the baseline needs to be against other forms of transit? What's the vacancy rate in a greyhound or amtrak

3. I guess? It's unclear to me if a merger is bad though? What if it streamlines routes? Idk

re: 2, the issue is that e.g. airport gates are a(n artificially) limited resource that require airlines to perform behaviors that don't benefit customers and have externalized costs (e.g., wasting fuel) in order to maintain access to those resources.

A bus only needs to have something like four people aboard to make it more efficient than equivalent cars by most measures (road space required, fuel, etc); so it's not a 1to1 comparison to other transit rates.

The fact that we don't have a high speed rail network in the United States is a travesty. Air travel is the least economical form of public transit. We pack human beings into these planes like meat in a can just to make them affordable and then the airlines go bankrupt anyways.

I would have thought this as well. Looking at a trip from Fukuoka to Tokyo though. Shinkansen takes 5 hours and costs about $200. An economy flight is around $50 and takes less than 2 hours, although it’s possible there’s a lot more overhead to that time.

I don’t know if there’s really that much time overhead. If I’m spending $200 on that rail ticket, I’m gonna arrive at the train station early to account for any issues I have getting there, just like an airport. I find it a little frustrating that people argue that there is zero time overhead in getting to a train station but there’s like three hours with an airplane when in fact, it’s often two hours for airlines and one for trains in reality.

For flights you have to go through significant amounts of security which is often highly variable.

Further, flights tend to be distinct events. For many routes there may only be one per day, and even for busier routes you usually can't just hop on the next one without significant effects on your travel plans, for example rescheduling connecting flights. Trains on the other hand just keep running, there's going to be another one going the exact same route every few hours at most, likely less for busy routes. You can go to a train station without looking at the schedule, for a flight you're scheduling your entire day around it.

Shinkansen operates at a frequency of one train every 4 minutes on some of the busier lines. The $200 is mostly for very long single trips. It's mostly used by commuters who get monthly passes for cheap and are refunded by their jobs. I can't even imagine how horrible it would be to fly on an airline every single day. It sounds exhausting.

While economical in the sense of a personal budget, airplanes are not nearly as economical as high speed rail in general.

Subsidies and externalities kind of muddy the water when it comes to ticket prices. While it is generally cheaper to fly, this is because you are not paying for the damage your flight is causing to the city around it. Noise, pollution, damage to property, and disruption of the quiet enjoyment of those around you.

Shinkansen is a for profit business that acts as an engine to turn worthless rural land into extremely valuable land. Air travel does the opposite. Property values around airports are extremely low. Every plane rattling people's windows and dropping a plume of unburnt fuel and exhaust on people's heads damages the area under it.

That’s an interesting point, I do often hear about being near a rail line as being a benefit for property values, but you don’t usually hear the same thing about being near an airport. Although this might partially be because a rail line is something people would use more often than an airport.

I don’t have much of a personal opinion on this. I just thought it was interesting. You’d think this train with a fixed route, tons of seating, traveling multiple times per day, would be cheaper than a plane, but somehow it isn’t.

The pollution and noise pollution is an interesting point, that could probably be improved somewhat for air travel while keeping the benefits, if electric planes could be developed. I was in India at one point and the noise of just being anywhere near roads was terrible day and night, it wasn’t even necessary people just love to honk there. There actually was a kind of luxury hotel city (Aerocity Delhi) near the airport there, I guess if they’re already used to that much noise being near an airport can be valuable.

There is some advantage for cars and planes in that you don’t need to develop the whole land between the two points you’re interested in traveling between as much as you do for rail, maybe that’s where the price difference is coming from.

I prefer airlines that don't nickel and dime. In fact, I prefer to fly less since the experience has consistently deteriorated over decades. If you travel internationally you get the added fun of dealing with border agents. And even they have discovered price discrimination, with their VIP lines.

All told, is all this chicanery benefiting airlines?

> All told, is all this chicanery benefiting airlines?

I am pretty comfortable it contributes to revenue and profit outcomes the board likes.

It feels like competitive pressures in some markets drive away all the profits leaving corporations with no choice but to engage in underhand tactics.

Car rentals and printer inks are a couple of examples of the same process leading to really shitty behaviour on the suppliers part.

I agree. Boards should be under more pressure to deliver longterm outcomes of benefit beyond their immediate board term, KPIs and rewards. Possibly the path out is to make some board renumeration tied to 5 and ten year success.

These shitty LCC patterns make short term revenue and the long term consequence of market share moves don't get factored in.

I think it's kinda race to the bottom / lemons market. A lot of people search for flights through aggregators so you need to optimize for the price shown there, and the customer doesn't know if that's the real price or if there'll be add ons so they won't go for a more expensive one on faith.

Best bet is finding out which airline treats you best and going all the way to a loyalty card with them or something I guess? that seems to work out a little better

I've heard it said that airlines make all their money from interest payments on points. That is the credit card companies are buying miles today, and when the flight is taken the airline faces the charge in between that time they invest the money and collect the interest.

I'm not sure if it is true, but it is an interesting insight even if not strictly true.

It's not just time-value. It's also not just tying/advertising (although it is some of that - if I'm getting a ton of "free" points to American, I'm more likely to fly with them). It's both of those, and so much more.

Loyalty points work like gift cards in that huge numbers of them go unredeemed for any value, so selling them is just printing money. And unlike gift cards, which are typically denominated in currency, airline points don't have a fixed exchange rate to USD, so the airline can sell them to Chase or whatever for $0.01, and then if it needs to rebalance the books to shed the outstanding liability it can easily adjust the point costs of flights to make them only worth $0.009 - it's the same as a price hike, but in a way that's less noticeable to most customers most of the time. And that's assuming they don't just sell the points at an outright profit to begin with.

You can find a number of analyses showing that airlines operate at a loss if you set aside the miles-economy revenue streams. United famously got a line of credit secured against their loyalty program in 2020, in which they and their creditors valued the loyalty program at more than the value of the entire company of United Airlines - which would naively imply that the actual airline, the part of the company that owns large expensive machines and actually sells a product to consumers, had negative value.

Here's a longer overview with numbers and sources - https://www.youtube.com/watch?v=ggUduBmvQ_4

Kind of like how GM's credit arm was briefly more profitable than the actual manufacturing.

If GM also owned an oil company and shares in Apple, those parts of it would also probably be more profitable than making cars.

It's technically true but only because airline overall profits are really low. So you can pick any profitable corner of the business and say "the airline makes all their profit from branded toy lines" or what have you.

It's made it so that relatively poor people can afford to regularly fly all over the world, which is a relatively new thing.

Lowe middle income people in lower middle income countries can afford to fly somewhat regularly, and even internationally, too.

Flying used to be just for the rich only as far back as the 60s, and for nobody as far back as 200 years...

The vast majority of the world’s population can’t afford to fly. The relatively poor part of your comment is weird. Flying is still for the rich.

Flying used to be for the ultra rich, people’d gather around them to listen to their plane ride story. The poor in this case are not the poorest but poor comparatively

Okay, sure, if lower middle income people in China are rich.

Even middle income people in India can afford flights...

> It's made it so that relatively poor people can afford to regularly fly all over the world, which is a relatively new thing.

has _it_? do what is _it_ again?

>> All told, is all this chicanery benefiting airlines?

i'm really curious how screwing passengers has done these things.

Airlines are actually very low margin business. Thus, all these pricing tactics merely offset the drastically cheaper tickets. It makes sense, their margins are so low that they have to nickel and dime everything to make a small profit in good years and avoid going under next recession.

If you fit more people onto a flight, you can make more money, while the journey is less comfortable for the passengers.

and if all those people paid the same amount then there would be the same end result, but the situation would have nothing to do with the conversation, so i'm afraid that explains nothing.

Business and 1st class subsidizes basically all of Economy class.

Yes, it’s a way to extract something from all buckets. Higher income people you can get more money but with low incoming ones you get a lot more quantity since there are way more lower income people. Laws and regulations prevent people standing up or overloading planes with passengers so this is the alternative.

I'd rather go back to only being able to fly once every few years as opposed to the bacchanal that is Ryanair...

you can do that by choosing a different airline

Ryanair has been very successful with their PR. They've made sure that people who don't fit their customer profile will have an irrational hate for the airline without ever having flew them. And that people who are looking for the biggest bargains flock to them. And the price difference is just ridiculous.

And I don't even understand what everyone's problem with Ryanair is, except maybe the company's treatment of its own personnel. Flights have been just as smooth as with some more expensive carriers. I haven't gone to any party destinations though, if that's what the bacchanal reference is about.

I also have greatly enjoyed their flights for the most part. The reference was in relation to the drunken fights that seem to be a "common" occurance.

Spirit Air in the US has somewhat of a similar rep.

Then save your pennies and fly in first class. The choice is all yours.

> All told, is all this chicanery benefiting airlines?

Yes.

An example is paid baggage. It used to be that stowage space was mostly a waste of capacity on an airplane. But with the help of modern software making coordinating shipping easier, they can make lucrative money shipping cargo on passenger flights.

So encouraging passengers to not bring bags and keeping that capacity for cargo is a feature, not a bug.

I always ship my baggage via insured carrier (Fedex, DHL, etc) and take a small carry on for immediate needs. It's MUCH cheaper and safer.

Or I just don't bring anything that won't fit in my lap.

FedEx'ing baggage between home and a distant hotel is awesome. I haven't done it recently, so maybe with airline fees it is always cheaper. It used to be that you had to have a corporate account with enough discounts to make it cheaper than checked luggage.

Big hotels host lots of conferences, legal depositions, business shows, etc. They get a FedEx truck almost daily and don't blink if a package arrives addressed to you with "Guest checking in on XXXX date" appended to it. It happens all the time! And when you leave, you call the front desk and ask them to take a box to the loading dock for the next FedEx truck.

Alternatively, my brother has done a lot of business travel in his life, and I love the advice he gave me:

"Never pack more than you are willing to carry a mile down a gravel road in the rain"

I have yet to regret a trip where I pack extremely light.

When I travel, I often stay in rentals that have laundry machines, because it’s so much easier just to pack light and do laundry every couple of days. I’m also not against packing light with the intention of going shopping if I need something. That’s how I get a lot of fun clothes!

The tradeoff on short domestic flights is that it encourages more - and larger - carry-ons, which slows down boarding/deplaning and therefore adds to turnaround time. If I don't have to pay for checked bags, I'd often prefer to have mine checked, especially if I have a connection - but since I do, I'll squeeze everything into a carry-on roller bag instead. Personally, it only takes me an extra second or two, but when you have a whole family doing this and only parent who can actually reach the overhead bins, it bogs down the whole aisle.

This is why I love it when airlines charge for carry-on bags, like spirit does. Everyone just has a teeny little backpack. Getting on and off is a breeze.

>> All told, is all this chicanery benefiting airlines?

No. There is no competitive advantage. If they don't implement price discrimination, they go bankrupt. If they do implement price discrimination, they still go bankrupt: https://en.wikipedia.org/wiki/List_of_airline_bankruptcies_i....

> I prefer to fly less since the experience has consistently deteriorated over decades.

I never liked flying, but was able to put up with it better when I was younger.

Nowadays, I get some satisfaction by leveraging credit card points through my business to get "free" tickets. I mentally steel myself to the unpleasantness of the airport, boarding, and flying, and try to get as much work done on my laptop as possible when I am sitting down so at least I can feel that I accomplished something by the time I reach my destination.

> If you travel internationally you get the added fun of dealing with border agents

That's avoidable. If you are a citizen of an advanced economy flying to another you can just use the automatic passport gates.

This always happens when growth of a good or service slows but the provider is still expected to keep delivering growth.

Historically it has led to finding efficiencies - but that takes R&D, not just financial engineering.

In the near future humanity will to do a mix of three things: a) accept that growth is over (it’s not, this is temporary until the next thing is invented), b) find a way to return to the frenzy of innovation that pushed us to expect growth (likely by leaning back in to R&D), and c) legislate the types of squeezing we’ll tolerate (as the EU is doing)

Companies that invest in R&D need to start winning to kickstart growth again. Big companies can do it - eg. Google Gemini is topping leaderboards.

While you wait for a return to R&D, contemplate the miracle of the complex economy that led us to the point where lower middle income people can have a Basic Economy seat on a tin can in the sky.

I broadly agree, but airline engineers are already inventing their little hearts out as fast as they can. Airlines are being squeezed in a hundred different ways every day, whereas building a better engine takes decades.

A masterclass that has had no discernable affect on revenue, in fact revenue for the airlines is down over the past 10 years, but I guess it has kept those revenue analysts employed.

>Inflation-adjusted PRASM (Passenger Revenue per Available Seat Mile) for major U.S. domestic carriers from 2015 to 2024, all expressed in 2024 dollars for consistency:

  Year Delta (¢) American (¢) United (¢) Southwest (¢) Alaska (¢) JetBlue (¢) Spirit (¢)
  2015 14.8 14.6 14.3 13.5 13.9 13.0 11.3
  2016 14.2 13.9 13.7 13.0 13.4 12.5 10.9
  2017 14.5 14.1 13.9 13.2 13.6 12.7 11.0
  2018 14.7 14.3 14.1 13.4 13.8 12.9 11.2
  2019 14.9 14.5 14.3 13.6 14.0 13.1 11.4
  2020 13.2 12.5 12.6 11.8 12.1 11.0 9.7
  2021 13.5 12.8 12.9 12.0 12.4 11.2 9.9
  2022 14.0 13.2 13.4 12.5 12.9 11.7 10.3
  2023 14.3 13.4 13.6 12.7 13.1 11.9 10.5
  2024 14.1 13.5 13.8 12.3 13.0 11.5 10.4

> Note: These are inflation-adjusted estimates based on CPI data and publicly reported PRASM figures. Actual values may vary slightly depending on methodology and data source.

is prasm the best metric though? It doesn’t take into account costs, for example, airlines have gotten more efficient over the years with planes like the 737 max so you can make more profit off of less revenue. Likewise, non-passenger revenues, like taking delivery cargo in the cargo bay, can be masked

Agreed but the article was about price discrimination which would affect revenue. If it is not increasing revenue than what is it doing?

It's already a regulated market. If we want to stop fare practices we do not agree with then mandating specific bundling in luggage, legroom, food and credit/rebook is available as a regulation. And of course the economic arguments against it, and legal/philosophical.

>If we want to stop fare practices we do not agree with then mandating specific bundling in luggage, legroom, food and credit/rebook is available as a regulation.

Let's take the one of the items as an example: I rarely rebook, so I'm presumably benefiting from this price discrimination. Why should I support that it be forcibly bundled? I might be sympathetic to having some sort of baseline fare for advertising purposes, so it's not a race to the bottom to get the lowest sticker price, but I can't see how it's justified to limit consumer choice by disallowing the sale of restricted fares.

I'm not saying you're wrong but this is also much the same argument as "why do I pay more tax when I am not using public health" or other community wide benefits. Philosophically you either believe in a price which benefits the community at large, or you want the lowest price outcome for yourself and others to be exposed to their costs.

>Philosophically you either believe in a price which benefits the community at large, or you want the lowest price outcome for yourself and others to be exposed to their costs.

How does the community benefit when there's only one price for airfare, and there isn't any mechanism for the poor to save a buck? I rarely rebook tickets, probably because I rarely fly for work, so I can book tickets months in advance. I suspect it's the same for most vacationers, so they're benefiting from this policy, likely at the expense of people who need to cancel last minute (corporate flyers?). The same goes for meals. Is it really that hard to pack a lunch that we need to mandate free lunches for everyone?

The poor don't save a buck when they next need to fly and are exposed to excess costs because of not being able to buy the bucket price seat. The mechanistic way this usually exposes is "only six seats at this price" and they went milliseconds after release.

You truly believe you're right and frustratingly I truly believe you're wrong AND I'm lazy and don't want to prove it or convince you. It's just what I think. Your examples are good. There are equally good rebuttals you could steelman for yourself if you wanted to.

>The poor don't save a buck when they next need to fly and are exposed to excess costs because of not being able to buy the bucket price seat. The mechanistic way this usually exposes is "only six seats at this price" and they went milliseconds after release.

Taking this at face value, it means the airline severely underpriced their fares, because it was snapped up very quickly, which indicates there were people willing to pay more that didn't have the chance. This definitely has implications for equity (eg. if you're not working a desk job you might not be able to spam refresh to snap up those airfares), but I'm not too concerned about it because airlines are incentivized to fix the problem.

More importantly I don't think this problem even exists. Nowadays if you try to book a ticket, you'll be presented with a menu of options, with different fare restrictions. I don't think I've ever saw a situation where a discounted fare was only available for basic economy, for instance. You could always pay more or less for the different tiers within economy.

I think then you have to provide a strong argument for why a particular product/service should be considered under the "community-wide benefit" umbrella.

Public health is very clearly to me a collective good: I benefit from others being healthy in so many ways. Similar things can be said about funding schools; I don't have children, but I will benefit from the next generation of adults being well-educated. Welfare and supportive housing reduces crime and general dirtiness and decay where I live, so I'm happy that my taxes go toward that (I want more going toward that, honestly). I don't need to make arguments involving empathy to prove these things make sense, which is good when there are so many people not motivated by empathy.

But I'm not sure affordable flights is a public good. Certainly I want air travel to be accessible to more people; it shouldn't be the kind of thing only well-off people can do. (When I was a kid in the 80s/90s, we didn't have the money to fly, which limited our vacation choices.) But I'm not convinced that regulation should aim to "redistribute" cost so that people like myself should pay more for flights so others can pay less; that doesn't feel like it benefits me or the "public", really.

In general, though, I think the market is actually working for once. Airlines have unbundled a lot of things, and then there's basic economy as well. Even with airline consolidation, (inflation-adjusted) fares are pretty low, and if you want a basic economy fare, or even a regular economy fare (but without checked baggage or refunds or changes), you can get a pretty good price.

Thats a fair point. I think you may be right this falls on the test of public interest, where minimum seat dimensions and exit/emergency safety doesn't.

I don't personally LIKE LCC and the unbundling, I tend to believe evidence that when you are driven to LCC pricing and then factor back in the unavoidable costs it can be more expensive than the cheaper bundled product from mainlines.

Maybe the limit of regulatory control here should be "final total cost must be shown before committing" so that all taxes, airport levies, state charges, and other unavoidable costs (card processing fees?) are shown in the pricing, because I am led to believe a $99 fare can wind up $150 or more once all the unavoidable extras in that price are factored in.

Basically, I concede.

There are very good reasons to not let people rebook for free, and that's why more and more booked services are splitting their offers in refundable and non-refundable rates. It's to reward the actual clients who stick with their reservation, rather than those who book a bunch of stuff that they are only going to cancel later.

> Why should I support that it be forcibly bundled?

we don't all need to benefit equally from every regulation all the time for that regulation to be a net positive for society.

Because your ticket that includes it will be the same price as the ticket you're getting now that excludes it. That was broadly the point of the article— the lowest tier fares didn't get cheaper, you just had to pay more to get what you had before.

Low effort, AI generated, catchy title. Perfect recipe for making it to the top of news aggregators.

>AI generated

What's your basis for this?

“AI” the new “shill”

* lots of redundant prose

* vaguely incoherent temporal claims

* outdated coverage of Southwest

* formatting usage of bullet lists and random bolding smells a lot like an O3 "deep research" report

* unnamed author

I was thinking it could be AI just from the bullet points bold statement colon structure, but there's a lot of grammatical inconsistencies that I'm not sure an AI would do; for example, the writer's periods and commas are sometimes inside the quotations, sometimes outside, and sometimes both inside and outside.

Uh, it felt weird indeed reading those super verbose descriptions of what airline X did in year Y and what they changed in year Z, repeated like 5 times in slightly different words.

Note: it's a content marketing article on a blog of a company dealing with airline refunds, so it makes sense, you're probably right.

One nice thing about basic economy and price discrimination is you actually get a better experience if you pay more. Instead of free exit row seats distributed via luck and timing, trying to get in early to ensure overhead bins are not full due to ridiculous size and amount of stuff people bring, checking seatguru for best laptop compatible seats etc. you can pay 30-150 bucks for exit row and have guaranteed comfort and early boarding. Or you can save money with the baseline experience. Previously your only improvement option was business/first class at bazillion dollars.

Same for bags, I almost never check bags and I have run into competing fares where one is X+Y, bag included, another ~X with Y bag fee. They should disaggregate more!

>> Third-Degree Price Discrimination: The seller charges different prices to different groups of consumers based on identifiable traits or segments, often tied to different demand elasticities. Common examples in airlines include offering discounts to seniors, students, or military, or more broadly, the use of market segmentation by travel purpose.

Military discounts are not a marketing trick. Some companies actually want to be nice to those who serve. Many a corporate leaders are themselves vets.

Teachers, nurses, and janitors also "serve".

I agree: it's not price discrimination. It's jingoism.

The difference is that teachers/cops/firefighters arent subject to "unlimited liability". They cannot be ordered to do things that will cause thier deaths. Cops can say no, or quit and do something else. Soldiers cannot.

I used to think Basic Economy was just airlines making things uncomfortable on purpose. Then I realized it’s really about separating customers based on how much they’re willing to pay. They’re raising revenue without changing the base price. You see this more and more now. The default option keeps getting worse, not to cut costs but to make upgrades feel worth it. I’m not sure if people will just get used to it or eventually start pushing back.

Very unpopular opinion, but I personally find price discrimination somewhat appealing. Both me and the richest person on the plane get to the same destination at the same time. And yet he payed 4x as much for the same privilege. It's one of the few forces left in the economy that actually reduces inequality (somewhat).

I'm an absolute cheapskate and I love flying, so I never really fall for the need to upsell. I'll fly with my family and not pay for assigned seats (I've joked with gate agents "I dare you not to sit me next to my children" - in reality they are happy to make sure you sit together anyway).

I get that people value different things differently, but with so much price discrimination the value gets more efficient and you increasingly get exactly what you pay for - no more or less. Which just unlocks the hacker ethos in me.

At the end of the day, you are paying for insanely fast travel across the sky. It's a miracle, let alone at the insanely low prices you can get these days.

I don't think it is an unpopular opinion at all.

The airline sector had this memory of its "hey days" - but the price has conviniently been forgotten.

From my perspective I would love if the airlines would skip entertainment systems and food on long haul flights. I use my phone for l entertainment, and see the value of airline food as a negative value (i try to fast when I travel, but I am bad at declining food).

I too was initially wondering what the problem was with price discrimination---it seems like it's just offering a worse product for less money, so everyone gets to choose.

But from what I understand, the article is saying that the problem is that the worse product is _artificially_ worse, in a way that is not commensurate with quid pro quo consumption like we're used to.

If I pay less for a Macbook with worse specs, that's "good" price discrimination, because Apple gets to give me something of intrinsically lower value that it cost them less to produce, and I give them something of lower value (less money) that it cost me less to acquire.

But an airline _creating_ a bunch of hoops for you to jump through (the article lists "no advance seat assignment, no ticket changes, last boarding group, baggage restrictions") in an effort to cause people whom they can juice for a little more cash to identify themselves, is scammy and scummy behavior. I don't want to see companies purposefully making my life worse in order to juice me for as much as they can.

I think this is true in a general sense - buyers are always very susceptible to an upsell.

But also in general people are very astute at booking flights. Maybe the first time someone flies Spirit Airlines they feel like they've been conned. But I think most buyers now are just very particular about their features (Google Flights and Kayak both make these restrictions very prominent during the booking process)

I’m not sure I buy the “artificially” as it implies that they have made things worse for Basic Economy in a way that doesn’t relate to distributing a scarce resource. Boarding priority and such are scarce and it makes some sense there’s a market price for them.

I am however concerned about the “everything is for sale” mentality this has brought. It used to be that some things couldn’t be bought with money, you had to wait in line like everyone else. More and more I see “pay to cut the line” and I think that drives class divisions and further damages a feeling of community and egalitarianism.

Yes it seems to be artificially worse part. When you try to book the no frills basic, some airlines have scare messages like "you will be randomly assigned a seat". I know someone who feels they might be more likely to get bumped if they don't tag a particular seat. I think there are rules to prevent such extreme enshittification?

That rich guy in your example probably values price discrimination just as much as you do, because he - presumably not being a cheapskate - can just pay more and know that all the conveniences he wants will be there for him. And then he goes back to thinking about his next genius business plan, because it's not worth his time looking for the best bargain. So both win.

> he goes back to thinking about his next genius business plan

The reverence that people has for rich people astonishes me. Rich people is just average people with money. Actually, they are probably worse at their jobs because they need less effort to earn money.

Rich people are not rich because they are "genius" but because they game the system.

Sometimes a comment is tongue in cheek. He might be thinking about a genius business plan, or he might be thinking about redecorating his mistress house. But he probably isn't going to spend hours looking for the cheapest rate for a flight.

>> Rich people is just average people with money.

I suppose you can play basketball as good as Luka Doncic or write and perform songs as good as Taylor Swift?

Are that the average rich person?

I know very hard working people that created their companies and got rich, they treated their employees fairly and were smart and capable.

They are not your average rich person. Your average rich person is an average person with average intelligence, average knowledge but protected from reality what makes them more gullible and they have a hard time understanding many not so difficult concepts about the economy.

Exceptions exist. Your anecdotal evidence is confirmation bias for your world view, quite far from reality.

>> Your average rich person is an average person with average intelligence, average knowledge

I'm pretty sure the distribution curves for average rich person and average intelligence are not aligned. That is basic biology and statistics.

>> Your anecdotal evidence is confirmation bias for your world view, quite far from reality.

You claim to know what the average is without providing a single citation.

Frankly, I wouldn't agree with the article, and call having different quality options at different prices, "price discrimination", even if consumers are discriminating based on price. That's just offering a selection of different products of varying quality and prices. No harm in that IMO.

It's more the reverse, wherein the service provider discriminates to charging people different amounts for the exact same good/service (not just different quality goods/services). IMO, this is more likely what people have a problem with.

I agree with this, airline price discrimination is an example of the market actually working correctly.

Most people could afford to pay more for airline tickets. It’s just that they’ve done the math and they don’t want to.

I plan carefully and don’t have to rebook my flights. I pack my own food. I leave behind that second pair of shoes so that I only bring a carry on.

I’d rather do all of this so that I have an extra $100 to spend on a nice meal or experience at my destination.

If any of those things are important to you, then you can have them! You just have to pay for them.

I don’t see why the government needs to mandate that airlines provide certain services like checked bags (which would require increasing minimum ticket prices). Why not use price signals to allow each individual to tailor the experience for themselves?

I feel like everyone leaves out that last part. Everyone wants extras when you don’t have to pay for them. Are the people arguing for more regulation mentioning the tidbit that ticket prices will go up?

I know this is veering into the political, but I just don’t understand the ideology that most people seem to have. Which is that we need to use the power of the government to force people to buy things they don’t want.

I just got back from a week-long vacation where I flew Southwest. It was my first Southwest flight in a while and I will now not fly any other airlines.

The rise of "basic economy" seems a lot like the general phenomena of "enshitification" and has a similar motive - degrade your product to squeeze the last drop out of the consumer. And it seems logical that charging by the "degree of shit" in a product means every level is going to be shit actually.

Southwest just started charging for checked bags after over a decade of being the airline that doesn't do that.

SW seems to be steadily removing everything that differentiated them as a carrier. There's no reason to choose them other than pure price for a route now.

They were able to resist enshittification for a long time because they were actually one of the most profitable airlines and were able to keep their unique culture.

Then they had a flight meltdown, lost a bunch of money, and got targeted by activist investors.

I don't quite follow what would motivate activist investors to pressure a company to stop doing the things that made it profitable.

You are thinking long term profitable, but most of the current "activist investors" barely think about short term profitability, and mostly from the perspective of their own profitability selling shares or running a short somewhere and "indirectly" helping their short by giving bad advice to a different company. They mostly read the quarterly reports and that mostly to look for "easy profits" Company A is making that they could pressure Company B to do for a quarter or two to bump stock prices before they sell again. Swoop in when a company has a bad quarter, pressure them to have "one good quarter", sell, rinse, repeat. (Makes them good money, makes most companies a race to the bottom to appease their whims as short-term investors.)

It seems to me that tax incentives favoring dividends over share price growth might make for a healthier economy. Am I way off base with this?

It's a good idea in theory if you can somehow force dividends to some long term vesting strategy to reward long term investors over short term investors.

It's a bad idea in historic practice, given the very origin of the turned out to be awful, something of the root of much short-term-ism and "activist investors" in the first place, "fiduciary duty to the shareholders" phrase was the awful Ford v. Dodge Brothers case where the Dodge Brothers were some of the earliest investors in Ford (as partners and parts dealers for Ford) and went to court to argue that record profits in a particular quarter should not be invested in long-term capital investment (a large new plant) and R&D as Ford was planning to do, but presented as a windfall of a large dividend to shareholders instead. The court agreed with the Dodge Brothers for, er, dodgy reasons, and the clear conflict-of-interest motive from hindsight of the Dodge Brothers "activist investing" in that moment was to notoriously use said dividend windfall to expand their efforts as a Ford competitor (produce more Dodge cars, if you haven't guessed) from Ford's own profits.

It's not a single court case that gets us to where we are today with short-term thinking in Wall Street, but that's such a weird foundational one.

There were also long term failures, but the investors are throwing out the baby with the bathwater.

After their flight scheduling meltdown due to outdated software it took them two weeks to restore back to a normal schedule. https://en.wikipedia.org/wiki/2022_Southwest_Airlines_schedu...

They've also made some longer term strategic flops, like investment into Hawaii, which by its isolated long-haul nature is significantly different from the rest of their flights (usually short hauls that can maximize aircraft utilization per day)

The Maui onion pretzels were worth it.

> over a decade

over half a century!

I could have phrased that better; Southwest was the airline that didn't during a period where all the others did. Prior to 2008 or so none of the major airlines in the USA did.

>The rise of "basic economy" seems a lot like the general phenomena of "enshitification" and has a similar motive - degrade your product to squeeze the last drop out of the consumer. And it seems logical that charging by the "degree of shit" in a product means every level is going to be shit actually.

How do you draw the line between "cutting frills that nobody really cares about" and "enshitification"? Prior to airline deregulation air travel was luxurious[1]:

>BERAS: But it's not just that the planes were more spacious. Back then, the airlines would go out of their way to compete with each other on amenities.

>MALONE: Right. Like, the plane we're on, it had a lounge in the back. You might get a six-course meal or a fancy cocktail included.

>BERAS: Plus, all kinds of other perks, like custom playing cards delivered in a fancy case, shaving kits delivered in a fancy case, cigarettes delivered in a fancy case.

>MALONE: Yeah. And, you know, as we get into the '70s, the amenities got ridiculous. Airlines even had meat carving stations, so flight attendants would roll the meat right up to you and carve it up right there in front of you at your seat.

>BERAS: But perhaps the pinnacle of all amenities was...

>VAN DER LINDEN: They had a piano bar, an honest-to-God piano.

But air fares dropped after deregulation, after much of these perks were reduced[2]. Of course, people who wanted those amenities would rather than they be bundled, because they'd be paying for it anyways and airlines could benefit from economies of scale for offering those amenities. They might even call it "enshitification", if the word was around back then. But most people would rather that their experience be a little crappier but save a few hundred bucks on airfare instead.

[1] https://www.npr.org/transcripts/1197960905

[2] https://cdn.theatlantic.com/assets/media/img/3rdparty/2013/2...

I frequently wonder if these folks attempting to squeeze the very life out of the “consumer” (I prefer the phrase “citizen & voter”) ever stop and wonder what will happen when there’s nothing left to squeeze? Because that day is coming sooner rather than later. Its my suspicion that it will end with blood. Rather a lot of it.

As if businesses had more than a few quarters in mind. I really don’t think they care for they’re already extracted the profit when shit hits the fan.

The employees and executives might not care, but surely the shareholders do? If they really think "shit hits the fan" is going to happen any time soon, then they should sell their overvalued shares and buy some fixed income instrument like treasuries. Except they don't, because that'll be a dumb move. Despite the saying of "companies only care about the next quarter" being around for decades, the stock market has been on a tear, with little sign that "shit hits the fan" is going to materialize any time soon.

With the oligopoly situation, us Americans don't usually have a point of reference, so here's one from a trip I've taken: Indonesia to Malaysia (DPS to KUL), an international 3 hour flight one-way, for $62 on Air Asia [1]. There is enough leg room that you can cross your legs, and they will feed you a meal! There may be some regional differences in "labor" like the US Major airlines claim, but I don't think enough to match the reality of their scalping.

[1] https://www.google.com/travel/flights/search?tfs=CBwQAhoeEgo...

> With the oligopoly situation

I saw the article use the term "legacy carrier", and was curious about its actual definition, and while skimming its wikipedia article read that we went from ten major US carriers in 1991 to just four today (Alaska/Hawaiian, American, Delta, United). Oof.

While many great things did come from deregulation, US airlines' tendencies to race to the bottom and consolidate are not among them. To be fair, though, the more consolidation, the less competition, and the less of a need for that race.

So I'm not sure. Certainly labor costs elsewhere contribute to significantly lower-cost routes, and flights in the US are way cheaper than they were in the 80s and prior, and I think, inflation-adjusted, they're still historically very low, perhaps at their lowest. So what's more expensive in the US? Labor, certainly. Regulation imposes a cost, perhaps more of one here than elsewhere? Are many carriers in other places in the world heavily subsidized by their governments, so they can offer cheaper fares and better service?

It's not scalping. Airlines are a low margin business. Southwest is 2% margin. Delta is 6%. AirAsia is one of the higher ones at over 12%. Most airlines can't do what they do though. AirAsia went out and built a parallel supply chain in Malaysia. They're not only getting lower crew costs, but lower labor costs at every level of operation. They're also paying less for fuel, less for planes, less to acquire customers, less in compensation fees because their planes are punctual, etc. It's not a model replicable by American carriers.

So aside from potentially allowing more price-limited consumers the ability to fly via Basic Economy fares, it’s just enshittification of the Aviation Industry: worse products at higher prices.

We really need to step up regulation to disincentivize “infinite growth” as a mindset and prioritize stable returns over time (e.g., dividends and profit sharing). Everything is slowly getting worse and more expensive, and contrary to (seemingly) popular belief there is no “floor” to reach in this foolish pursuit. Businesses and capital will always pursue more money for themselves no matter the cost to consumers, workers, vendors, or governments, unless something incentivizes more societally-healthy behaviors.

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