The economics behind "Basic Economy" – A masterclass in price discrimination
101 comments
·June 24, 2025djoldman
slg
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.
sfifs
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.
robbiewxyz
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?
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cosmic_cheese
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.
amonroe805-2
Broadly agree, with the one caveat that private-equity-owned businesses seem to be even worse than public companies in this regard.
meta_ai_x
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.
supertrope
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.
dkjaudyeqooe
> 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).
nickff
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).
burlesona
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...
zdragnar
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.
walterbell
Airlines have substantial earnings (greater than flying?) from credit card marketing and loyalty programs.
tekla
Airlines make roughly no money.
bluGill
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.
bix6
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.
carlosjobim
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.
cma
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.
wagwang
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.
djoldman
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...
kelnos
> 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.
dkjaudyeqooe
> 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.
cadamsdotcom
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.
hnburnsy
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
esafak
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?
onlyrealcuzzo
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...
grugagag
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.
pasquinelli
> 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.
daedrdev
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.
tekla
Business and 1st class subsidizes basically all of Economy class.
carlosjobim
If you fit more people onto a flight, you can make more money, while the journey is less comfortable for the passengers.
FuriouslyAdrift
I'd rather go back to only being able to fly once every few years as opposed to the bacchanal that is Ryanair...
daedrdev
you can do that by choosing a different airline
carlosjobim
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.
redczar
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.
grugagag
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
onlyrealcuzzo
Okay, sure, if lower middle income people in China are rich.
Even middle income people in India can afford flights...
legitster
> 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.
GeneralMayhem
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.
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FuriouslyAdrift
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.
Kon-Peki
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.
legitster
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.
nemomarx
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
bluGill
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.
GeneralMayhem
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
lmm
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.
ilamont
> 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.
dkjaudyeqooe
> 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.
ggm
> All told, is all this chicanery benefiting airlines?
I am pretty comfortable it contributes to revenue and profit outcomes the board likes.
tonyedgecombe
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.
ggm
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.
rufus_foreman
>> 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....
paxys
Low effort, AI generated, catchy title. Perfect recipe for making it to the top of news aggregators.
sct202
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.
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jakub_g
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.
ggm
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.
gruez
>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.
ggm
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.
kelnos
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.
gruez
>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?
Spivak
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.
GuinansEyebrows
> 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.
legitster
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.
tines
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.
collinmcnulty
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.
legitster
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)
tossandthrow
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).
carlosjobim
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.
stego-tech
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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joe_the_user
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.
gruez
>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...
Zak
Southwest just started charging for checked bags after over a decade of being the airline that doesn't do that.
kube-system
> over a decade
over half a century!
Zak
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.
hooverd
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.
bobthepanda
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.
Henchman21
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.
grugagag
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.
gruez
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.
TheJoeMan
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...
AlotOfReading
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.
kelnos
> 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 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.