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

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

#51

Post by slg »

djoldman wrote: post #10

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…

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.

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

#52

Post by Kon-Peki »

FuriouslyAdrift wrote: post #41
legitster wrote: post #29

Earlier quoted context omitted.

> 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.

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

#53

Post by gruez »

ggm wrote: post #42
gruez wrote: post #17

Earlier quoted context omitted.

>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 purpos…

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?

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

#54

Post by GeneralMayhem »

bluGill wrote: post #43
nemomarx wrote: post #8

Earlier quoted context omitted.

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?…

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

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

#55

Post by cosmic_cheese »

slg wrote: post #51
djoldman wrote: post #10

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…

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…

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.

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

#56

Post by [deleted] »

legitster wrote: post #29
esafak wrote: post #3

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? 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.

[deleted]

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

#57

Post by legitster »

FuriouslyAdrift wrote: post #41
legitster wrote: post #29

Earlier quoted context omitted.

> 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.

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.

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

#58

Post by jakub_g »

paxys wrote: post #16

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

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.

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

#59

Post by 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...

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

#60

Post by supertrope »

djoldman wrote: post #10

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…

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.
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