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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

#111

Post by vkou »

supertrope wrote: post #61
GeneralMayhem wrote: post #54

Earlier quoted context omitted.

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,…

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.

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

#112

Post by wagwang »

djoldman wrote: post #100
wagwang wrote: post #39

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.

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 cons…

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

#113

Post by geodel »

burlesona wrote: post #84
dkjaudyeqooe wrote: post #77

Earlier quoted context omitted.

> 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).

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)

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

#114

Post by 7thaccount »

sfifs wrote: post #92
slg wrote: post #51

Earlier quoted context omitted.

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…

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.

Milton Friedman and Jack Welch were pioneers of this nonsense.

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

#115

Post by AnthonyMouse »

steveBK123 wrote: post #109
robbiewxyz wrote: post #75

Earlier quoted context omitted.

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?

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.

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

#116

Post by pseudo0 »

burlesona wrote: post #84
dkjaudyeqooe wrote: post #77

Earlier quoted context omitted.

> 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).

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...

> 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...

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

#117

Post by CommenterPerson »

tines wrote: post #36
legitster wrote: post #24

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 f…

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,…

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?

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

#118

Post by valleyer »

sandworm101 wrote: post #107

>> 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…

Teachers, nurses, and janitors also "serve".

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

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

#119

Post by pete762 »

meta_ai_x wrote: post #102
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…

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.

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

#120

Post by Zaylan »

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.
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