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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

#141

Post by nradov »

m463 wrote: post #103
sfifs wrote: post #92

Earlier quoted context omitted.

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.

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

#142

Post by nradov »

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.

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.

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

#143

Post by tenacious_tuna »

wagwang wrote: post #112
djoldman wrote: post #100

Earlier quoted context omitted.

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: 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.

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

#144

Post by sershe »

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!

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

#145

Post by atom_arranger »

foxyv wrote: post #139
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.

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.

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

#146

Post by thehappypm »

atom_arranger wrote: post #145
foxyv wrote: post #139

Earlier quoted context omitted.

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.

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

#147

Post by thehappypm »

GeneralMayhem wrote: post #48
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.

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…

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.

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

#148

Post by thehappypm »

legitster wrote: post #57
FuriouslyAdrift wrote: post #41

Earlier quoted context omitted.

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.

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!

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

#149

Post by thehappypm »

hnburnsy wrote: post #86

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 (¢) JetB…

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

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

#150

Post by bobthepanda »

Zak wrote: post #30
bobthepanda wrote: post #20

Earlier quoted context omitted.

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.

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)

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