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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

#41

Post by FuriouslyAdrift »

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.

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.

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

#42

Post by ggm »

gruez wrote: post #17
ggm wrote: post #4

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 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.

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

#43

Post by bluGill »

nemomarx wrote: post #8
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?

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.

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

#44

Post by GuinansEyebrows »

gruez wrote: post #17
ggm wrote: post #4

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 purpos…

> 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.

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

#45

Post by WorldMaker »

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.

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.)

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

#46

Post by Spivak »

gruez wrote: post #17
ggm wrote: post #4

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 purpos…

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.

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

#47

Post by FuriouslyAdrift »

onlyrealcuzzo wrote: post #9
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?

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...

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

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

#48

Post by GeneralMayhem »

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.

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.

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

#49

Post by legitster »

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,…

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)

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

#50

Post by Zak »

WorldMaker wrote: post #45
Zak wrote: post #30

Earlier quoted context omitted.

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…

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?
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