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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

#81

Post by Analemma_ »

amonroe805-2 wrote: post #71
cosmic_cheese wrote: post #55

Earlier quoted context omitted.

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.

Broadly agree, with the one caveat that private-equity-owned businesses seem to be even worse than public companies in this regard.

I agree, although there’s a lot of selection bias at work here: companies usually don’t get bought by private equity unless they’re already in distress, so whatever they were doing before the acquisition clearly wasn’t working.

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

#82

Post by nickff »

dkjaudyeqooe wrote: post #77
supertrope wrote: post #60

Earlier quoted context omitted.

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.

> 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).

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).

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

#83

Post by zdragnar »

dkjaudyeqooe wrote: post #77
supertrope wrote: post #60

Earlier quoted context omitted.

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.

> 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).

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.

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

#84

Post by burlesona »

dkjaudyeqooe wrote: post #77
supertrope wrote: post #60

Earlier quoted context omitted.

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.

> 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...

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

#85

Post by [deleted] »

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…

[deleted]

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

#86

Post by 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
> Note: These are inflation-adjusted estimates based on CPI data and publicly reported PRASM figures. Actual values may vary slightly depending on methodology and data source.

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

#87

Post by AlotOfReading »

TheJoeMan wrote: post #59

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…

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.

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

#88

Post by carlosjobim »

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…

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.

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

#89

Post by carlosjobim »

pasquinelli wrote: post #19
onlyrealcuzzo wrote: post #9

Earlier quoted context omitted.

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...

> 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.

If you fit more people onto a flight, you can make more money, while the journey is less comfortable for the passengers.

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

#90

Post by carlosjobim »

FuriouslyAdrift wrote: post #47
onlyrealcuzzo wrote: post #9

Earlier quoted context omitted.

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...

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.
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