
Route to Air Travel Discomfort Starts on Wall Street - smacktoward
https://www.nytimes.com/2017/05/28/business/corporate-profit-margins-airlines.html?_r=0
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otterley
How is it that Southwest Airlines -- which is also a publicly-traded company
-- continues to offer low fares, while remaining laser-focused on customer
service in this environment? It's unfortunate that the reporter doesn't take
any time to explore this long-standing exception.

It's easy to blame the public market system, but when exceptions like this are
readily found, it's worth investigating whether there are other factors in
play than the income statements alone.

~~~
tw04
I've admittedly not done extensive research, this is mostly from memory, so if
someone else remembers differently please correct me.

BUT - the reason Southwest was the "low fare" leader was because they locked
in fuel prices back before we had the massive spike in prices in the early
2000s. That gave them a tremendous advantage over the other airlines given
fuel is such a massive part of their overall costs. That combined with
standardizing on a single plane (less impactful but still helpful) allowed
them to both claim and honor the "low-cost leader" title.

Now that fuel prices have returned to a more "normal" state, their prices had
to revert to the mean. They may be cheaper on some legs, but it's not
universal anymore.

~~~
brianwawok
Its worse than that. A hedge on oil price is a bet on the way it will swing.

When oil prices went up, Southwest got to make record profit. When oil prices
went down, Southwest got to make record losses.

Southwest also just offers no service to many unprofitable markets. If
Southwest were the only carrier, many smaller airports would shut down. There
would be maybe 40 larger airports, with high volume flights.

~~~
Retric
Southwest has been profitable for the last 43 years:
[http://investors.southwest.com/news-and-events/news-
releases...](http://investors.southwest.com/news-and-events/news-
releases/2016/01-21-2016-112617923)

So, if by record losses you mean lower profit than normal then sure they got
hammered in 2008.

~~~
brianwawok
Yes it was a bit in jest. But the same amount they save as price goes up, they
lose when the prices go down. And yes stability is good, but it's not as big
of a deal as ppl make it out to be

~~~
Retric
Hedging can be a net win.

A simple example suppose if price of commodity increases by x your company
fails and that has say a 10% chance of happening. If you usually profit 10
billion per year and you can hedge for say 1 billion per year then money wise
it seems like a break even. However, failure costs not just this years
profits, but every year after that. So, your expected profit over the next 10
years increases even if the hedge does not save you any money over that same
10 years.

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austenallred
Basically people shop based on price then have a miserable experience, but
somehow not miserable enough to stop shopping based on price.

My favorite airline is awful. Uncomfortable, slow, frequent delays, etc. But
it's also cheap enough that I would never fly anything else. So I am the
problem, but there's no way I'm paying an extra $50/flight.

~~~
mikeash
Exactly. If you want a better experience, you can have it, but you have to pay
for it.

Airline crap bothered me a lot less once I realized this. I still shop almost
exclusively on price, but now that I've internalized that tiny seats are
ultimately _my_ choice, it's less annoying.

Blaming Wall Street doesn't make sense to me. Companies would still want to
make more money regardless of Wall Street. Blame the customers. Airlines are
just giving us what we want! Ask the typical airline passenger what they want
and they'll probably say they want a double-wide seat with 6ft of legroom and
a free filet mignon meal, but when you watch what they _buy_ it's obvious that
they much prefer a cheaper seat that they can barely fit into. Turns out I
prefer that too.

~~~
jdavis703
You can actually get that (and more) in first or business class. Most people
don't want to pay for that level of service though.

~~~
mikeash
Exactly! The stuff people say they want is only a click away, but when the
time comes to pay, their real desires make themselves known.

~~~
untog
Sure, but the price differential is crazy. I will frequently pay extra for an
exit row, at $50-$75. But an upgrade to business class is often three times
the price of economy. And it's just not worth that much.

~~~
mikeash
Sounds reasonable to me. That seat probably takes up close to 3x the area.

~~~
SeoxyS
The market is segmented reasonably. Most people won't pay for business, so
most seats are economy. On certain routes, the flight is so unpleasant that
economy would be unbearable for most, so airlines have planes that don't have
economy (e.g. SIN-JFK on Singapore Airlines used to be all business class;
when the route comes back with their A350-10 deliveries, it'll be all premium
economy and business).

Personally, I fly only in business or first on long flights, and buy economy
on short flights. It's worth it to me to avoid the jet lag and be able to bear
the amount of travel I do (in the past year I've probably done over 40 flights
>5h and close to 100 flights total). Flying domestically in economy becomes a
lot more comfortable if you give a legacy airline your loyalty. e.g. I get
upgraded to first two third of the time and always get the best seating,
priority lines, free drinks & food onboard, and lounge access as a United 1K
frequent flyer.

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guelo
Having recently bought a mortgage, a car, and a family vacation, I am
convinced that the internet has made all of these transactions worse. Maybe
there was a time when the internet tilted things in the consumer's favor but
nowadays thre are no deals. These industries have figured out how to collude
to control all information channels, obfuscate the actual product and
discriminate prices to the maximum extent possible.

~~~
ssanders82
The internet has made buying a car worse? I'm assuming you have either never
bought a car without the research and pricing tools available via the
internet, or are looking back with rose-colored glasses.

~~~
guelo
My experience is that the internet somehow agrees on the exact price of a
specific car and then there is no budging from that number anywhere.

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johan_larson
It seems to me that at some point Economy class will be miserable enough that
passengers start comparing metrics of service (seat width, seat pitch, etc.)
rather than just price and price alone. We just haven't gotten there yet.

~~~
Puts
But as it is now the Economy class tickets are a fourth of the price of the
business class, and the only thing you get is more of everything. Where is the
alternative to pay 25% more for the ticket, yet skip the extra stuff, but just
get a nicer smoother experience?

~~~
jdavis703
It's called "premium economy" generally. You get slightly bigger seats, maybe
better food options (or it's included as part of your ticket) and sometimes
early access to the cabin.

~~~
closeparen
>bigger seats

Really? As I recall, Delta and United premium economy are normal economy seats
in the forward half of the airplane. It saves you a few minutes deplaning, but
does nothing for the comfort level in flight.

~~~
privong
> As I recall, Delta and United premium economy are normal economy seats in
> the forward half of the airplane. It saves you a few minutes deplaning, but
> does nothing for the comfort level in flight.

On United it is the same economy seat, but it does have more legroom due to
increased separation between rows of seats, compared to standard economy.

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mahyarm
For me I just want 1 thing:

Sleeper economy: Something that will let me lie flat that isn't 4x the price,
for trans-pacific 12 timezone flights that take 12+hrs. I would be totally
fine with beds that stack, it's too bad it doesn't exist.

If a flight is waking hours long then economy or economy+ is good enough for
most people.

~~~
SeoxyS
Something that lets you lie flat usually takes >4x the space of economy seats,
so must cost >4x the price to be sustainable for the airline.

Air New Zealand tried that with their "SkyCouch" concept, though, where you
could join 3 economy seats together into a flat couch/bed thing. It failed and
they're removing it from their fleet, however.

~~~
ant6n
Three joined economy seats you can't sleep in (it's shaped all wrong), it
wastes a bunch of space (where the legs go), and it's not stacked.

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cbanek
A new "basic economy" class, that doesn't allow you to take carry on baggage
and makes you sit in the middle of the row? That's exactly what I want, pissed
off people in the middle of every row.

Now introducing "coffin economy" \- once you climb into our sleek new fully
reclined seatboxes, you'll wish you were dead!

One thing the article doesn't point out is that oil prices have been on a tear
lower, which allow the airlines to get more profitable. We'll see how long
that lasts. There's a reason why the P/E multiples of the airlines is well
below that of the rest of the S&P

~~~
ice109
>P/E multiples of the airlines is well below that of the rest of the S&P

umm that means they're discounted right? you're suggesting contradictory
things

~~~
cbanek
If you want to call it a discount, that's fair, but it's not really. People
aren't willing to pay 15 or 20x earnings, they want to pay 9 - 12x earnings.
You might call this "value" investing, or a "value" trap. This generally
suggests that the income stream is less reliable to maintain, and allows for
heavier discounting of future earnings.

On the other hand, for a "growth" company, a high P/E might be justifiable,
because in a few years they will have higher earnings.

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skookumchuck
I just watched the 1974 movie "The Parallax View". There's a scene aboard a
707, and I was amused how flying is just the same as today. Except that the
aisles were wide enough that someone could squeeze by the drink cart.

~~~
objclxt
Fun, tangental fact - that's probably more down to it being a movie set than
an actual plane. There's actually a soundstage in Hollywood that's dedicated
to plane sets. Here's their 737:

[http://airhollywood.com/aviation-sets/narrow-
body-737/](http://airhollywood.com/aviation-sets/narrow-body-737/)

...you can see how the aisle is much wider than a typical aircraft.

