
Basic Economy Fares Don't Lower Ticket Prices, They Increase Ticket Prices - walterbell
http://viewfromthewing.boardingarea.com/2017/01/02/basic-economy-fares-dont-lower-ticket-prices-increase-ticket-prices/
======
monksy
The airlines are awfully upset with the US law that forces them to show the
full cost of the flight. They really want to show that they're the cheapest
airline without being the cheapest.

A few things they've done:

1\. They've created baggage fees for checking bags: That accounts for +$50

2\. The YQ/Fuel charge: You're subject on their pricing of fuel

3\. Seat Charges: If you want to reserve a seat before checking, some airlines
charge for this (Namely AA)

4\. Fees for printing a BP (Ryan Air), checking in at the airport (Ryan Air
again), Carry on luggage (Spirit), etc

5\. Charging for alcohol on long haul flights (I'm rather fine with it.. but
it used to be customary)

6\. Charging for food on long haul flights. (I'm looking at you US Airways
CLT-AUR)

~~~
hibikir
Last time I checked, AA didn't charge for getting a seat early: they just
charge extra for all the seats that aren't all the way at the back.

The last time I was stuck flying with them the plane wasn't even 1/3rd full. A
few people, sitting near the front, were part of their ridiculous set of
reward tiers. The rest of us? Packed in the back. After the attendants closed
the doors, we got the go ahead to just move to sensible seats of the exact
same size and amenities, but that they'd have wanted us to pay extra for.

The airline knew the flight was empty the night before, and so did everyone
that went through the check in process and sees all the empty seats they tried
to upsell. Is the chance for an extra fee or two beat having the old black
lady next to me look at the empty middle of the plane and ask if we were in
American Airlines or in the Montgomery Plane company?

~~~
tehwebguy
Correct, if you book a Main Cabin (coach) ticket on AA seat selection is free.
The only exceptions are seats in "Main Cabin Extra" which almost always have
10%+ more legroom. These are usually the first row in coach, plus the exit
rows.

That said, some MCE seats (and some MC seats) can only be selected pre-checkin
by AA flyers with status. AA status holders also do not pay extra for MCE
seats, whether they are status reserved or not.

~~~
simonster
There are seats that are not "Main Cabin Extra" but that AA will still charge
you for, although less than they would charge you for MCE. Once the free seats
are full, your options are to pay extra, or accept what is most likely going
to be a middle seat separated from anyone you're traveling with.

My academic institution refuses to pay for any kind of seat upgrades, so from
my perspective, the rational response is to fly on another airline. I will
probably have to avoid airlines that start "offering" "Basic Economy" fares
for the same reason.

~~~
tcas
Those are "preferred" seats. They're usually windows and aisles close to the
front of the plane. They are released to everyone once check-in happens.

They save them pre-checkin for status holders (people who fly 25,000+ miles a
year typically). As someone who flies _way_ above that number I appreciate
that they do, as I am typically buying last minute tickets (less than 2 weeks
out) that are much more expensive. Those seats mean that despite paying more
than most people on the plane, I'm not stuck in a middle seat most of the
time.

That benefits attracts people like me to try and stay loyal with an airline
rather than going with the lowest bidder. I'm willing to bet that people with
similar flying habits to me provide the majority of profit for an airline as
well.

~~~
rconti
You may appreciate it, but I don't see a justification for why it should
exist. The fact that you pay extra for last minute tickets is neither here nor
there in terms of whether that should buy you the preferred seat, and the fact
that you have status has nothing to do with the fact that you purchase last
minute. (and, in fact, if someone else with status booked 1 month early,
they'd be more likely to get that seat than you). I say this as someone who
has flown on <24h notice internationally and domestically multiple times in
the past year. (and of course these last minute fares can often be rock-bottom
cheap, it all depends).

I understand what you're saying, but the mileage programs are not really about
"loyalty"; they're about misallocating corporate dollars to more expensive
seats to the benefit of the airline and the traveller/employee. I don't feel
that people like you providing "the majority of revenue" to airlines should
really matter either way. Dollars for seats.

I managed to just cross a mileage program threshold this year but I'll
continue ranting about how terrible these programs and the flying experience
in general is. Especially because having bargain-basement status on United
means nothing when you're flying out of a major hub :)

------
c3534l
It makes sense. Getting price-elastic customers to signal that they're
sensitive to prices isn't going to be by offering them the same product as
everyone else. They'll signal it through planning longer in advance,
rearranging their personal affairs to leave at a better time, or engaging in
frequent-flier programs. Price-inelastic customers have to be offered
something extra at a price increase proportional to the customers you're
trying to target. So you offer increasingly overpriced extras to try to get
the guy who would've paid more for your product to actually pay more for your
product.

I think the lesson here is that the airline industry often operates on very
small margins.

~~~
dmix
Indeed, Airlines almost always struggle with profitability. A few of these
airlines restructured their prices to seem more competitive because they can't
really lower prices any more than they have, otherwise they would go out of
business. And it's entirely possible for some customers to get lower prices
now, it's just not any more cost effective overall than before for average day
to day usage.

You can call them greedy or manipulative all you like for doing this but it
won't change the economics. Running an airline is expensive for a multitude of
reasons.

Hearing stories of Richard Branson's efforts to create a good airline with
Virgin in an industry full of shitty ones, then mostly failing, made me very
sympathetic to how hard the problem is in a marketplace like that . And some
people think Uber and AirBnB have it hard...

------
mberning
Air travel has become the least dignified means of transportation. Almost
everything about it is terrible. Shopping for tickets. Checking in. Security.
Waiting. Boarding the plane and fighting for overhead bin space. Seat
dimensions. Lavatories. Literally everything is terrible. The only thing it
has going for it is that it makes long distance and overseas travel
logistically possible on an acceptable timescale. Given the choice to drive
for 8 hours or fly for 2 I always chose to drive. At some point I think
concerns for health, safety, and the basic human dignity of having personal
space have to come in to play.

~~~
barrkel
The hollowing out of the middle ground seems to happen in most commoditized
markets.

Take meat. Used to be you'd go to the butcher for your meat, and you'd get a
reasonably good product, from a butcher who knew where the meat came from,
probably even the farmer who reared the meat. That was the way almost
everybody got their meat, so the fixed overheads of having a butcher shop was
spread over a large customer base.

Move along a couple of decades. Supermarkets, with their more efficient
logistics, eat into the meat trade. Butcher shops almost completely disappear.
But supermarket meat goes through a longer supply chain with larger suppliers
that have the efficiencies of scale to cope with the pricing power
supermarkets have. The butcher shops that survive turn into boutiques, where
their unique selling proposition is what used to be commonplace: that they
know where the meat is coming from and probably know the farmer that reared
it.

The market bifurcates into two basic strategies, low price and high quality
(see also Porter's Cost Leadership and Differentiation).

The consumer who's willing to pay a little bit more for a little bit more
quality ends up having to pay a lot more rather than a little bit more,
because the pool of people who could spread the fixed costs of the higher
quality is split - most go for the lowest priced product. There's a ratchet
effect, where slightly higher quality products are, at the margin,
increasingly expensive because there's no scale in that strategy: the more
expensive they become the less uptake they get, which means they have less
scale, which means they become more expensive.

In some ways it's a collective action problem: what would be a better outcome
for a large group of people can't really occur because individual actions
can't sustain a stable state change. In other ways - many, if not most
economists believe this - it's a better outcome overall, because more people
get to use the bargain basement product.

But I think people in the middle are usually worse off in commoditized
markets.

~~~
WildUtah
That's a very interesting phenomenon with the butchers (and about 1/5th of the
American retail economy in my experience), but it's not what's happening in
airline services.

Airlines have jacked up the prices of comfortable berths people can sleep in
on long haul journeys to almost 10x the price of shrinking torture chairs that
most of us buy. For a long while business class and coach drew apart in price
even as business got more luxurious with flat beds and fancy wines while coach
seats in Boeing's newest, most advanced 787 jets are the narrowest trans-
oceanic seats ever sold and Spirit/Frontier domestic seats don't even recline
anymore.

But that difference was driven by corporate executive passengers whose
employers were paying the 10x prices and getting tax breaks for doing so.
Corporate sales is complicated and charging more can actually sell more units
so the airlines carefully eliminated mid-priced options to force businesses to
pay far more for the very profitable business class seats than their marginal
cost.

And economic rationality has reasserted itself. Premium economy seating is now
common on airlines outside the USA without such easily gamed large
corporations to scam. The premium economy is similar in quality to old-
fashioned business class seating at prices that middle class leisure
travellers can afford. Mostly you can't buy it from the USA without paying a
steep premium, but anyone flying to the USA from abroad has been able to for
about a decade. Carriers refused to sell it at the same prices in the USA
because running the game on corporate purchasing departments is so lucrative.
For example, JAL and Cathay Pacific round trip fares between the Far East and
USA in premium economy have been about $500-1000 more originating in the USA
than in their home countries.

But Delta and American are now outfitting planes with premium economy because
it's the most profitable use of space for carriers that have it and supporting
the corporate business class sales inflation scam can't hold it back anymore.
American is flying the new class on planes already. Even CX and JL prices are
starting to rationalize.

So the key variable in airline discomfort has been American corporate
purchasing culture irrationality and not the natural division of markets into
tiers. Corporate purchasing irrationality and cartel pricing to exploit it are
also the drivers of advance-purchase fares, last-minute price gouging,
saturday night stay requirements, steep premiums for one-way fares, and lots
of other paradoxical and nasty pricing strategies.

~~~
blowski
> torture chairs

Maybe part of the problem is the tendency to hyperbolize.

~~~
aluhut
You can't be tall.

~~~
snrplfth
How tall, though? I'm taller than 95% of the US population, have flown quite a
bit, and have never had a problem. They can't build all the seats in the plane
for people in the 98th percentile and up. (Or rather, they can build some, and
call them 'first class'.)

~~~
ericd
I think it's very anti-humanistic to say that someone born tall should be
required to pay for seats that are 10x the price of people that require
slightly less space, or simply not travel long distances.

~~~
blowski
Perhaps it's worth comparing to people in wheelchairs. Airlines accommodate a
few wheelchair-bound people on flights, but if more than that number want to
fly, they need to pay extra. Shit luck for them, but the alternative would be
for everyone else to subsidise wheelchair-bound people whenever they want to
fly. If you consider, for the purpose of this conversation, being tall as
similar to being wheelchair-bound that's the choice.

So what happens with people of below average intelligence and physical
ability? They're likely to suffer from lower earnings. Should a person of
average height and on minimum wage subsidise a well-paid tall person?

In an ideal world, chairs would adjust so that everyone is comfortable and
still allow the same number of people on the plane at the same price. However,
in the real world, we probably have to accept that allocating comfort based on
ability to pay, with a bit of flexibility on both sides, is the best outcome.

~~~
ericd
I mainly meant to say that it's a ridiculous idea to suggest business/first
class as a solution to basic needs given the absolutely insane pricing
structure. Obviously reality makes it impossible for everyone to enjoy exactly
the same advantages, regardless of their in-born traits.

~~~
blowski
So it depends how you define "basic needs". For me, this is a "nice-to-have"
which might be skewed by my being average height and build. Those above
average height, especially those who fly frequently, are more likely to
consider it a basic need.

~~~
ericd
I would define the basic needs for a very tall person on a 6 hour flight to
include the ability to keep their limbs within their allotted space.

------
rubyfan
This is happening in many other industries that suffer from commodization /
lack product differentiation while also suffering from comparative price
shopping. It's a race to the bottom to get listed first and make contact with
a customer then it's all about upsell, crosssell, discounts, etc.

------
hourislate
I understand it is a competitive business but this is the result of
consolidation and less competition. Delta, United, American, they're all
awful. Who would have thought South West would become the Premier Airline to
travel on.

While they continue to reduce capacity, load factors increase. They have
everything down to a fine science using Big Data and their Algo's to come up
with how many seats to oversell, how many folks they can leave behind, what
flights to cancel, etc. They have completely embraced this business model of
monetizing every triviality that they can possible get away with. The people
traveling are just units, not even customers anymore. Everything is about
squeezing every penny they can out of every seat mile and who gives a shit
whether you are treated like a human. It's not like you have many options.
It's either Shit A, Shit B or Shit C, pick one.

How I look forward to self driving cars that can get 800-1000 miles on a
single charge. I can sit in the comfort of my vehicle and read, sight see,
rest, or even work as I travel to my destination. I would gladly sit in the
car for 10-12 hours instead of flying.

------
dagenleg
It's peculiar how stereotypical some of the Americans in the comments are. It
seems like there's a prevailing attitude of not wanting to "subsidize" others.
Whether that includes people who want to bring luggage, people who would like
a meal on the long flight or those that don't travel very often - does not
matter, what matters is that it's the other people, who are not you.

I think that that same attitude is responsible for the current state of the
higher education and healthcare in the US. As long as the interested parties
can present the "us versus them" outlook to the public ("them" is of course
poor/lazy/lower class people), they can get away with lots and lots.

~~~
arximboldi
That is an interesting thought...

As a non-USA person here I was also amazed with some of these comments. But I
am not sure it is only about "subsidizing" others (which it also is). If you
read a lot of these comments, they go into great lengths into describing their
particular live choices, their very deliberate little decisions they make
while traveling all the time, and how these makes them special. I feel that
there is another side to this individualism: the pride on ones choices, on
being unique and in some way, standing out of the masses through their clever
use of their options.

It reminded me about another thing that surprised me in the USA: food menus
are lengthy, and everything is customizable! You have to choose ingredients,
topping, side, everything!

I guess, for a lot of USAmericans this feels empowering. Interestingly, coming
from the other side of the Atlantic, it had the opposite effect on me: I felt
overwhelmed, that I was required to do make decisions and do too much
thinking, that at the end, it was the chef's job to offer me a menu with
dishes that make sense and taste good! In fact in Europe, good restaurants
tend to have very few options, you go there because you acknowledge that the
person that designed the menu knows more about those dishes than you...

I guess, I am also ok about "subsidizing" others... I know that some days I
will eat at the flight, some days I won't, some days I will need extra
luggage, some days I won't... It is just easier if we don't have to go through
all the bureaucracy of managing these decisions. It is cheaper too, since the
accounting and planning becomes easier. Some people might be getting be
getting more or less out of it, but it evens out with time anyways. I can get
my "feeling of importance" by other means.

There is something more this might show us about the "customization" vs "just
works" in how different people prefer their software. But I will think about
this some other day...

~~~
busterarm
American here but I'm with you on the food menu thing. This is a red hot issue
for me. People who make food should have an opinion about how it should taste.
I hate all this "have it your way" bullshit. The menu for this salad place
gives me panic attacks: [http://choptsalad.com/](http://choptsalad.com/)

Culturally we've lost the idea of tastemakers, whether it's food, music, film,
or whatever. Everyone's free to enjoy what they like and having any kind of
sophistication is faux pas.

Having strong opinions about what is good and what sucks will quickly get the
ire of others.

~~~
hx87
> Having strong opinions about what is good and what sucks will quickly get
> the ire of others.

 _Expressing_ said opinion might get the ire of other. Besides, Americans seem
to enjoy ire, so that's not necessarily a bad thing.

------
japhyr
many of the comments here remind me of a children's book I read often with my
son, called Henry Hikes to Fitchburg [0].

In the story two bears agree to meet that evening in Fitchburg. Henry decides
to spend the day hiking the thirty miles to Fitchburg, and his friend decides
to spend the day earning enough money to buy a train ticket to Fitchburg. It's
a takeoff on a Thoreau passage, but it's a great way to talk to kids about
what we're working for in the end.

[0] [https://www.amazon.com/Henry-Hikes-Fitchburg-D-B-
Johnson/dp/...](https://www.amazon.com/Henry-Hikes-Fitchburg-D-B-
Johnson/dp/0618737499)

~~~
aembleton
Thank you for posting this. I've just ordered a copy to read to my son.

------
sebleon
The airline industry operates on decreasingly small margins. Airlines have no
other choice but pull these kind of measures to stay afloat.

~~~
dgudkov
Not always.

[1] The US Airline Industry is Highly Profitable
[https://airinsight.com/2016/08/18/us-airline-industry-
highly...](https://airinsight.com/2016/08/18/us-airline-industry-highly-
profitable/)

[2] The Most Hated U.S. Airline Is Also the Most Profitable
[https://www.bloomberg.com/news/articles/2014-04-10/spirit-
ai...](https://www.bloomberg.com/news/articles/2014-04-10/spirit-airlines-is-
the-most-profitable-u-dot-s-dot-airline)

~~~
mikeash
How is it in the long term? There's historically been a major boom and bust
component here, with economic downturns or terror attacks taking a major toll.

~~~
ghaff
I've heard it said that, over its history, commercial aviation as a whole has
never made money. However, I haven't seen a good source for that and, with
consolidation and lower fuel prices, the airline industry has generally done
pretty well over the past decade.

~~~
mikeash
American went bankrupt just five years ago, and they're the world's largest
airline. US Airways, Northwest, and Delta all went bankrupt just over a decade
ago. A lot of smaller ones have also suffered bankruptcy:

[https://en.wikipedia.org/wiki/List_of_airline_bankruptcies_i...](https://en.wikipedia.org/wiki/List_of_airline_bankruptcies_in_the_United_States)

If you look at the profits of existing airlines over the past decade then
you're suffering from selection bias. You're also looking at a period soon
after a bunch of big airlines were able to unload a lot of debt through
bankruptcy. Between 9/11 and 2006, five major US airlines went through Chapter
11, so some of their subsequent success is funded by their former creditors. I
don't know if any of that overcomes their recent profits or if the industry
has become profitable even accounting for those things. It's certainly
possible that they've finally figured out how to consistently make money in
the long term.

~~~
ghaff
I wouldn't be the least bit surprised if the overall accounting for airline
profitability throughout history was still in the red. In addition to the
airlines you called out, there's also Pan Am, Eastern, TWA, etc.--as well as
the others in your referenced list.

Furthermore, a lot of international carriers have historically been government
subsidized.

It certainly hasn't been a great business for most of its history.

~~~
mikeash
Yeah, I didn't want to go too far back, or it starts being less relevant to
the present situation. In any case, it will be interesting to see if the cycle
repeats again, or if the current players have finally figured it out.

------
rahimnathwani
This may be true in the short term, but I suspect it affects the long term
equilibrium (which of course is a moving target).

If the airline didn't have the option to introduce 'basic economy' prices
alongside 'economy' ones, they would either reduce the services offered to
economy passengers, or charge a slightly higher price than their competitors.

------
ranman
KLM has an interesting feature where you can bid on Business/First seats.

~~~
knz
Air New Zealand does this as well, they also offer Premium Economy and "sky
couches" (still in economy but you get a row of three seats that fold flat).

I've heard of someone occasionally getting a good deal but usually you are
paying close to full retail for the perks.

~~~
mech4bg
I did the minimum bid for me and my family and we got upgraded to business
class with AirNZ, my brother had the same experience. It's not even close to
retail, it's a nice way of letting you upgrade for cheap if they have the
space.

~~~
knz
What route?

I suspect space is the main factor - I'm usually on LAX or IAH to AKl and it's
almost always full.

~~~
mech4bg
I tried on MEL->AKL. I think my brother was on AKL->SFO.

------
alkonaut
Is "Basic economy" the same for non US airlines? The new lowest/basic fare
just means there is no checked baggage included, whereas the regular "economy"
has 1 bag included.

Other than that I haven't noticed any difference such as special seating etc.

------
wsha
It seems like this post is choosing a convenient point in time start its
argument from. The reason cheap airlines like Spirit came about was because
there was a market for cheaper tickets with less amenities. The post says that
the major airlines lowered the prices of their lowest tier seats to match
these cheap competitors, but this lowest tier had more amenities. Now the
major airlines have come up with a new lowest tier of seats (basic economy)
and are setting their old lowest tier (economy) back to the higher price that
it used to have.

------
candiodari
I've wondered a bit about this. Would people be up for cheaper ticket prices,
but slower (300-500 kph) air travel ?

Suppose there was a local flight from local airport moving at such speeds,
would you want to take it ?

~~~
dingaling
Airlines already operate their jet fleets at or near the optimum fuel-burn-vs-
time point; further reducing speed would actually make them _less_ economical
due to longer cruise times.

There are occasions when crews will dial-in a higher Cost Index ( CI ), which
tells the flight management computer to bias towards higher speed rather than
lowest fuel consumption. But in general they are instructed to use specific
CIs that reflect the airline's costs.

With the drop in oil prices some airlines have chosen to raise their default
CIs, keeping costs the same whilst slightly increasing speed, whereas others
have chosen to keep the CI unchanged and to profit from the additional margin.

------
gfunk911
My instinct is that if perks have gone down but prices have stayed the same,
that means that prices would have gone up if we kept the perks.

The airlines are not making huge profits. In fact, they seem to file for
bankruptcy constantly. Even though bankruptcy is sometimes a ploy to
renegotiate union contracts, they are clearly not making big profits. So if
the (overall) higher price is not going to profits, it's going to increased
costs of some kind.

------
pc86
Am I the only one surprised by how cheap first class is on ALT-MCO? It's less
than 2x the cost of basic economy. I understand it's a short flight, but I
turned in some miles for BWI-ALT for my wife and I to upgrade to first, and
the sticker price for those tickets were about 2.5x main cabin, which was
itself a little more than basic economy.

