[HN Gopher] Airlines make more money from mileage programs than ... ___________________________________________________________________ Airlines make more money from mileage programs than from flying planes Author : chapulin Score : 334 points Date : 2023-09-21 12:40 UTC (10 hours ago) (HTM) web link (www.theatlantic.com) (TXT) w3m dump (www.theatlantic.com) | corbezzoli wrote: | Here we go! What's next on the "X is a bank" bingo card? | | Here's what you all get wrong about this: if I can't withdraw, | it's not a bank. Points are just prepaid assets and services that | you may or may not be able to ever receive. Bank money does not | simply "expire" (it can be used for fees however) | kybernetikos wrote: | Is that a deliberate reference to twiXter? | kylebenzle wrote: | They are saying, "______ (blank) is a bank", not X, formerly | Twitter. | | Again, X is the dumbest possible name for aything, I will | never user it, just call it Twitter if you have to. | | No one is saying X, the platform formerly know as Twitter, is | a bank. | Mechanical9 wrote: | Honestly how is it even possible to name a company or a | product after a single letter? That shouldn't even be | trademarkable. | xcxcx wrote: | [flagged] | pif wrote: | I think I married her. | xcxcx wrote: | Let's double check on the We Are Married To The Same Wife | Facebook group | TeMPOraL wrote: | It's marketing. The dumber and more obnoxious something is, | _the better it is_ , because people _talk about it_. Just | look at your own comment - as much as you dislike the name, | it 's _you_ who brought up X /Twitter into the | conversation, reminding us about the brand at this time and | place. The name is working as intended. | diordiderot wrote: | Starbucks is the most famous | woleium wrote: | And to a lesser extent Apple has been trying | somethingsidont wrote: | Airlines are more accurately "central banks" than traditional | banks -- they control the money/point supply directly. | seanhunter wrote: | No they are not central banks. Central banks issue a currency | and sovereign debt on behalf of some nation and are generally | responsible for the financial regulation, fiscal and monetary | policy and financial stability of that sovereign nation. | | That really is nothing whatsoever to do with what an airline | does. | grecy wrote: | Porsche is a hedge fund. | | "Porsche yesterday revealed it earned three times as much money | from trading derivatives as it did from selling cars" | | https://foreignpolicy.com/2007/11/14/porsche-makes-more-mone... | marcusverus wrote: | Not really? | | > Another London-based analyst said: "[Porsche] is a hedge | fund _investing in just one stock [Volkswagen]_."[0] | | > Because of its heavy reliance on Volkswagen's manufacturing | capabilities, Porsche knew it had to increase its control [of | Volkswagen] to mitigate the risk of its production being | affected. Porsche used debt to start buying Volkswagen shares | on the open market. [1] | | > All of the options-trading Porsche takes part in relates to | its stake in VW, which it has built up from scratch over two | years. Porsche used the options to hedge against the | likelihood of VW's shares rising after its interest was made | public: they did, from about EUR40 to almost EUR180. [0] | | They wanted to buy a chunk of VW. After they started doing | so, they hedged against the stock price so that they wouldn't | get screwed if the price of VW popped. Then the price of VW | popped, and their options paid out big time. That doesn't | make them a hedge fund, it just make them competent (and | somewhat lucky). | | [0]https://foreignpolicy.com/2007/11/14/porsche-makes-more- | mone... [1]https://dailyinvestor.com/world/10426/incredible- | story-of-ho... | corbezzoli wrote: | That statement more accurate than OP's | jacknews wrote: | It's a shorthand way of saying 'industry X has become | completely financialiized' ie it makes more money from | financial shenanigans than providing the product or service | recorded on it's business registration. | AnimalMuppet wrote: | It's a _clickbait_ way of saying it. | | "Just a bank" doesn't fly airplanes. It may _own_ them, but | it doesn 't fly them. "Just a bank" doesn't sell tickets. | Doesn't have a department that finds lost luggage. Etc. | | But "airlines are financialized now" doesn't capture eyeballs | in the same way. | TeMPOraL wrote: | > _" Just a bank" doesn't fly airplanes. It may own them, | but it doesn't fly them._ | | I don't know. Big companies sometimes do silly stuff - even | if this day it's mostly outsourced to marketing agencies. | It wouldn't surprise me to learn that some bank somewhere | is operating a de-facto airline for some reason that | somehow makes them money... | AnimalMuppet wrote: | Was, not is. And "banks", not "bank". | | The banks either did this themselves or had a company | that did it for them. They physically flew checks to the | city of the bank they were written on, because flying the | plane was cheaper than one day's interest on a billion | dollars worth of checks. | | This stopped, IIRC, back in the 1990s, once electronic | settlement got fast enough. | konschubert wrote: | If they stopped flying planes, would they stay in business? | | If the answer is no, then they are not a bank. | | A bank doesn't need to fly planes to be in business | derbOac wrote: | > it makes more money from financial shenanigans than | providing the product or service recorded on it's business | registration | | This seems to describe a lot of sectors of the economy, | unfortunately | A_D_E_P_T wrote: | FIRE is the largest slice of GDP (~20%), followed by | services and government: | https://www.statista.com/statistics/248004/percentage- | added-... | | Legal services alone are about 3% of GDP. | | This understates things, perhaps, as it's unclear whether | it captures the financialization of non-finance sectors. | (e.g. auto leasing, and what the article in the OP | describes.) | | Needless to say, this is historically unusual. And you | don't need to go very far back in time to find a period | where manufacturing was 25% of GDP and FIRE just 10%. | seanhunter wrote: | It may be used as a shorthand for saying that, but it is | completely wrong and lazy. Yes these companies are doing some | advanced funding and rewards stuff. No that doesn't make you | a bank. "What is a bank? A | bank is a financial institution that is licensed to accept | checking and savings deposits and make loans. Banks | also provide related services such as individual | retirement accounts (IRAs), certificates of deposit (CDs), | currency exchange, and safe deposit boxes. There | are several types of banks including retail banks, commercial | or corporate banks, and investment banks." | | - https://www.investopedia.com/terms/b/bank.asp | | Notice how none of that is to do with how much money is made | from financial shenanigans vs products and also there is no | mention of running loyalty programs etc. | | Every time there is one of these articles ("Starbucks is just | a bank" was another recent offender) it's worth actually | referring to the definition of a bank and reminding yourself | that unless the article is in The Economist, the FT or the | WSJ, the journalist themselves probably has absolutely no | idea what a bank is, or does. | pseingatl wrote: | Forget the term "bank." If you use the term "financial | institution" instead, you'd be surprised how encompassing | it is. | chollida1 wrote: | > In short, SkyMiles is no longer a frequent-flier program; it's | a big-spender program. | | This is probably how frequent-flier programs should have been run | in the first place. Airline don't care that you fly alot, they | care that you are a profitable customer. | | That means business customers and the wealthy will still be their | main clients. This just means they lose the churners and the | price sensitive bargain hunters, which almost every airline would | be happy to trade away for more business customers. | | It's a win for the airline as they keep their core customers | happy as their rewards won't change and they'll lose the | unprofitable customers who used their rewards programs alot | without spending much. | | > A 2020 analysis by the Financial Times found that Wall Street | lenders valued the major airlines' mileage programs more highly | than the airlines themselves. United's MileagePlus program, for | example, was valued at $22 billion, while the company's market | cap at the time was only $10.6 billion. | | This looks alot like car companies whose leasing arms became more | profitable than their manufacturing arms for part of the 2000s. | | But wallstreet loves companies that they can easily value and | this "conglomerate" style business has been out of favour for a | while now. | | Sooner or later some airlines will spin out their rewards | business into a separate company to get the maximum valuation | from it. Just like how deregulation lead to the consolidation of | airlines, I wouldn't be surprised to see only a couple of rewards | programs that every airline uses in a decade. | | As usual PE will be the winner. I'd bet Blackstone or Apollo will | roll up multiple programs into one or two uber rewards/credit | card programs that are spun out into public companies. VISA and | Mastercard won't care who owns them. As long as it drives more | credit card usage, they'll be on board. | cm2187 wrote: | Keeping in mind this was really made for business flyers who | enjoy the benefits of the miles personally for a ticket paid by | the employer. I guess the switch creates an incentive for those | travellers to go for the more expensive flight, not sure how | that will go with employers. | | To be honest the whole approach always felt like some form of | corruption/kick back to me. You give an incentive to the | employee that is dissociated from the interest of their | employer. | ericmay wrote: | > You give an incentive to the employee that is dissociated | from the interest of their employer. | | This is mitigated by the employer setting rates, per-diem, | rules on what seats you can purchase, etc. and the employer | can't use the points from the frequent flyer program anyway. | If there's, say, a $50 fare difference and that causes an | employee to choose a more expensive flight (because the | comparable flights are comparable) because they get points | it's fine and basically an added benefit. In consulting for | example that's a stated benefit in employee handbooks. | | Of course that's not to say employees of companies _can 't_ | go against the interest of their employer here, but it's up | to the employer to set guidelines and for the employee to | follow them. | brk wrote: | >and the employer can't use the points from the frequent | flyer program anyway | | This isn't always true. Some employers insist you book | through their internal travel department or use their | corporate FF accounts, which kick all the mileage and hotel | night benefits to them. It's not common, fortunately, but | it does happen. | SoftTalker wrote: | Yep I was just going to say I'm flying and staying in a | hotel for a conference next month and although I have | loyalty programs with the airline and the hotel I am | getting zip for those because I had to book through my | employer's travel system. | gamblor956 wrote: | With the major hotel chains like Marriot, you can change | the loyalty account getting the points when you check in. | bluGill wrote: | Some of those companies have discovered that those travel | departments are a profit center and so they can make more | money by booking the most expensive economy seat. | nemo44x wrote: | As someone who has employed many people that need to fly a | lot I encourage it. Frequent travel can lead to quick burnout | because of the constant stress of being in an unfamiliar | place and interfacing with people you don't know. It's | important to add as much consistency as possible to these | experiences. So airlines and hotels bring the same help a | lot. You don't have to think about it and the subconscious | mind is not at stress about it. You can focus on your work. | | There's indirect benefits to the business as well since | they'll be first to be put on a flight after cancellations, | can get guaranteed lodging in areas that sell out often, and | can use their points to upgrade making their trip nicer. | | So it's unwise to chase that as an employer. Let them get | points and be comfortable and use them to take the family | somewhere. | rrrrrrrrrrrryan wrote: | Exactly - traveling for work can be fun for a year or two, | but once the novelty wears off it's just tiring and | stressful. Having preferred status with airlines and hotels | makes things much more bearable, and all the miles that you | rack up can be spent on the occasional trip with your | partner, who has to endure you being away from home so | often. | leoh wrote: | >This is probably how frequent-flier programs should have been | run in the first place. Airline don't care that you fly alot, | they care that you are a profitable customer. | | Wow, okay, big jump here buddy. What happened to being | profitable and actually committed to offering a core competent | service to customers? | lotsofpulp wrote: | Airlines are sub 5% profit margin businesses, with huge risk | factors. | | As the joke goes, "how do you become a millionaire? Start | with a billion dollars and buy an airline". | | It is only recently the airline business has had steady | positive years, due to consolidation, and even then, COVID | hit and almost wiped them out were they not bailed out. | leoh wrote: | Right. So they should ignore their core competency and | operational excellence and become banks. Got it. | lotsofpulp wrote: | Source that they are they ignoring their core competency? | | Modifying a rewards programs should require a very | miniscule portion of ann airline's available labor hours, | and aligning rewards to be proportionate to profitability | seems like a common sense business move. | shortrounddev2 wrote: | > Source that they are they ignoring their core | competency? | | Have you flown on an airplane in the last 10 years? I'd | rather drive 15 hours to Florida than deal with the | fucking airlines | SoftTalker wrote: | It's really about the whole expereince. Once I'm _on_ the | airplane, it 's usually pretty OK. The security anal exam | and general airport experience of modern-day air travel | is what makes it unpleasant and is largely not the | airlines' doing. | | But yeah I agree, if it's less than 6 hours I'll almost | always just drive. | yamazakiwi wrote: | I'd rather not go to Florida in general if we're all | speaking in extremes. | | I jest, but which airlines have you been on? I've enjoyed | my airline experiences more now than in the past flying | Delta, American, United. | lotsofpulp wrote: | Yes, often. It has been the same experience | (satisfactory), except some have newer planes. Avoid | buying the lowest tier pricing (stick to economy, or | whatever has free carry on and lets you pick a seat). | | I end up paying roughly $50 per hour of flight plus or | minus, and it's been consistent for my adult life (15+ | years). Which is surprising considering inflation. | | The only problems I have with flying are TSA and airport | runway congestion itself. | shortrounddev2 wrote: | > Avoid buying the lowest tier pricing | | Easy to say when you have _money_ | yamazakiwi wrote: | If you're flying at all, it's likely you are going to be | spending some amount of money. In reality, it would be | wildly unlikely that a person could afford a $200 ticket | and not a $300 one with proper planning. | leoh wrote: | 5% margins? Becoming banks? Scarce innovation in the | space? Lack of cleanliness on airplanes? How depressed | every other attendant seems to be these days? The safety | issues we're seeing with counterfeit parts? | [deleted] | lotsofpulp wrote: | What is your point? | | That they should spend more money and lower profit | margins even more? Or that they should increase prices so | that they can spend more money to improve the things you | listed? | | Surely, airline employees are more knowledgeable about | how much customers are willing to pay than non airline | employees. | leoh wrote: | Airlines | | Shouldn't | | Be | | Banks | shortrounddev2 wrote: | They should be broken up to increase competition. | European (and asian) airlines provide better service at | lower cost. The US airlines get bailed out every 10 years | and so there is no incentive for them to improve their | companies at all. | finfrastrcuture wrote: | some airlines have already done this, having fully owned | subsidiaries. consider Lufthansa and their "Miles and More" | subsidiary. | | that said, I doubt airlines will ever fully relinquish control | over their loyalty programs - they are too critical to the core | business and offer a 'secret sauce' of differentiation to what | is an otherwise commoditized product (i.e. flying from point A | to B). | envsubst wrote: | > deregulation lead to the consolidation of airlines | | Explain. I see a handful of identical mega corps with a | government protected monopoly (regulations + access to | airports). Hasn't regulation increased consolidation to share | the cost of compliance? | | Like the pork barrel shops in the airport, why is this a | private business at all? | maxfurman wrote: | GP is referring to the deregulation of the late 1970s. Before | that, there were a large number of smaller regional airlines | in the US, that have since mostly disappeared. | Incipient wrote: | I feel that's not specific to airlines however. Car | manufacturers, groceries, white goods, etc. | | Big companies have just figured out that scale and vertical | integration kills everyone smaller. | 303uru wrote: | No one figured it out, it's the logical end result of | capitalism. | rayiner wrote: | They didn't figure it out. Technology enabled it. | tbihl wrote: | >I see a handful of identical mega corps with a government | protected monopoly (regulations + access to airports) | | I see the opposite: new, brightly-colored airlines seem to | pop up every year, each offering substantially the same | thing: sub-$100 direct tickets to Florida (and probably | other) destinations from low- and mid-tier airports. And | they're all catering to the people who these rewards programs | are shedding. | colingoodman wrote: | I presume they are referring to the airline deregulation act | of 1978. There used to be dozens of regional airlines whereas | now we notably have 3-4 giant corporations after decades of | aggressive mergers and acquisitions. | | https://airandspace.si.edu/stories/editorial/airline- | deregul... | kjkjadksj wrote: | You'd be surprised but there are still regional airlines. | This is because a company like delta franchises some routes | basically. You might go on a delta flight and ride on a | delta plane, but the operating company is some almost | unheard of regional one. | organsnyder wrote: | In many cases that's just to skirt around various | regulations and union contracts. | matteotom wrote: | >Sooner or later some airlines will spin out their rewards | business into a separate company to get the maximum valuation | from it. | | Isn't this effectively what we have with Chase, Amex, Capital | One, and Citi? Each earns points that can be used directly or | transferred to airlines and hotels. | | And then as further evidence, Avios points can already be used | across several airlines (BA, Iberia, Aer Lingus, Qatar, and | soon Finnair). Not to mention the ability to book flights on | different airlines with miles sometimes (eg booking Delta from | KLM). | Veliladon wrote: | >Isn't this effectively what we have with Chase, Amex, | Capital One, and Citi? Each earns points that can be used | directly or transferred to airlines and hotels. | | Not really. Those companies aren't sellers of points, they | horse trade the interchange fee. They're basically giving | away a portion of their revenue just to stay competitive. | | If I have the monopoly of buying miles from airlines at | 1c/mile and then sell them to co-branded credit card | companies for 1.3-1.5c, what I have is a fucking license to | print money. | matwood wrote: | > This looks alot like car companies | | Every successful company eventually becomes a bank. See also | Apple. | pixl97 wrote: | Turns out usury is profitable! | contravariant wrote: | Can you borrow credits? Otherwise it's not usury but | seignorage. | lotsofpulp wrote: | For a less than useful definition of bank. | | Due to technology, the old use case of banks is mostly | obviated. There is no technical reason everyone should not | just have an electronic money account at the Fed itself for | receiving and sending money. And earn the federal funds rate | directly rather than have it go through a middleman who is | basically just operating a database. | | And lending does not have much to do with receiving people's | cash deposits. | kuchenbecker wrote: | There is an opportunity cost to letting that money sit and | not work, and therefore companies trade use of money now for | a gain later (lending money or investing). | | The more successful, the larger the pile of money and more | likely to look bankish. | snowwrestler wrote: | The points business is already being separated from the | airlines; some of the "best" travel cards you can get like | Chase Sapphire are not cobranded with one airline, but use a | more generic points system that can convert to miles/points in | many loyalty programs. | tristor wrote: | > That means business customers and the wealthy will still be | their main clients. | | I am both of those things, have held status with Delta for a | number of years along with a co-brand credit card that I run | $60k-$100k/yr through. I typically take 15-20 trips per year, | and when I'm /not/ flying on business I only fly first | class/Delta One. The new program means where formerly I was | always PM/DM each year in status, I would be lucky to hit GM | without greatly changing my spending habits, and the lounge | changes massively devalued even carrying a co-brand card. I | live in a competitor's hub (Denver) and chose Delta over the | competitors specifically because of better quality of hard | product, better on time rates, and a good co-brand program with | Amex (who I'm a loyalist for). | | I am actively investigating alternatives, and at this point am | likely to cancel my Delta Amex (I'm keeping my Amex Plat of | course) and switching to the United Club Infinite card as my | primary travel card / credit card. Delta makes more money from | their co-brand relationship with Amex now than they do from | operating flights, and they're losing both of my business | because of these changes. | | Business travelers almost only get booked into economy/main | cabin in the US, because of corporate policies and no health | and safety regulations in the US requiring higher tiers of | service for long flights (EU residents generally get booked | into business for transatlantic flights for healthy and safety | reasons, DVT is no joke). Being able to maintain status off a | reasonable amount of travel and co-brand spend so I get | upgraded into FC on business flights and can buy FC with some | perks on personal flights is the core value proposition of | airline frequent flyer programs. Delta just killed that for | their core customer base. To be clear, I had already bought 6 | Delta One tickets for next year, and I haven't even booked my | end-year trips yet. I purchased 7 Delta One tickets this year | and 6 domestic First Class tickets, I'm also on track to run | $90k through my co-brand card this year. | | They're losing a not inconsequential amount of business with my | departure to United, which when they're finished will have over | 100k sqft of lounge space in the Denver airport, plus a Polaris | lounge, and offers unlimited lounge access with their top-tier | cobrand card and I can attain status even /easier/ than the | /current/ medallion program, much less the new one. With this | change the only advantage Delta gives me for having to eat a | connection on every domestic flight to go through | SLC/ATL/LAX/JFK, is that they have free wi-fi on board. That's | great, I guess, but I hardly ever even use it, I'd rather | unplug and read a book while I'm in the air. The hard product | is marginally better on domestic Delta flights, but Polaris is | actually better than Delta One anyway, and United has better | international partners in Star Alliance, like Singapore | Airlines, than Delta does (although I do love KLM). | | I find the changes in the medallion program to be incredibly | short-sighted, and I am expecting it to backfire horribly. | Delta built a lot of brand loyalty with travelers. People like | me who will choose Delta over anyone else even though I'm in a | non-hub location and it implies always eating a connection, | partly because the Sky Clubs were high quality lounges, broadly | available even in non-hub sites, and they had a solid FF | program w/ good co-brand perks. They've just lost most of their | advantage except their operational quality, which also has | taken a nosedive post-pandemic. Explain to me why I would | choose Delta over United, when I live in a United hub and get | can get better perks on the co-brand card, for someone who can | afford to pay for multiple full-fare business-class | international tickets a year? | sethhochberg wrote: | I was never quite at the level of spend that you were | reaching, usually straddling silver/gold medallion with my | own travels, but my use cases and takeaway are the same as | yours: realistically, this change means I have no reason to | prefer Delta on brand loyalty grounds for either business or | personal travel. On domestic travel, I'd occasionally mix | airlines for scheduling reasons regardless. But what this | really means is I'll no longer prioritize getting in those | long haul international flights on Delta or a partner airline | because it helped secure status. | | Its stunning to me that these changes have managed to | alienate so many people across the spectrum. Its not just the | higher barrier to entry for the lowest tier that is earning | complaints. The value of the miles earned was always much | less important to me than the value of the occasional | upgrades the status provided, or very occasionally the | special support phone lines. | | Perhaps the reality for the program really is that only the | "whales" matter. We certainly see that play out all over the | software industry. But if that's the case, it sure changes my | porpoise-sized travel habits. My loyalty will now be to Amex | moreso than an individual airline. | aidenn0 wrote: | > deregulation lead to the consolidation of airlines | | Assuming you're talking about the 1978 deregulation, I don't | think that's the cause. Starting around about the same time | (maybe under Reagan?) the US basically stopped enforcing the | anti-trust laws that are on the books. This has led to mergers | across the board, not just for the airlines. | fortran77 wrote: | I've been a United "Global Services" customer for years. How to | you reach this level? Spend! The threshold--which they don't | publish--is around $75K/year spend gets you into it, adjusted a | bit for region and VIPs. | tw04 wrote: | >That means business customers and the wealthy will still be | their main clients. | | I think you're grossly overestimating the fallout from this. I | am the aforementioned business customer. Literally the only way | you'd ever hit the dollar amounts they're looking for is flying | multiple times across the Atlantic paying full fare business | class - which I don't do. But I do fly multiple times a month | across the continental US. Previously I would book Delta | regardless of price for both business and personal travel due | to status. They've made it basically unobtainable unless you're | paying full fare first class on every flight _AND_ booking your | cars and hotel through them. | | Going forward I'll just book the cheapest flight available and | drop their card. They will be losing at minimum 10s of | thousands a year in profit from my travel and card spend alone. | lotsofpulp wrote: | Merchant credit card fees are at most 3%. I doubt airlines | pocket a big portion of their branded cards' fees as profit, | and I would bet they get less than even 1%. The vast majority | of the fee probably goes to the banks and card networks. | | Even assuming 1%, for an airline to lose $10,000 in profit, | you would have to be spending $10,000 / 0.01 = $1M per year | on that credit card. | | And if you are spending a minimum of $1M on your credit card | per year, I doubt you are spending your time optimizing | "miles" and "points". | | I assume there are lots of smart people working at airlines | that can work out which of their policies earn and lose | money, especially now that all the competition is minimal | except on the most popular routes. | calderwoodra wrote: | Typically 3 parties are paid by interchange: the bank | (~50%), the brand (~50%), the processor (~$0.01). | tw04 wrote: | >Even assuming 1%, for an airline to lose $10,000 in | profit, you would have to be spending $10,000 / 0.01 = $1M | per year on that credit card. | | I think you missed the part where they're losing _ALL_ of | my business, including dozens of flights a year. | | >I assume there are lots of smart people working at | airlines that can work out which of their policies earn and | lose money, especially now that all the competition is | minimal except on the most popular routes. | | I assume they think customers with lots of miles banked | won't go through the effort of dropping them entirely. I | think they're wrong. | | When you're losing customers that have million miler+ | status, you've made a pretty poor decision. | lotsofpulp wrote: | I guess we will have to let it play out and see. I'll | take the bet that the same airlines that exist today will | be there earning the same measly profit margins in 10 | years (except JetBlue, which may not be around). | listenallyall wrote: | 10 years ago there was USAirways and Continental, and | Northwest a little before that. Reduced competition buoys | the remaining survivors, but the history of bankruptcies | in the industry certainly lends quite a bit of doubt | towards your assumption. | lotsofpulp wrote: | The assumption is that as they become fewer, the ones | that remain gain staying power. Which is why I excepted | JetBlue since they could get sold or fail, I think they | are hoping their Spirit purchase goes through. | | Crazy to think JetBlue wanting Spirit. I remember when | JetBlue started, their goal was to provide a better | experience than all the other airlines. It is really a | cutthroat business. Virgin Airlines had to be folded into | Alaska too. | tristor wrote: | > I assume they think customers with lots of miles banked | won't go through the effort of dropping them entirely. I | think they're wrong. | | I agree with you on this. Nobody who flew Delta did it | for the value of SkyPesos anyway. The airline miles on | Delta have historically had the lowest value among US | major carriers and that hasn't gotten any better, so | frankly I have no issue giving up my miles. I flew Delta | for better hard product and a better set of co-brand + FF | perks. By changing the latter, the difference on the | former is mostly ameliorated, and the miles are basically | meaningless. At most a skypeso is worth maybe 1 cent. A | million skypesos is only worth $1k in EV, and that's | being generous. A one-time cost of $1k that isn't even a | fully realized loss (I can always use the miles later | without seeking status) is nothing compared to the | betrayal of the program changes. | PaulDavisThe1st wrote: | Mostly agreed, but still ... I used to fly | United/American from PHL to LHR all the time because .. | well, its a hub city and I lived there and they were the | best deals and had convenient departure times for the | transatlantic crossing. | | Then I moved to New Mexico, and found that Delta was the | obvious choice for getting to London from here. And OMFG | ... the difference in the product was just spectacular. | Seats. Food. Movies. Uniforms. Air quality (not kidding). | Probably will still use them when I do this journey. | tristor wrote: | Domestic flights it's a big difference, but for | international flights if you're in Polaris at the front | of the bus, United is actually better than Delta, | although the United food is pretty horrid even in | Polaris. The best news though is with United you can fly | Turkish Airlines, Lufthansa, or Singapore Airlines on | United. Singapore Airlines has the best business class | hard product in the world. United and their partners also | heavily operate 787s, which are great for noise and air | quality. | | United domestic routes are disgusting though. Most of the | planes are falling apart CRJs without IFE and WiFi, and | if they do have WiFi they charge you for it, and the | domestic United staffers are not good. I would put United | service quality on-par with Spirit or Frontier. Easily | the worst in the big 3. | | That said, I'd still rather develop status on United, | take directs, and then fly Polaris full-fare or Singapore | Airlines biz class for my personal / international trips | now that Delta has made these changes to the medallion | program. | ScoobleDoodle wrote: | I imagine they meant the airline as a whole is losing out | on the $10s of thousands due to lost loyalty resulting from | removing convenience. Not just the 1%, but the whole spend | is lost. | lotsofpulp wrote: | In that case, airlines have sub 5% profit margins, so | $10,000 / 0.05 = $200k spend on flights before the | airline comes close to earning $10k in profit. | brewdad wrote: | True but moreso than your average business, airlines are | dependent on the revenues from the customers at the | margins. In the short term, the plane needs to fly | whether it's full or not. Even the lowest fare customer | brings in more revenues than the added costs of flying | them. It's the fixed costs that need to be spread across | a plane full of passengers in order to make it all | profitable. | | An airline like Delta will adjust but there will be pain | for them in the short term and pain for customers in the | medium and long term with fewer, more expensive flights. | All of this assumes these changes actually lead to | customers changing their behavior rather than simply | saying they will. | listenallyall wrote: | Airlines have large fixed capital costs. The marginal | profit of an individual ticket purchase is very high, | certainly a lot higher than 5%. | lotsofpulp wrote: | That is true, but this also comes into play: | | > especially now that all the competition is minimal | except on the most popular routes. | | I guess airlines are betting sufficient passengers have | no better option, and I would bet that too. I cannot | remember the last time I got to pick an airline without | heavily inconveniencing myself and wasting tons of hours | with extra stops. Even a busy airport like Newark, you | are basically flying United for 90% of destinations if | you want to get there in the shortest amount of time with | the fewest stops. | listenallyall wrote: | You're generalizing to the overall population, but "tw04" | already said he was leaving the airline, so I guess he's | determined that alternatives do exist and aren't that | inconvenient. | tw04 wrote: | Huh? Citation? Delta's profit margin last quarter was | 12%, and that's a horrible way to calculate per-ticket | profit. When I'm spending $1200 on a ticket to fly 500 | miles round trip on a flight that's packed, they're | making a LOT more than 12% on that ticket. | lotsofpulp wrote: | This is every major US airline. | | https://www.macrotrends.net/stocks/charts/DAL/delta-air- | line... | | https://www.macrotrends.net/stocks/charts/UAL/united- | airline... | | https://www.macrotrends.net/stocks/charts/AAL/american- | airli... | | https://www.macrotrends.net/stocks/charts/ALK/alaska- | air/pro... | | https://www.macrotrends.net/stocks/charts/LUV/southwest- | airl... | | https://www.macrotrends.net/stocks/charts/HA/hawaiian- | holdin... | | https://www.macrotrends.net/stocks/charts/JBLU/jetblue- | airwa... | tw04 wrote: | Did you actually bother to verify those links? They're | wildly inaccurate. It claims Delta is making | $50B/quarter??? They make roughly $13B/quarter. Your very | first link claims Delta's profit margin 6/20/23 is 5.36% | - it was 11.72% per their earnings report. 12/31/22 - | claims 2.61%, it was 6.17%. Garbage in, garbage out. | | https://www.google.com/finance/quote/DAL:NYSE | | And again, that doesn't address the fact their net profit | margin has literally 0 relation to their profit margin on | _MY TICKET_ which is CONSIDERABLY higher than 11.72% on | average. | lucas_membrane wrote: | >> profit margin on MY TICKET | | The allocation of profits down to specific activities | depends on the allocation of revenues and expenses | amongst activities, and all such allocations are | inherently arbitrary. They depend on the stories we tell. | hef19898 wrote: | I hope you don't work in accounting. | lotsofpulp wrote: | Macrotrends has been pretty reliable in my experience. I | am trying to verify the annual numbers: | | https://s2.q4cdn.com/181345880/files/doc_financials/2022/ | q4/... | | And page 63/64, it seems like Macrotrends is using "net | income/loss" row and the "total operating income" row, | and Google is also using the same, so not sure why the | quarterly figures are different. Macrotrends does look | erroneous here. | | >And again, that doesn't address the fact their net | profit margin has literally 0 relation to their profit | margin on MY TICKET which is CONSIDERABLY higher than | 11.72% on average. | | Yes, the delta bosses are not considering the profit | margin from your specific flights, but assuming the vast | majority of their business is flights where their airline | miles come into play, then I figured it is a good | assumption that, on average, losing a flight costs them | the around the same profit margin. | | Of course it is possible they lose so many flights that | it cuts into their fixed costs, but I assume they are | smart enough to make those calculations. | sokoloff wrote: | The macrotrends graphs are clearly labeled TTM (trailing | twelve months), and seem accurate to me cross-checking | just a few Delta measures against published financials. | sokoloff wrote: | If you decide to stop flying Delta entirely, someone else | will buy that $1200 seat because, as you observe, that | flight is _packed_. | sokoloff wrote: | SkyMiles MQDs (flight spend, basically) is only 12K/yr for | Platinum and 20K/yr for Diamond now, rising to 18K/yr and | 35K/yr next year. IMO, the current thresholds, despite being | higher than last year, are still too low, resulting in over- | crowded lounges and difficult upgrades for their most | frequent fliers. | | Even next year's thresholds are not that high if you're | crossing the continental US multiple times per month and are | surely less than the flying you're doing on Delta if the loss | of your business represents "10s of thousands a year in | profit". | | Delta's gross margin percentage is roughly 25%. For them to | lose just 2 10 thousands in profit on you, you'd be spending | $80K with them and doing so would continue to easily qualify | you for Diamond, whereupon you'd get more reliable upgrades | and service from them due to fewer people making Diamond each | year. | chollida1 wrote: | > I think you're grossly overestimating the fallout from | this. | | Really, I think if anything I might be underestimating the | fallout from this in that I don't see it being an issue at | all and I think most airlines will follow with the same | changes in the future. | NikolaNovak wrote: | >> Sooner or later some airlines will spin out their rewards | business into a separate company to get the maximum valuation | from it. | | Air Canada spun out aeroplan, and then years later re-acquired | it. | TeMPOraL wrote: | That's the nature of financialized business, isn't it? Since | they're only gaming the numbers, there isn't anything of | substance happening when they spin out rewards this year, and | reacquire it the next. | bdunks wrote: | I generally agree with the article's premise and conclusions, but | the lead in is not true: | | > They make more money from mileage programs than from flying | planes--and it shows. | | Delta reported 5% of its revenue came from its loyalty programs | in 2022 (2.5B of 50B according to 2022 10k). Although in the June | annual shareholder meeting, it expected >6.5B in AMEX | remunerations in 2023 with a long term goal of 10B. | | American Airlines may have been closer to 10% (4.5B of 49B | according to 2022 10k). I can't quickly find any public data on | it's long term goals. | | Both still well short of "more money" than from flying planes. | BoiledCabbage wrote: | I don't know the details of the industry but that is revenue | ignoring expenses. Presumably it is orders of magnitude more | expensive to fly the planes than manage a rewards system. | | I expect the author is saying that if your split each up into | profit, the profit is greater on the rewards program than the | flying part. | bdunks wrote: | The points are not "free" to airlines, though. (Without | looking at every airlines 10k, at least one mechanism is to): | Account for them as a liability on the balance sheet as | "deferred revenue." They then recognize the revenue when the | points are redeemed, meaning they incur the same blended Cost | per Available Seat Mile (CASM) as a purchased ticket. That's | in addition to the significant costs of managing a loyalty | program (IT, Partnerships, Legal, etc.) | goldfish3 wrote: | Revenue ignoring expenses is also known as revenue. | sheepybloke wrote: | While this article is about credit cards and miles, the moment I | realized they were banks was when I learned that most airline's | fleets are leased. Since maintenance and planes are so expensive, | lots of airlines lease a fleet with support contracts from places | like GE Capital. From an MBA perspective, it makes sense, but it | is such a weird concept to me that you don't own such a pivotal | part of your business. | Sohcahtoa82 wrote: | What I'm not understanding is how it's more profitable to | involve a 3rd party company, who will be taking their costs and | adding a profit margin, rather than doing it all in-house? | | If it costs on average $X/month to maintain a plane, then the | maintenance company is going to charge you $(X+Y)/month, where | Y is a decent profit margin. Certainly you'd save money by not | involving the third party, right? | | Or are these companies happy to pay it because that $Y also | covers risk of a sudden expensive repair? | polygamous_bat wrote: | It makes perfect sense if you realize that the airline execs | are maximizing their bonuses for the next quarter or four, and | not optimizing for the health of the company for the next 10 | years. Being stuck with a company and losing a job if the | company goes bankrupt is for losers like us, not for those who | will leap off with the golden parachute and land another cushy | job somewhere with their "years of experience driving growth | and providing value to the shareholder". | rrrrrrrrrrrryan wrote: | Executives build the company that the investors want them to | build. | | By far, the biggest costs of running an airline are the | planes and the fuel. But the investors don't want to bet on | the value of physical planes, nor do they want to bet on the | price of oil. If they wanted to place those bets, they'd just | invest in Boeing or Exxon. Instead, they usually want to bet | that one airline will perform better than her competitors | over the next year or so. | | So, airline executives lease their fleets and buy tons of oil | futures. This gives them a better shot of hitting their | targets even if the price of oil skyrockets, it makes their | fleet easier to scale up or down according to demand, and it | makes their stock more attractive to investors who want more | predictable performance. | jcalx wrote: | This... makes sense? Airlines provide air transport services, | and the actual "hardware" is pivotal but not integral to their | core business. Airlines are much more than just "flying planes" | -- there's route planning, crew management, fuel pricing and | forecasting, regulatory and legal compliance, operational | logistics, landing/takeoff slot allotment, customer service, | marketing, etc. that the airline is responsible for. | | Think of Netflix using AWS. Digital content delivery is | obviously crucial to their business (DVD deliveries aside) but | it's not vital that they own their own servers -- they're first | and foremost a video streaming service, not a CDN datacenter | business. | | There are also various types of leases [1], commonly "wet" or | "dry", which are analogous to managed/unmanaged/raw metal cloud | services. | | [1] https://en.wikipedia.org/wiki/Aircraft_lease | joncrocks wrote: | Something that is non-obvious in this space is that some of | this can be down to tax treatments and asset depreciation. | | In a nutshell, when you buy an asset you can depreciate the | value of the asset over the working life of the asset and in | many tax jurisdictions (my knowledge/experience comes from the | UK and US asset financing industry) offset that depreciated | amount against profits, in the year the asset depreciates. | | This means that you can essentially offset capital expenditure | against tax, which is good business. | | But if you don't make enough profit through the use of the | asset at the right time, you end up losing the benefit. | | But there exist large companies that make lots of profit, such | that they can always offset the depreciation. And so _they_ can | buy the asset, use the depreciation against their profits and | then lease the asset to you. They might even be able to do this | at a rate that ends up _being cheaper than you actually owning | the asset_, depending on circumstances. | ajmurmann wrote: | From that perspective every large company is a bank. This is | part of the reason everyone wants a subscription business. Not | only do shareholders love recurring revenue, but so do lenders. | In essence every business is a investment bank that has a few | investment available that are closed to everyone else (the core | business). | jedberg wrote: | Most tech companies lease their hardware too. OpEx is always | better than Capex. | | I mean AWS is the obvious example, that's basically leasing | your hardware. But even companies with on-prem data centers | lease most of that gear. It's way better for cash flow to make | monthly payments than an up front one. | tomcam wrote: | > Consumers now charge nearly 1 percent of U.S. GDP to Delta's | American Express credit cards alone. | | $269 billion, if true. Amex normally charges more than other | credit cards. Let's say 4%, so they'd gross $10 billion in fees. | That's... that's a whole lot of money for a single card. | Schiendelman wrote: | Keep in mind that the $10B in fees isn't profit - some half of | that goes to Delta as miles for the users, and some proportion | of it actually keeps the network operating. | tomcam wrote: | Agreed; that's why I said gross | okaybutno wrote: | [dead] | librish wrote: | It's insanely smart to reward business travelers personally based | on how much their company spends. A lot of people working for big | companies are completely price insensitive, and might in fact | choose a worse and more expensive flight if it means they get to | accrue more miles. | FireBeyond wrote: | Sales, architects, consultants at my company (all the frequent | fliers) lost their shit when we mandated the use of corporate | cards for all travel. | | "Earning enough points to take my family on a free vacation | each year is compensation for the time I'm gone"... "My wife | and I get upgraded most trips we take because of this | benefit"... | | Actual tone-deaf quotes at a time when we were laying people | off (not to mention that corporate cards had been around for a | while and had been 'encouraged'. And most other managers had | already mandated their use. | | It's a perk. But when it's a perk only some people get, or get | more of, you can't expect too much sympathy from everyone else | when it's taken away. | rrrrrrrrrrrryan wrote: | > when it's a perk only some people get | | They aren't comparing their situation to others within the | company, but rather to individuals at other companies for | whom this perk is widely available. | g_sch wrote: | Back when I was in consulting, I used to think of it as a | perk (as did many of my peers). Once the travel started to | wear on my personal life, I ran the numbers and discovered | the miles and points I was earning equated to only around | $200-300 per month in cash equivalent value. | | It's really surprising to me how intensely some people will | pursue relatively worthless airline miles. I suppose if | you're going to be traveling anyway, you might as well pick | them up. But if you have the choice, it's not really worth | the trade-off. | ProfessorLayton wrote: | Yeah, I hate traveling for work, and if I could pick I | wouldn't do it. Worse, I hate keeping track of every | receipt and expensing every little thing post work travel. | | I'd take a company card any day. | ttegloma wrote: | It's disingenuous to call it a "perk". It's not the same as | having office coffee or a ping pong table at the office. | | Having to travel a lot is a known disadvantage of having one | of these jobs. The ability to accrue miles or do in-lieu | travel is touted as an offsetting factor for this. It's | literally mentioned as a part of the compensation package at | places like job fairs or in interviews. In my past consulting | job (and on places like r/consulting), people would literally | calculate the dollar value of the miles/status you can accrue | and would use it to compare compensation packages. | | Losing this "perk" is more akin to having commission pay be a | big part of your compensation, but then being told you'll no | longer get commission. It's a material difference to what you | expect to be paid. | nerdponx wrote: | The ability to accrue miles/points/whatever for yourself is | considered one of the offsetting perks of having to travel a | lot of work. So strong reward programs for frequent business | travelers is indirectly a product or service being offered by | the airlines to companies that employ business travelers, which | employers implicitly pass along to travelers as a form of soft | compensation. | BoiledCabbage wrote: | You have it backwards. Airlines aren't paying customers and | companies are paying the payment forward to their employees. | Employers are paying their employees and funneling it through | airlines. | | At a deeper level airlines and business travelers have no | real business relationship. Employers are buying a service, | airlines are selling a service. Business travelers are the | "cargo" that airlines are shipping. Businesses pay airlines | to ship this cargo. Airlines have no relation to the cargo. | | Employers also pay the cargo (their employee) a wage. But | they funnel part of that payment wage through airlines via | miles. It's not much different than company sponsored health | care, but it's company sponsored vacation/personal travel. | It's an employer benefit, but not treated as one. | nerdponx wrote: | I think we're saying the same thing. What I was trying | (poorly) to say is that the airlines offering the employers | the ability to compensate their employees is indirectly a | service that airlines offer to employers. | adolph wrote: | > It's insanely smart to reward business travelers personally | based on how much their company spends. | | I wonder how long it will take the IRS to catch on and see this | as a taxable benefit. It's like if significant business | spending was done on Discover cards that paid its signer | personally. Since it's been going on for years, maybe there is | an exception written in law? | | Speaking of taxes, the guy who bought a billion yogurt cups to | earn trillions of miles donated the yogurt and received a tax | benefit: | | https://www.snopes.com/fact-check/pudding-on-the-ritz/ | ttegloma wrote: | It's not just a reward for the business travelers. My previous | consulting company actually would want us to book our preferred | airlines (even if they were more expensive, but only within a | certain range) because in the event of an issue with the | flight, the perks to rebook or get free checked bags etc | actually saved the company/client money. | | I saw this for real when traveling with a coworker when they | had status and I didn't. One of our flights was delayed, | leading to me being stranded overnight and have to get the | company to pay an additional $300 to stay in a hotel, while my | statused coworker was rebooked with priority on a flight home | due to their status. | solarkraft wrote: | It's funny that that's even possible. | | For my next business, I'll personally pay companies' decision | makers to choose me as a supplier. | | Hell, why stop there? I'll also pay politicians and judges to | rule in my favor! | [deleted] | itsoktocry wrote: | > _For my next business, I 'll personally pay companies' | decision makers to choose me as a supplier._ | | What you describe is one end of the spectrum (and probably | illegal). But the line between that and good old discounting | isn't very wide. | | discount -> p&l -> budget -> bonus | dylan604 wrote: | Since when was business solely run on decisions that were | bounded by what was legal? | dave78 wrote: | At my current employer, it is quite difficult to get a new | supplier approved into the system, so any time you need to | acquire something for work that is not from one of the usual | places it is nearly impossible. | | Someone must have spotted the opportunity, because we have | one particular supplier who is approved, and basically you | send them a list of what you want from whatever | store/supplier/etc., and they send back a quote for the | item(s) which is just the retail price plus a 10% markup. You | order the item(s) from this approved supplier, and they just | order it from the original source and have it shipped to you. | A huge portion of the things that we needed to get for day- | to-day usage ended up being ordered through them (software, | lab equipment, hardware debuggers, etc). | | Seems like a great gig if you can pull it off. Most likely | this is just a 1-person outfit where they spend 30 minutes a | day placing orders and generating quotes then just take their | 10% of everything. I've always wondered if this business was | started by someone who formerly worked in the procurement | department and added themselves as a supplier before leaving. | daniel_reetz wrote: | I saw a similar business, which was run by someone with a | severe physical handicap. Orders with them could basically | get around most purchasing card or procurement issues, and | they added a percentage. Seemed like a really nice | business. | TeMPOraL wrote: | This might be a win-win. They may earn 10% on every order | going through them, but they also do the paperwork and | probably take some degree of liability off your employer. | Middle-men aren't always a problem. | Metacelsus wrote: | Sounds like VWR for ordering lab supplies. | teaearlgraycold wrote: | > I'll also pay politicians and judges to rule in my favor! | | Now you're getting it! | joelfried wrote: | So is Justice Thomas. | [deleted] | briffle wrote: | This isn't new at all. Why do you think those big companies | have company "boxes" at major sporting stadiums? its | certainly not so their rank and file employees can enjoy the | game. | | or golf trips, fancy dinners, etc. | pavlov wrote: | _> "reward business travelers personally based on how much | their company spends"_ | | Shouldn't this be taxed as income? | | A portion of the money paid by company A to company B goes | directly to the employee of company A. It would be taxable if A | paid its employee directly, so what difference does it make if | there's a benefit program operated by B in the middle? | gdprrrr wrote: | It has to be taxed as income according to recent court | rulings in Germany. Alternatively, any earned bonuses can be | used for the benefit of the company, eg for The next travel. | tbihl wrote: | It gets discussed from time to time. | | As a government employee, I'm pretty jealous. All our | spending has to go through a credit card with no perks, | rewards, or identifiable appeal, presumably because it makes | the data harvesting easier. And you have to identify on the | front end whether each thing is a valid expense so you know | which card to use, rather than just filing relevant line | items in a claim on the back end. The only good thing about | the government travel cards is that they're physical objects, | so you can sometimes lose them and then get to fall back on a | card that does something for you. | matsur wrote: | https://tax.thomsonreuters.com/blog/are-employees-taxed- | on-t... | pavlov wrote: | Interesting, thanks. | | The guidance is from 2002. The airline reward programs have | changed in the meantime. As the original article notes: | | _"In short, SkyMiles is no longer a frequent-flier | program; it's a big-spender program."_ | | So I wonder if the IRS might come to feel that rewarding | spend is different from rewarding miles flown. Unlike air | miles, the benefit to the employee is in direct proportion | to the money spent by their employer. | lotsofpulp wrote: | I doubt it. The IRS does not say cash back rewards from | credit card spend is taxable income, which is as | explicitly rewarding spending as you can get. | | https://www.investopedia.com/ask/answers/110614/are- | credit-c... | | > So, where do cash-back reward programs fit in? It | varies. If a cash-back reward is credited directly to | your credit card account, then the income is generally | considered a nice rebate that comes with the benefit of | using the card. If you actually receive a cash-back check | directly, though, it gets a little trickier: It probably | also would be considered a type of rebate, but it could | technically count as income. | pavlov wrote: | But is someone getting personal cash back rewards from | corporate credit card spending? | | That would be the equivalent of the airline situation. | PopAlongKid wrote: | > IRS does not say cash back rewards from credit card | spend is taxable income | | No, it's just a rebate/discount made directly _to the | purchaser_. For tax purposes, if they buy something for | $100 and get a $2 cash back, it just means they spent | $98. | | It's very different when there's a third party - employee | - involved. The "reward" is going to someone who never | spent any money, and so generally would be considered | taxable compensation to them. OF course, regulatory | exceptions in the tax code are nothing new, and it seems | like this might need to be re-visited soon. | lotsofpulp wrote: | That is a good point. I guess it might be too complex to | keep track of what entity paid for which points and so | they let it slide. | enkid wrote: | Not just big companies, government travellers too. There's a | reason military is allowed to board first. | tbihl wrote: | I suspect that one airline made the first step with that, and | it was name-and-shame until everyone fell in line at that | point. | badcppdev wrote: | What's the reason? I assume this is a US thing? | enkid wrote: | The stated reasons is patriotism. The real reason is that | the military buys a lot of airline tickets and the military | member gets to choose from a list of flights from a variety | of airlines. | callalex wrote: | It's similar to tipping, once one guy starts doing it all | the others look like assholes unless they start doing it | too. A similar phenomenon happens sometimes in drive- | through coffee shops: someone will pre-pay for the coffee | of the person behind them in line, then that person is | informed that a stranger paid for their coffee. There is | then a social expectation to do the same thing for the next | person in line to keep the chain of anonymous "charity" | going. Nobody wants to be the asshole that breaks the | chain. It's certainly an odd phenomenon, but many people | love it. | JanSolo wrote: | The article mentions that due to consolidation there are only 4 | major airlines in the US and they are very aligned in their | prices and policies thus giving little choice to US consumers. | Doesn't that mean there's an opportunity for someone to start a | new airline that could compete with the big 4 by offering better | prices or more lenient policies? Demand for flights is clearly | very high right now; perhaps there's an entrepreneurial | opportunity here? Thoughts? | standardUser wrote: | There's almost a dozen other national-ish airlines and a few | dozen regional and commuter airlines, but it's hard to compete | with the big ones because they can't offer the same number of | routes. I fly JetBlue whenever I can because I'm tall and they | have the best legroom, but about half my trips end up on other | airlines because JetBlue doesn't fly everywhere. But people who | fly a lot and use Delta or United can travel virtually anywhere | without ever having to go "out of network". The smaller | airlines can capture the people who frequently take a small | number of routes, but the best customers are always going to | gravitate towards an airline they can use a much as possible to | maximize status and rewards. | s3p wrote: | Not exactly. Airlines (in my view) are not a perfectly | competitive industry: there are extremely high setup costs and | barriers to entry. It would be very very difficult for a | newcomer to compete with the established ones, at least in the | US. | | Edit: a word | falcolas wrote: | The cost of entry is absurd, and the industry is highly | regulated. The profit margins for acting as just an airline are | also pretty thin, IIUC. | | I think you're ultimately right, but finding an investor would | be irrationally difficult. | bvirb wrote: | That sounds like Virgin America 20 years ago and I think it | worked out well for them and for consumers. They had really | cheap, reasonable flights, and they forced everyone else to put | entertainment in the seat backs. I really miss their silly | purple lighting and lounge music when you boarded. | tbihl wrote: | Alaska airlines, hawaiian airlines, Breeze, Avelo, Spirit, | Frontier, Allegiant. | | There are tons of airlines. I can often have my choice of | airlines to fly to a particular city, nonstop, _within a given | hour_. Where 's the lack of choice? Economy tickets range from | cheap to very cheap, unless you need to fly somewhere like | Guam. Renting cars and booking places to stay are both | significantly more expensive pieces of traveling. As long as | that's true, it's hard to justify flights getting _that much_ | cheaper... unless you 're flying a family of 6+, in which cases | you're part of a small market. | jppope wrote: | "A business either dies or lives long enough to become a | financial company." | huijzer wrote: | For a compilation of Buffett and Munger saying that the airline | business is a terrible business, see | https://youtu.be/OHvzyLEzVBY. | WalterBright wrote: | What's interesting about this is "Skymiles" are a form of | _private currency_. Yes, there are many private currencies in | use. | | Banknotes also used to be private money. Each bank issued their | own. The government eventually made that illegal, but banks still | issue private currencies in the form of: | | 1. personal checks | | 2. cashier's checks | | 3. traveler's checks (though I think Amex stopped printing them) | | 4. credit cards | | 5. debit cards | MikeTheRocker wrote: | I think you're conflating currency with interfaces to the | financial system. The currency is the medium of exchange: the | dollar itself. A debit card is merely a tool to transact using | dollars. | WalterBright wrote: | I'm not conflating things. They're currency. I talked about | this with my dad, who was head of the finance department at a | college. He had a degree in economics from MIT and an MBA | from Hahvahd. | | > A debit card is merely a tool to transact using dollars. | | And banknotes were just a convenient tool to transact gold | that was on deposit in the bank vault. | TheRealPomax wrote: | So is Apple. So is Starbucks. And really so is any large company | with a "points card" system that lets you turn money into points | or points into money. | mberning wrote: | The fact that these programs obscure or even hold hostage the | different fare classes is what I really dislike about them. The | only fare class that you can get realistic, transparent pricing | on is the most basic economy class. Sometimes "premium economy" | as well. Anything higher than that has a suggested price that is | ludicrous, often being 10x an economy fare, which nobody in their | right mind would pay, yet the seats always end up filled. They | end up going to people with "status" or some other angle used to | slide into the higher class seat. It's annoying because I am | willing to pay a higher price for a better experience, but I | don't want to play status games across 5 different airlines. | izzydata wrote: | But it isn't like they can make money from their mile program if | they didn't fly planes so their business is still completely | dependent on providing this service. So despite most of their | money being made there I still wouldn't call it a bank unless it | can be extracted from their core business and survive. Which it | can't. | zeroCalories wrote: | The only issue with this system is the credit card fees being | shared by non-card users. This is why the government needs to | find a no fee alternative, or at least make it mandatory to | charge a fee on card users to cover the costs. | Schiendelman wrote: | Have you heard of FedNow? | kylebenzle wrote: | [flagged] | aranchelk wrote: | > Unleashed from regulation, airlines devised new tactics to | capture the market. American Airlines was one of the most | aggressive. In the lead-up to the deregulation bills, it created | discount "super saver" fares to sell off the final few remaining | seats on planes. | | Strategies like these are great, otherwise those empty seats just | go to waste. | | I consulted for an online travel company. Interestingly in source | code stuff like airline tickets were collectively called | "pGoods". After a while (limited documentation) I found out the | "p" stood for "perishable" which is an apt description. Of course | airlines provide a service, not "goods". -- naming things. | chem83 wrote: | Re the link referred to in the article: | https://thepointsguy.com/news/why-i-wont-chase-airline-statu... | | I suppose everyone has their own priorities, but it's insane to | me that someone would willingly take layovers, crappy routes and | less desirable destinations just to chase airline status for a | given calendar year. And for what? An eventual upgrade that may | never come because someone else bought a higher fare class or | business is full? Free access to cheap beer and sad sandwiches | inside a packed lounge? Slightly earlier boarding, which any | $95/yr airline credit card would give you anyway? These so-called | perks can't be more valuable than the time wasted gambling on | dodgy connections. | | At the end of the day, it's easy to hack the system: just do what | 99% of the people are too lazy to do. Plan trips early and study | routes carefully. Use 3P tools to optimize fares. Pack and travel | light. Arrive early at the airport. All these are much cheaper | than what airlines are asking to bump your status level and go a | long way in making the perks feel like they don't really make | that much of a difference. | fred_is_fred wrote: | Which airline gets you lounge access with a $95 card? United's | is roughly $500. | chem83 wrote: | You misread my comment. | m3kw9 wrote: | This is same thing as points except there is no mystique about | points and money ratio. You spend X you get y. No difference | omneity wrote: | This reminds me that car manufacturers in Germany (maybe in other | places too) are actually financial services companies with | factories attached to them, or so the joke goes. | | Almost everyone buys new cars through some form of financing, and | the structure of the company reflects that. | forgingahead wrote: | Every public company, once they get to a certain size and scope, | end up "financializing" some or all parts of their business to | keep chasing those quarterly profits and never-ending growth. | It's just a lot easier to generate magic coins from thin air to | collect & store / earn interest on, than to keep building and | innovating new physical products. | rkagerer wrote: | I really hate all these stupid loyalty points programs that have | permeated nearly every industry. I flat out refuse to | participate. I'd rather the vendor just mark down their sticker | prices instead of playing these games. If you want my loyalty, | here's a tip: treat me as a valued customer not cattle. | standardUser wrote: | The thing is, if you get status on airline, it's the only way | they actually do stop treating you like cattle (mostly). | | That or be rich and always fly first class. | supernova87a wrote: | Just like countries and banks that have no effective restraint or | external supervision, the amount of devaluation of points that | airlines have been tempted to do in recent years (and _have_ | done) is incredible. | | The only thing keeping most points-accumulating customers from | being angered about this (while there is a hardcore group of fans | who track it) is that no airline is required to publish the | history of inflation/devaluation. And the airlines hide it behind | having changed from actual static charts showing what an airline | mile is worth, to now floating dynamic pricing, which completely | obscures what has happened. Sell tons of miles dirt cheap to | credit card companies, and devalue the miles when it comes time | to redeem them. | | Of course, that is their right, and this is not a state currency, | and these are "bonuses", not some entitlement. But people should | justly have lowered their faith in it from the beginning. | Although you might say the same thing about lotteries -- people | are participating in those voluntarily, yet those are regulated | and have restrictions on what they can and can't do. | | But anyway, now people just discover that the 200,000 miles | they'd been working towards for years no longer even buys the | ticket(s) they thought it would. | | It has made me, personally, seriously lower my loyalty or pursuit | of loyalty for any future promised benefits. | | (and an end note/minor side story, this applies not just to | points/miles but also elite status -- the perks you get for | loyalty, such as better seats during flights, lounges, check-in, | etc. Airlines have devalued these just as well, by letting the | ranks of "elite" customers swell through credit card spending | qualification, promotions, etc, and then devaluing the benefits | at the tiers of qualification. They're glad to shovel people in | with promises which then turn out to be not worth the benefits | you thought. Or they add a secret higher tier that you didn't | know about.) | lotsofpulp wrote: | > People just discover that the 200,000 miles they'd been | working towards for years, now no longer even buys the ticket | they thought it would. | | Being able to continuously arbitrarily devalue them is the | whole point of designing a rewards system with "miles" and | "points" or whatever non official currency unit. | WalterBright wrote: | > Being able to continuously arbitrarily devalue them is the | whole point of designing a rewards system with "miles" and | "points" or whatever non official currency unit. | | Which is exactly the point of creating the fiat money system | in 1914. Have you noticed that the dollar has been | continuously devalued ever since? | | And no, it wasn't to "stabilize" the monetary system. That is | just propaganda. | WalterBright wrote: | "The Federal Reserve System therefore began operations with | no effectiye legislative criterion for determining the | total stock of money. The discretionary judgment of a group | of men was inevitably substituted for the quasi-automatic | discipline of the gold Standard." | | -- Monetary History of the United Stats pg 193 | knallfrosch wrote: | This article can't really be understood unless you know that | Visa/Mastercard take a 2-3% cut from all sales in the US. They | redistribute some of that with these points-programs. | | The cut is limited to 0.2% in the EU. This regulation basically | kills all the transfer-from-poor-to-rich point schemes and leads | to transparent pricing. | warkdarrior wrote: | If US adopts the same limits on credit card fees as EU, do you | think mileage programs will go away? I really doubt it, since | airlines will still make a lot of money from fees and fake | perks. | dangus wrote: | Even Amtrak, a government train service with no competitors, has | a rewards program. | | The part of the equation that I think the article is missing is | that air travel is an industry with an extremely high level of | substitute options. Rewards programs are there to try and combat | the fact that their products are 100% interchangeable and create | some level of loyalty. | | Yes, they're also a convenient financial instrument, but I'm | personally failing to see how that's a problem requiring | intervention. Even with these programs as a profit center, | airlines are overall some of the lowest profit margin businesses | you can find. There aren't many travelers out there who have much | justification to be upset about the prices they pay to fly when | the airline is only making single-digit percentage profit off | their flight. | | The article, in my opinion, was too zealous about advocating for | reinstatement of a style of regulations that I don't think makes | a lot of sense for consumers _or_ the airlines. It 's well- | understood that fares decreased and service volume increased | after the Airline Deregulation Act was passed. Many aspects of | the defined routes and fares setups of the Civil Aeronautics | Board actively stifled competition by preventing competition from | entering routes and fixing prices. | | > The Civil Aeronautics Board decided which airlines could fly | what routes and how much they could charge. | | Doesn't that sound kind of awful? This would be like your local | health department regulating the precise recipe of each meal | served at a restaurant, going above and beyond regulating health | and safety practices. | | The article acts like the airline industry is just 100% devoid of | regulations, but that isn't at all true. For example, airlines | are required to advertise the tax-inclusive airfare, required to | refund fare plus penalty in cash in the event of bumping | overbooked customers, and obviously long list of safety | regulations, and numerous other requirements. | atourgates wrote: | > The part of the equation that I think the article is missing | is that air travel is an industry with an extremely high level | of substitute options. Rewards programs are there to try and | combat the fact that their products are 100% interchangeable | and create some level of loyalty. | | I agree - but thought of it a different way. | | Delta has a reputation among frequent flyers for having the | best operations of any domestic carrier. AKA, if you need a | flight that gets there on time, Delta is your best bet. | | So, I expect these changes to their frequent flyer program | (which pretty much all frequent flyers have reacted to with | universal hate) are a recognition of that. AKA, we're offering | a good product, so why should we be generous with our | mileage/reward program. | | Delta were already regarded as having one of the least valuable | award points of any program. | | As to why the changes are so hated, take this example. | | Imagine you're flying economy 1x a month from Los Angeles to | Amsterdam on Delta. Each flight would cost around $800, and | earn you 11,120. | | Under the current program, you could have Silver Medallion | halfway through your 3rd trip, Gold by your 5th and Diamond by | the end of the year. | | (Some caviats that you wouldn't make it that far without a | waiver for MQD spend you could get with a credit card). | | Under the new program, it'd take you 7.5 months to earn Silver, | and you'd never make it past Gold Medallion flying that same | route every month. | BoiledCabbage wrote: | > The part of the equation that I think the article is missing | is that air travel is an industry with an extremely high level | of substitute options | | That's the entire point of a free market. Obtaining perfect | competition. If you are producing a product that cannot be | easily substituted then you shouldn't get to have a fully free | market. Customer lock-in is the opposite of the concept and | benefit of a free market. | | Second, and industry with high startup costs, extreme barriers | to entry, limited access to fixed resources (airport runways), | and is of strategic importance to a country will always be | regulated. Airlines will never be left to die (like for example | the NFT market) - and we saw this during the 2008 period. And | if you're going to socialize loses and have govt as your back | stop there are rules you have to adhere to to ensure customer | benefit. | jrwiegand wrote: | Interesting, I watched a video about this topic a while back[0]. | | I don't remember it exploring the larger impacts related to | government and such but instead digs into how exactly airlines | make money from this system. | | [0] https://www.youtube.com/watch?v=ggUduBmvQ_4 | cheeze wrote: | I love Wendover! His videos are fantastic and always | interesting. | local_crmdgeon wrote: | "Without industrial policy, all industries bend towards | financialization" | | True here, true of auto manufacturers, increasingly tech, | housing, etc. | dehrmann wrote: | > From the late 1930s through the '70s, the federal government | regulated airlines as a public utility. The Civil Aeronautics | Board decided which airlines could fly what routes and how much | they could charge. It aimed to set prices that were fair for | travelers and that would provide airlines with a modest profit. | Then, in 1978, Congress passed a sweeping law deregulating the | airline industry and ultimately abolishing the CAB. Unleashed | from regulation, airlines devised new tactics to capture the | market. | | That makes it sound like air travel was great before free markets | stepped in. The real cost of air travel fell by about half since | then. Before deregulation, there weren't as many competitive | incentives, and airlines couldn't experiment with routes. Air | travel became much more popular and got much safer (this might be | a coincidence). Granted, service got worse, but you can still buy | service at 2x the price in first class. People just don't. | | There are probably a bit too few customer and worker protections, | but on the whole, airline deregulation shows just how bad command | economies are at planning and allocating resources. | gymbeaux wrote: | 1978 right before Carter was sworn in or right after? This | doesn't seem like something Carter would have signed. | ls612 wrote: | Deregulation in the 70s and 80s was strongly bipartisan, | Carter signed all of the transportation (air and surface) | deregulation acts. | HAL3000 wrote: | It's funny how this is a top comment while it's completely | false in this particular case, which you can read about further | down in the article. | JohnFen wrote: | > Granted, service got worse, but you can still buy service at | 2x the price in first class. People just don't. | | A _lot_ worse. So bad that while I love to fly, I hate to fly | on commercial airlines and avoid it when at all possible. | Especially post-9 /11. | | Some of the issues are mitigated by flying first class, but | even that only makes it a bit more tolerable, but not enough to | be worth the increased airfare. | gota wrote: | Minor point - is first class 2x only? | | My recent experience with international flights indicates that | business class is 5x of the premium economy seats, which are | 1.5x already | bootlooped wrote: | I've often thought this is some kind of market inefficiency | that I don't quite have the vocabulary or expertise to | describe. You don't get 5x more space or service. Shouldn't | it be roughly proportional to how much more it costs the | airline, plus some extra profit on top? Instead it seems like | an absolutely massive premium. | balderdash wrote: | Lay flat business class seats probably take up the | equivalent of ~4 economy seats... | SOLAR_FIELDS wrote: | Charging that much seems fine to me, I think doing what you | are describing would create a market inefficiency. 5x seems | to be what the market is willing to pay for that seat, | which is fine. It excludes lower income people from ever | taking business class but those higher priced seats help | make travel more affordable in the uncomfortable, jam | packed rear of the plane | thirtyseven wrote: | It's price discrimination. Some airline users are not price | sensitive (the wealthy, corporate travelers with expense | accounts) and they don't care about getting maximum value | for their dollar. Economy fliers do. | sokoloff wrote: | It's also a pretty good subsidy to economy fliers. | AdrianB1 wrote: | On international long flights business class is ~ 2x or more, | first class is a lot more. | nradov wrote: | Many of the travelers who end up with those premium tickets | didn't pay full price. They have corporate discount deals | or got upgraded based on status. | fredoliveira wrote: | I fly back and forth from the EU to the US and I've flown | multiple times in business or first, and to this day I have | no idea what the difference is between the two. If they | charge more for one than the other, then I'd really like to | know what they're charging for. | bombcar wrote: | First class inside the USA can be cheap, cheaper than paying | extra baggage allowance, even. | logifail wrote: | > My recent experience with international flights indicates | that business class is 5x of the premium economy seats, which | are 1.5x already | | If you were to buy the cheapest (non-flexible) business class | fare many months in advance, you might well get it for | significantly less than a flexible economy fare sold one week | before departure. | | Also note that airlines price on origin and destination, | indirect (connecting) flights typically cost less than | direct, so if you want to fly from London to New York, in | business class, it's almost certainly going to be cheaper to | fly somewhere else and to start your journey (and fare) from | there, and fly _via London_ to NYC. Specifically you'd fly | first to Dublin (or Oslo, or Budapest, or ...), then turn | around and fly DUB/OSL/BUD-LON-NYC-LON-DUB/OSL/BUD. | | Airline pricing can be very, very counter-intuitive to the | uninitiated. | | (Source: have paid for 20+ business class flights in the last | 12 months, none of which were what I'd call expensive, as I | despite being a miles collector I am fairly price sensitive. | Just as happy to fly with Ryanair or Easyjet when value for | money is to be found there) | Tangurena2 wrote: | Prices are also different based on the language you use on | the airlines website. US to EU prices tend to be different | if you use the carrier's native language vs English. | coldcode wrote: | I wanted to go on a trans-atlantic cruise but the one way | return flight (Premium economy, I am too tall for regular 30" | seat pitch) was $2000. Regular economy was closer to | $600-$800. Not even round trip. | switch007 wrote: | Premium economy prices have gone mad. | rrrrrrrrrrrryan wrote: | > airline deregulation shows just how bad command economies are | at planning and allocating resources. | | I'm curious why folks think the failure of command economies in | the pre-digital era carries any weight today. We have orders of | magnitude more data today, and I feel like it should | (theoretically) be possible to use that data to optimize for | things other than maximal profit. | jklinger410 wrote: | An overwhelming amount of propaganda fueled by private | profits. | twoodfin wrote: | What matters is the incentive structure (win, get profits!) | and price signals ("Shut up and take money!") provided by | markets. Improving technology is downstream of those forces. | jjoonathan wrote: | The market wants more banks and fewer airlines. | svachalek wrote: | Every business once it gets out of its rapid growth phase | seems to want to become a bank. Car companies are all | about loans now, "X" is an attempt to turn social media | into banking (and not the first), Google and Apple are | both into payments and other financial services, and the | list goes on and on. | | Either the market has an endless appetite for banking or | capitalism does not in the end deliver what markets want. | twoodfin wrote: | Kinda? The era of technological or business innovation | for large airlines may basically be over. If you take | that bet you want the airline you invest in to focus on | financial wheeling and dealing to ensure they save a few | pennies on fuel in 2035 or earn a few more pennies on | affiliate credit card spend in 2027. | jjoonathan wrote: | So you're admitting that innovation _isn 't_ downstream | from market incentives in this case, but financial | wheeling and dealing _is_. I 'm glad we are on the same | page. | bluGill wrote: | I'm admitting there isn't much innovation left in pure | airlines. The customer has spoken, they want cheap | flights. Some are willing to pay for legroom, some are | willing to pay for luggage, [insert a bunch of other | things] but will do without for cheaper tickets. It is | very hard to find any more innovation that hasn't already | been found in this space. Airlines are working on the | things grandparent named because it works to consumer | wants: lower prices. | doublemint2202 wrote: | if we could somehow structure our incentives to be a net | positive for humanity overall, we'd be in a much better | spot | jjoonathan wrote: | Yeah, but markets care less about what _people_ want and | more about what _rich people_ want -- which, by and | large, is to get paid for being rich. | bluGill wrote: | Most of the money belongs to the middle class, not the | rich. So that is what markets mostly work for. | PaulDavisThe1st wrote: | Most of the spending of the middle class, and all of the | spending of the working class, is already spoken for. | | If you want to make money from the middle class, you have | to do better at something than whoever is doing it now. | | If you want to make money from the rich, you just have to | dream up some new twist on their wants (sure, it has to | be executed reasonably well, but you're not competing in | the same way). | | So sure, most of the money that changes hands does so via | the daily/weekly/monthly spending of regular people. But | that's not where the big money is unless you come up with | a truly mass market new thing. The big money is in | providing for the wants of the rich, because the marginal | utility of what they spend on wants is so low to them. | bluGill wrote: | Or you make what the middle class spends money on. This | is generally an easier path. Making something unique can | make money, but generally it is safe to assume if nobody | else is making it, it is because nobody wants it -not | that you are the first with a new idea. | PaulDavisThe1st wrote: | If the middle class spends money on it, then in general, | someone is already making it, has established customers, | distributors etc. This is a high barrier to entry. | mjamesaustin wrote: | The bottom 50% of the population holds 2.4% of all | wealth. | | The top 10% holds 69%. | | https://www.stlouisfed.org/institute-for-economic- | equity/the... | twoodfin wrote: | Wealth (i.e. net worth) isn't the relevant statistic for | how much the market "cares" about a particular | demographic. Aggregate disposable income is. | | A young doctor with $100k in med school loan debt is part | of that "bottom 50%" of wealth but nonetheless an | extremely attractive target for "the market". | rrrrrrrrrrrryan wrote: | By default, company executives are beholden to the | shareholders (i.e. the wealthy). | | In a healthy competitive market, they're _also_ reactive | to customer desires, but when they 're presented with the | opportunity to decrease competition through consolidation | or other means, it's blatantly obvious where their true | loyalties lie. | bluGill wrote: | Most weath in retirement plans. Sure the rich hold them, | but if you are reading this you probably have 401k | and.are part of that. | rrrrrrrrrrrryan wrote: | > Most of the money belongs to the middle class, not the | rich. | | This is easily and provably false. A single-digit | percentage of households holds over well over half the | wealth. | PaulDavisThe1st wrote: | We probably need to differentiate between spending and | wealth ownership. | | Not sure how that breaks down. | brigadier132 wrote: | It doesn't matter how much data you have, it's | computationally impossible to centrally plan an economy. | Having individual agents plan their own economic choices is | much more efficient and elegant (and more importantly, | actually possible). | rrrrrrrrrrrryan wrote: | > Having individual agents plan their own economic choices | is much more efficient | | There's a great deal of inefficiency in our current system | as well, though. | | I suppose I'm talking more about the "how much grain should | we grow this year" sorts of questions that the Soviet Union | failed at. It's almost certainly impossible with early 20th | century tech, but with modern computing it seems like it | might be more efficient to solve by one party with great | resources, rather than by many parties with more primitive | predictive tools. | | When it comes to the discussion at hand, transportation | infrastructure is one of the few areas that's inarguably | more efficient when centrally conducted, which is why our | roads and subways are government-operated, and why the | airlines have an insatiable desire to consolidate. | nradov wrote: | The amount of data is irrelevant. Data by itself isn't | actionable. We don't have a proven theoretical framework that | could be used to turn data into good decisions in a command | economy. Plus it is nearly impossible to command innovation; | command economies have occasionally produced innovations by | throwing enormous resources at particular problems, but for | the most part they are stuck with copying innovations from | free market economies. | rrrrrrrrrrrryan wrote: | > it is nearly impossible to command innovation | | Excellent point. | PaulDavisThe1st wrote: | The problem is that too much of the innovation in our | system targets ways of becoming a new middleman in existing | economic exchanges, because collecting 1% of "all X" is | much more valuable than collecting 100% of "a few Y". | | The incentives to innovate in ways that actually benefit | people are weak in our system, because the disincentives to | innovate in ways that just make you a bit wealthier are | small to non-existent. | cryptonector wrote: | We could have oodles of data and yet not have the data that | matters to making distributed decisions, which is price | signals. | | A modern digital command economy wouldn't have price | signals, but even if it did it wouldn't make decisions like | the individuals would precisely because the point of a | command economy is to deny individuals freedom. And that is | _a_ reason that digital command economies wouldn 't have | price signals: there's little point when the point of the | command economy is to ignore those price signals. | wayfinder wrote: | I wouldn't say airline regulation was a great exercise about | command economies planning and allocating resources. | | The whole point of regulation was to keep prices up so the | airlines wouldn't implode like rail did. It was _not_ meant to | keep prices down. | | So when we got rid of airline regulation, prices went down. | Some airlines did implode, but not as badly as rail did. | | Thankfully for airlines, it seems flying is a lot more | indispensable than riding by rail. | cryptonector wrote: | > Thankfully for airlines, it seems flying is a lot more | indispensable than riding by rail. | | More like air routes are a lot cheaper to change than rails. | Nor do air routes cost millions of dollars per-mile to build. | | And yes, jetliners are several times faster than trains, even | bullet trains, and since rail networks are orders of | magnitude more expensive than airline networks... The whole | thing adds up to air travel being much much much cheaper | _and_ more convenient than rail with relatively few | exceptions involving high population densities. | jandrese wrote: | Airlines had the advantage of not having to compete with a | shiny new industry the way rail did with airlines. I'm sure | airlines would have suffered greatly had we developed cheap | rocket power transport or high speed pneumatic tubes or some | other zany sci-fi transport that left the airlines looking | slow and overpriced. | | Rail in the US died because US cities are far enough apart | that flying made a noticeable difference in travel times, | unlike more compact countries. There's a reason Amtrak only | works well in the relatively dense northeastern seaboard of | the US. | | That said, the airline industry is one where competition | seems to be working pretty well. It's a market success story. | The most efficient market is one where everybody is making | close to 0 profit, and that's a good description of the | airline industry in the past few decades, especially when you | focus on the relatively small part of the airline industry | that deals with flying planes and their passengers. | dools wrote: | > There are probably a bit too few customer and worker | protections, but on the whole, airline deregulation shows just | how bad command economies are at planning and allocating | resources. | | I would say that it demonstrates that, where competition | exists, deregulation can achieve some pretty good results. It's | worth noting that consumers can choose which airline to fly | _every time they fly_ and the cost of switching is non-existent | (absent loyalty programs which is why they 're called loyalty | programs). | | It's also worth noting that since airlines are pretty critical | infrastructure, when there's an economic downturn and the | government bails them out, the government is essentially | subsidising the discounts of the previous 10 years and | generally doesn't do it for the very small airlines that aren't | too big to fail so it's also still a bit government-ish. | AtlasBarfed wrote: | We're going to pretend that airplanes haven't vastly improved | in efficiency and design in 40 years? Or that there isn't | effectively cartel economics in play in the market? That | ticketing / checkin automation / business execution efficiency | wasn't vastly increased by information technology? And the | bailouts that airlines get. Just constant bailouts. | | I will grant you heavy regulation of the 1970s was a price | inefficiency. But I'd need some representation of cartel | market/regulatory capture price inefficiency of the current | situation to compare. I suspect it isn't that much. | | Fuel costs are probably higher, but engine and plane design | efficiencies should have overcome that. IT should be a huge | amount of efficiency in operations, at least 20% of the former | cost. Then we look at how worse service is now and how much | more cramming / leg room reduction, fees, etc. I'd have to know | if you "ticket costs half in real dollars" figure includes | basic "user fees" or not. | | Here's Robert Reich on airline travel: | | https://www.youtube.com/watch?v=eTzaMXXelew | | Yes, the liberals favority economist. But I agree with his | fundamental arguments about modern air travel and the | oligarchical / cartel nature of virtually all of our markets | for goods and services. | cratermoon wrote: | > IT should be a huge amount of efficiency in operations, at | least 20% of the former cost. | | I doubt anyone who has worked as a programmer in the | industry, myself included, would say that IT is hugely more | efficient. The majority of the commercial passenger airline | industry still revolves around Sabre: created in 1960 by | American Airlines and still, to this day, unable to handle | text with diacritics or non-roman alphabets. Everything is | wrappers and layers around Sabre, and Sabre charges for every | transaction. | | In an efficient market, Sabre would have disappeared after | deregulation. Instead, more and more airlines signed on. | [deleted] | ierjtilawj wrote: | Did you read the entire article? Or just the beginning? | | > After a relatively short period of fierce competition, the | deregulated era quickly turned to consolidation and cost- | cutting, as dozens of airlines either went bankrupt or were | acquired. | | > Deregulation even failed to deliver the one thing it is | sometimes credited with: lowering prices. Airfare did get | cheaper in the years after the 1978 deregulation law. But the | cost of flying had already been falling before deregulation, | and it kept falling after at about the same rate. | adamisom wrote: | > But the cost of flying had already been falling before | deregulation, and it kept falling after at about the same | rate. | | What a bizarre argument, that absolutely demands more | examination than a throwaway line upon which the entire | premise of the piece hinges. | | There's lots of reasons why fares would be falling in the | early days that you wouldn't expect to continue for decades. | Yet the author seems content to pretend there's some | mysterious factor that causes prices to fall for decades that | we can infer from just a few year's data. From first | principles, you should always expect that regulation | increases prices and the burden of proof is to argue why it | would not. Embarrassing that the author is a professor and | didn't bother making a proper argument. | | A key argument that led to deregulators winning is showing | that intra-state fares--which were not federally regulated-- | were about 40% cheaper than one might expect when comparing | to interstate. Anyway, there are articles that go into | various reasons why deregulation very probably substantially | decreases fares. | pyrolistical wrote: | > From first principles, you should always expect that | regulation increases prices and the burden of proof is to | argue why it would not | | I don't see how that is true. | labcomputer wrote: | In this case it is trivially true because the CAB indeed | did set the _minimum_ price that an airline could charge | (mainly to avoid railroads going bankrupt--when Amtrak | took over passenger rail, that fig leaf was removed) | | Air travel was glamorous because if you can't compete on | cost you compete on service. | mulmen wrote: | That's only true if there were airlines that charged the | minimum and would have charged even less in the absence | of the regulation. The existence of the regulation is not | proof of that alone. | AnthonyMouse wrote: | The existence of the regulation is evidence of that in | itself, because the alternative would be that someone for | unexplained reasons put in the time and effort to pass a | regulation that has no effect. | sdvnwsdf wrote: | Regulation has to increase some expenses. If nothing else | it's one more thing on the todo list and time has a cost | too. | | Note: I'm not saying anything about cost/benefit. It | could definitely be true that the benefits are well worth | the cost. And it could also be true that a benefit is a | lowering of an expense somewhere else lowering overall | prices. (which is the thing that is not obvious and need | to be explained) But there is a cost that needs to be | covered by something. And that cost is usually going to | result in increased prices in one form or another. | PaulDavisThe1st wrote: | Currently, when you carry out task Foo, you perform steps | A, B, C and D. Regulation is introduced which says you | cannot under any circumstances omit step C. | | No increase in expenses. | julienb_sea wrote: | Even if no one is skipping step C, the enforcement | mechanism requires auditing. If there exists an | alternative to step C, is it compliant with the | regulatory requirement? The regulation itself introduces | legal risk which needs to be mitigated. So yes, it | increases expenses. | PaulDavisThe1st wrote: | Those expenses are on the part of the regulator, which is | funded differently. As a society, we may be paying more | to say "you must do step C", but as a customer or | provider of Foo, there's no change. | riatin wrote: | No? Entities don't get to write off the cost of being | audited, there's a very real expense associated with both | documenting the regulated process in a compliant manner | and working through the audit process with the relevant | regulatory body. | mulmen wrote: | Let's label the steps. | | 1) acquire airplanes | | 2) acquire pilots | | 3) plan routes | | 4) set prices | | 5) acquire customers | | Seems to me regulations that set prices actually save a | step. | owisd wrote: | You can be regulated _not_ to do something, for instance | if the regulator banned airline loyalty schemes then none | of the airlines would have the cost of administering | those schemes, or the cost of competing against each | other on perks, so the total amount people spent on | airlines would go down. | francisofascii wrote: | Not always. Some regulations set price ceilings, which is | essentially sets a lower prices than the market rate. | This leads to shortages, of course, but it is the obvious | counter example. | metabagel wrote: | Some regulations limit prices or price increases, or | create a more favorable environment for consumer price | negotiation. | | Some regulation may lead to negligible higher prices, so | it bears asking not just is there an effect, but what is | the magnitude of the effect. If minuscule, then we can | ignore it. | AnthonyMouse wrote: | > Some regulations limit prices or price increases, or | create a more favorable environment for consumer price | negotiation. | | Even these regulations can increase prices, for example | by driving market consolidation or reducing price | transparency and increasing overhead as people devise | convoluted workarounds. | | Price controls also have a tendency to create shortages, | causing the product to only be available via black | markets that carry a risk premium (and so high prices). | | > Some regulation may lead to negligible higher prices, | so it bears asking not just is there an effect, but what | is the magnitude of the effect. If minuscule, then we can | ignore it. | | A regulation setting a maximum price of a trillion | dollars would have negligible negative impact because | nobody would charge that much anyway, but it would also | have negligible positive impact because nobody would | charge that much anyway. You can obviously pass a | regulation that does nothing and then it does nothing. | | Customers prefer lower prices all else equal, so that's | what they'll choose when all of the options are on the | table. Prohibiting certain things only takes options | away. If they weren't the lowest cost options to begin | with then prices may not increase, but then you have to | ask why anybody would have chosen that to begin with over | the thing that costs less. If the thing you prohibit | _was_ the lowest cost option, prices go up. | adrr wrote: | Regulation can drive up certain cost but the whole | economic cost can come down at the same time. On the | other side you have technology driving down the cost. | | Cars are a good example. They've been dropping in price | historically as the government adds on more regulation. | [deleted] | bluGill wrote: | Because regulatory capture is a thing, and in absence of | competition your goals are often to increase your costs | which in turn means that you can charge more while still | appearing to maintain a small profit margin. | | It doesn't need to be higher prices, but regulation tends | to bring in enough distortion that isn't transparent so | we cannot know what a proper price really is. | inquirerGeneral wrote: | [dead] | mxkopy wrote: | > From first principles, you should always expect that | regulation increases prices and the burden of proof is to | argue why it would not. | | This reads like: | | From first principles, you should always expect that adding | lines of code increases the time it takes to execute and | the burden of proof is to argue why it would not. | | Just like code, economies can be made more complex, which | can increase their efficiency. | dmonitor wrote: | > From first principles, you should always expect that | adding lines of code increases the time it takes to | execute and the burden of proof is to argue why it would | not. | | I would also argue this is true? Assuming more lines of | code directly translates to more CPU instructions | [deleted] | metabagel wrote: | No, it's not true. You can add lines of code which use a | more efficient algorithm. | _gabe_ wrote: | > You can add lines of code which use a more efficient | algorithm. | | Yes, so the burden of proof is on the algorithm. Adding | more lines of code, by default, makes the code slower. | _If_ the algorithm is more efficient, it can make the | code faster. But it _must_ be more efficient. | | This logic seems to hold up to me, but maybe I'm missing | something here? | michaelmrose wrote: | Having more lines of code doesn't even reliably map to | having more machine instructions let alone time | complexity of solution. Given 2 programs lines of code is | a measure so worthless that no reasonable evaluator would | start with the assumption that the smaller solution is | faster and work from there. They would instead start with | the actual code. The point of the analogy which is easily | lost in comparing the mechanics of the actual thing is | that you must in truth examine the regulation to discern | if it on overall makes things more expensive rather than | starting off by making the assumption that it does. | sahila wrote: | Of course it's not always true but I think there's an | implicit assumption of "all things equal". The same | efficient algorithm written in more lines of code vs less | lines of code would be less cpu instructions in the | latter. | AdrianB1 wrote: | Cost of flying was dropping continuously in the past 50-60 | years and it has less to do with competition but with | advances in the industry. While many planes 60 years ago | had 4 people in the cockpit (pilot, copilot, navigator and | mechanic officer), now they reduced it to 2 (navigator no | longer needed with inertial navigation and later on GPS, | mechanic officer no longer needed as planes are more | reliable and have more sensors and automation). Also the | fuel consumption, the biggest cost today, decreased with | every generation of engines, time and time again. | cyberax wrote: | Look at European budget airlines like Ryan Air. They | achieve low prices through business model streamlining, | not through technical advances. | metabagel wrote: | Inferior service is usually cheaper. | hef19898 wrote: | Plus, on average on the whole cabin, budget airlines are | that much cheaper than others. There is a floor of what | an average ticket can cost, defined by operating cost of | an aircraft. And not even Ryan Air can ignore those | without loosing money. | cyberax wrote: | Sure. And Ryanair does everything to lower down that | cost: they operate only one type of aircraft and they do | maintenance themselves instead of contracting it out. | mlindner wrote: | Yes let's force people who can't quite pay enough to no | longer be able to fly... | cyberax wrote: | Their service is not inferior for its price. | | Ryanair allowed me to fly across the Europe for $15 back | when I was a poor student. It was either this, or not | flying at all. | tomrod wrote: | > Embarrassing that the author is a professor and didn't | bother making a proper argument. | | People are people. Your argument is strong enough without | the ad hominem. | timr wrote: | It's not an ad hominem. OP is saying that the person's | entire job in writing such an essay is to think and make | intelligent arguments about this particular area, and | they have failed to do so in an obvious and silly way. | | It's just like saying _" embarrassing that $person is a | firefighter and set their home on fire playing with | matches"_ would not be an ad hominem. | | An ad hominem would be: _" embarassing that $person is a | Harvard grad, making such an argument."_, or _" of | course, we can expect such reasoning from someone writing | an article for $publication"_ | staunton wrote: | Actually, an ad hominem is when you try to discredit _an | argument_ somebody made by attacking that person. | | The example you cite seems closer to attacking a person | based on their arguments being (perceived or claimed to | be) bad. If you say "embarrassing an XY grad would make | such a stupid argument" it will only discredit _the | argument_ if I believe XY graduates are stupid (I guess | the $publication example aims at this). Meanwhile, if I | don 't see why the argument is bad and don't have a bad | opinion of XY, your statement is entirely unconvincing. | tmpX7dMeXU wrote: | You don't just get to say "from first principles" and then | put forward your obviously-American POV as some immovable | basis from which everyone else should be arguing from. | | Regulation routinely reduces cost. It's all to do with the | nature of the regulation. Only one party is incentivised to | say trot out this "regulation is bad" BS and its businesses | that want to operate in an ancap utopia because they | weren't lucky enough to make regulatory capture work for | them. It's always disappointing when individuals get swept | up in believing this tripe. | AnthonyMouse wrote: | > Regulation routinely reduces cost. | | Can you provide an example of this actually happening in | a competitive market? | | > Only one party is incentivised to say trot out this | "regulation is bad" BS and its businesses that want to | operate in an ancap utopia because they weren't lucky | enough to make regulatory capture work for them. | | Businesses that want to challenge an incumbent who | _succeeded_ in making regulatory capture work for them | would be an obvious counterexample, and for the same | reason the customers who want to see the challenger | succeed in making the market more competitive. | patmcc wrote: | >>Can you provide an example of this actually happening | in a competitive market? | | Tobacco companies probably made a bunch more money as | aspects of their advertising became | restricted/regulated/banned - because they were basically | in an arms race with one another and spending more and | more to maintain market share. But that is a pretty | specific case, I'm not going to make any claim that's | general or applies to airlines. | | https://www.nytimes.com/1989/01/02/business/the-media- | busine... | AnthonyMouse wrote: | Making more money doesn't imply that they lowered prices, | and in general the relationship is the inverse. Also, | they did not lower prices: | | https://fred.stlouisfed.org/series/CUUR0000SEGA | b59831 wrote: | > Regulation routinely reduces cost. | | This is just plain wrong. Outside of monopolies (very few | cases) regulations increase cost. | | Now, there are things more important than cost but that | is a different argument | Brusco_RF wrote: | >Regulation routinely reduces cost | | What? No they don't. Not without considerable adverse | effects at least. You're not referring to price ceilings, | are you? | flangola7 wrote: | [flagged] | WalterBright wrote: | > The Civil Aeronautics Board decided which airlines could fly | what routes and how much they could charge | | In this era, it was commonplace to fly with only a few | passengers aboard. Full flights were rare. Immediately after | deregulation, the flights became routinely full. | | I.e. the airlines became far more efficient and served the | flying public much better. | riscy wrote: | that could only happen because of service reductions along | routes. that gives the public fewer options for when they fly | and makes them less comfortable being crammed into planes | with ever tinier seats. doesn't sound like a benefit to me. | | the benefits to society is in terms of reduced fuel | consumption, only because that's directly aligned with the | airline's profits. | LudwigNagasena wrote: | > the benefits to society is ... only because that's | directly aligned with ... profits. | | Yeah, that's the magic of capitalism. You make society more | efficient and get paid for that. | | You say that being crammed into planes isn't a benefit. But | the opportunity costs should be taken into account. Every | resource not spent on airlines is a resource spent on | something else. | WalterBright wrote: | Airplanes crammed full of people are a _lot_ more fuel | efficient per passenger than one mostly empty. | WalterBright wrote: | The benefit to customers was the planes were directed to | where the customers were and flew to where they wanted to | go. There was not a sudden decrease in aircraft flying. | | > the benefits to society is in terms of reduced fuel | consumption, only because that's directly aligned with the | airline's profits | | Companies don't burn fuel for fun. The fuel is about 40% of | the cost of your ticket. Increased fuel efficiency is the | major driver of new airline designs. | autoexec wrote: | > The benefit to customers was the planes were directed | to where the customers were and flew to where they wanted | to go. | | FTA: "Worse still, without mandated service, cities and | regions across the country have lost commercial air | service" | | It sounds like planes stopped being directed to where | customers were and no longer fly to where they wanted to | go in many instances. This is not a win for the consumer. | bluGill wrote: | The places that lost service were small population areas | that nobody wanted to fly to/from. Places that people | want to fly get service, and it is a lot cheaper as they | don't have to subsidize empty flights where nobody wants | to go. | nradov wrote: | Congress still subsidizes airlines to fly to some smaller | airports through the Essential Air Service program. It's | not a mandate; airlines can choose whether to | participate. | | https://www.transportation.gov/policy/aviation- | policy/small-... | twoodfin wrote: | Planes stopped being directed where _Congressmen_ wanted | them to fly. | autoexec wrote: | Congressmen who are elected to represent the will of the | people and serve in their interests. I'll take that over | the airlines who serve only themselves and whose only | motivation is to take as much money from the public as | possible. | WalterBright wrote: | > the will of the people | | is not at all the same thing as having a choice. | vxNsr wrote: | Right, because famously, politicians are totally selfless | and never do anything self-serving. | autoexec wrote: | When are aren't doing their job to our liking, we have | the ability to remove them and replace them. Try doing | that with the CEO of an airline. | hiatus wrote: | An individual has about as much power in either case. How | many congress people have been removed at your bidding? | jefftk wrote: | An individual has more power in the airline case: you can | fly a different airline much more easily than you can | move to a location with a different representative. | WalterBright wrote: | > without mandated service, cities and regions across the | country have lost commercial air service | | Yes, because nobody wants to run a business at a loss. | | > It sounds like planes stopped being directed to where | customers were | | You're assuming the airlines are stupid. The fact that | the airplanes were often nearly empty under regulation | and nearly always full when unregulated is pretty strong | evidence they were serving a far larger number of | customers. | autoexec wrote: | > Yes, because nobody wants to run a business at a loss. | | Which is why some important services (like the post | office) shouldn't be run as businesses. | | > The fact that the airplanes were often nearly empty | under regulation and nearly always full when unregulated | is pretty strong evidence they were serving a far larger | number of customers. | | They are serving a far larger number of customers in | areas A and B while now serving zero customers in areas C | D E F and G. It might be far better if fewer people in | areas A and B could fly if it meant that more people in | the other areas could. | | Airlines aren't stupid they are just doing everything | they can to deliver the least to the public while | charging the most they can extract from the public. Also, | it isn't as if the changes airlines made to fill up seats | couldn't have happened under regulation, or even that | they never would have. | bombcar wrote: | If you want a similar situation, look at Amtrak - it has | stops in tiny towns that may see less than fifty | disembarks/embarks a year, but it's nearly impossible for | them to close the station or not stop there. Many times | it'd be cheaper for Amtrak to hire a car to drive the | people who use that station to the next station, but | they're not allowed to reduce service because those small | towns complain loudly. | HelloMcFly wrote: | > It might be far better if fewer people in areas A and B | could fly if it meant that more people in the other areas | could | | How "might" it be "far better" to the public at large for | airlines to serve fewer people at a higher cost? | | > Airlines aren't stupid they are just doing everything | they can to deliver the least to the public while | charging the most they can extract from the public. | | If they did as you suggest, they'd be demonstrably and | measurably delivering FAR less to the public while | charging even more money. You're arguing in both | directions! | autoexec wrote: | > How "might" it be "far better" to the public at large | for airlines to serve fewer people at a higher cost? | | For the same kinds of reasons it's better for the post | office to serve people in remote areas at higher cost as | opposed to leaving them without service and cut off. The | same reasons why it's better for more Americans to have | access to broadband, not just the Americans who live in | the areas that would make ISPs the most profit. It can be | worth it to spend more money when it means providing | access to important services to more Americans vs a | select few. | | > If they did as you suggest, they'd be demonstrably and | measurably delivering FAR less to the public while | charging even more money. | | Which is exactly the case. They ARE delivering less. Less | access by only providing service to the locations which | give them the most profit. Less leg room so that they can | cram more people into every flight. Less service by | cutting staff. Giving passengers fewer options/less | choice. Allowing less baggage. Flights are increasingly | canceled and delayed. Customer satisfaction gets lower | and lower all the time. They are giving us less. | | They are also charging more and more. Airline tickets are | skyrocketing, outpacing inflation. Even as the service | airlines provide keeps getting worse and worse, the | prices keep getting higher, and higher but there are also | the endless bullshit fees for everything they can think | of (https://www.elliott.org/on-travel/hidden-airline- | fees-are-ev...) which are often hidden. | WalterBright wrote: | You're suggesting that it's better to serve 10 people at | double the price instead of 100 people at half the price. | Never mind the enormous environmental cost of this | inefficiency. | | > they are just doing everything they can to deliver the | least to the public while charging the most they can | extract from the public | | If you are sure they are gouging and making excessive | profits, buy stock in the airlines and get your share. | | > it isn't as if the changes airlines made to fill up | seats couldn't have happened under regulation, or even | that they never would have | | They had 40 years to fix it and never did. The airlines | fixed it overnight. | autoexec wrote: | > You're suggesting that it's better to serve 10 people | at double the price instead of 100 people at half the | price. Never mind the enormous environmental cost of this | inefficiency. | | Yeah, I suggesting that at the very least it could be, if | it means more Americans have access to an airport and | airlines served a larger percentage of the country as | opposed to only the areas that generated the most profit | for them. | | > If you are sure they are gouging and making excessive | profits, buy stock in the airlines and get your share. | | This wouldn't be the worst time. They suffered during the | worst of the pandemic but are profitable this year. | They'll be looking to claw back the profits they missed | too so I expect prices and fees to continue to soar. | callalex wrote: | I'm replying here since the other comment is too deep. | | Congress very specifically, by design, does NOT represent | the will of the people. It represents the will of land | area. Even the part that was originally supposed to be | representative of population no longer is due to | shenanigans, and also over-represents land instead of | people. We probably shouldn't get into the pros and cons | of this system here, but I did want to correct your | fundamental misunderstanding. | [deleted] | autoexec wrote: | The main difference is that if you don't like how | congress runs something, you can vote in someone else. | You can't vote out the CEO of Delta Airlines. You are | powerless and should expect the airline to treat you as | such | daniel-cussen wrote: | [dead] | [deleted] | SoftTalker wrote: | Or you can fly United, or American, or... | autoexec wrote: | That assumes you have the option. Not all airlines fly to | all locations. They love to carve up route maps and build | up fortress hubs to prevent competition. | PaulDavisThe1st wrote: | Do they fly out of the airport I normally depart from, or | any other that is within a 2 hour drive? | Spooky23 wrote: | The downside of that development is that it created an | unsustainable market. | | So you have an industry that periodically starts a fare | war that requires federal bailouts. | nradov wrote: | There is no _requirement_ for federal bailouts. Large | airlines have at times been allowed to go bankrupt, and | that 's fine. | Spooky23 wrote: | They've also been allowed to consolidate to the point | that they are too big to fail. | nradov wrote: | Bankruptcy doesn't mean failure for large airlines. The | shareholders get wiped out and bondholders take a haircut | but the airplanes keep flying during the bankruptcy | resolution so it's fine. | JumpCrisscross wrote: | > _an industry that periodically starts a fare war that | requires federal bailouts_ | | American airline tickets contain a 7.5% excise tax, $5.60 | per-trip September 11th fee and another excise tax of $4 | per flight segment. (That's in addition to the usual | sales, payroll and corporate taxes.) Taking just the | former, I'm curious what the net give/take ratio is. | Because it might be argued that we run our airlines as an | indirect tax on high earners to fund the jobs program | that is the TSA. | jabroni_salad wrote: | It also happened because airlines were suddenly allowed to | offer discounts to fill seats as the takeoff date | approached. That practice did not exist during the pricefix | era. | tech_ken wrote: | > There are probably a bit too few customer and worker | protections, but on the whole, airline deregulation shows just | how bad command economies are at planning and allocating | resources. | | Isn't each individual airline is itself a command economy, | internally? Many large companies manage their assets centrally, | for example Kroger or any other large grocery chain manages | itself via central planning. Would they function more | profitably if individual store managers were bidding to | "purchase" groceries from the central supplier? The only | datapoint I know of is Sears, which tried something similar and | went down in flames | lucas_membrane wrote: | But Sears gave Donald Rumsfeld a lifetime discount card. | Which brings us to the major government subsidy of US | airlines. People work for airlines at reduced wages to have | available very great discounts on their personal travel, | totally untaxed. Live wherever you want, and commute on the | airline! Second major subsidy is that people who pay or have | their employers pay for airline tickets as deductible | business expenses manage to use their kickbacks (free flights | for repeat customers) for personal travel untaxed. Eliminate | those subsidies and watch what happens. | bpodgursky wrote: | > Isn't each individual airline is itself a command economy, | internally | | Yes. The difference is that an "airline command economy" | collapsing from incompetence is an uneventful bankruptcy, and | a national command economy collapsing means civil war and | anarchy. | tech_ken wrote: | That's a trivially true statement for any descriptor which | can be applied to both a business and a nation? National | economic collapse generally means civil war and anarchy in | almost any case. | cryptonector wrote: | > Isn't each individual airline is itself a command economy, | internally? | | Perhaps, but in competition with others. Governments compete | too, but the cost of switching brands is inordinately high, | so the competition there is too weak to generate better | results among the various governments. | cyberax wrote: | > Isn't each individual airline is itself a command economy, | internally? | | The difference is that airlines, no matter how large they | are, have to deal with the reality via market forces. So | there's a feedback mechanism that will eventually point out | if your commands are correct. | | Command economies (or sectors of economies) don't have such a | mechanism, so they can stay inefficient forever. | tech_ken wrote: | >or sectors of economies | | I would argue that the energy sector of most developed | nations as a counterexample. I think we can go back and | forth all day about the extent to which they are true | command economies, but the ultimate point that natural | monopolies can and often are successfully managed by | nations in a centrally-planned manner I think is clear. | aradox66 wrote: | 40 years is a long time, there's not really a viable | counterfactual here | debo_ wrote: | Is "All businesses eventually become financialized" the business | equivalent of Zawinski's Law[0]? "Every program attempts to | expand until it can read mail. Those programs which cannot so | expand are replaced by ones which can." | | [0] https://en.wikipedia.org/wiki/Jamie_Zawinski#Zawinski's_Law | objektif wrote: | I have to say airline travel is the worst experience out of | anything I do in my daily life. Something has to change here. | cvalka wrote: | The author hasn't heard about southwest. | bitwize wrote: | So airline points are basically a CBDC. Neat. | snarf21 wrote: | This is not surprising .. A lot of department store retailers | used to (still?) lose money on sales but push hard for all spend | to be on some store credit card and make all their money there | including accounting for the loss via sales. | some_random wrote: | >Is this a good deal for the American consumer? That's a trickier | question. Paying for a flight or a hotel room with points may | feel like a free bonus, but because credit-card-swipe fees | increase prices across the economy--Visa or Mastercard takes a | cut of every sale--redeeming points is more like getting a little | kickback. Certainly the system is bad for Americans who don't | have points-earning cards. They pay higher prices on ordinary | goods and services but don't get the points, effectively | subsidizing the perks of card users, who tend to be wealthier | already. | | It sounds like their actual issue is CC fees, so why not write | about that? Why not demand congress institute fee maximums or | something? Meanwhile, I still don't understand what the actual | harm is in airlines being "quasi-banks", other than these fees | which are not set or managed by airlines. | yborg wrote: | >what the actual harm is in airlines being "quasi-banks" | | The word "air" in "airline" implies that the main purpose of | the business is to move passengers and freight via aircraft. If | the main purpose of the business is to generate credit card | swipe fees it will probably not do a good job at moving | passengers and freight through the air since that part of what | it does doesn't generate most of the profits. And we've seen | this already with the onerous fees and packed planes that are | the standard model now ... because each airline has a captive | population that flies it because that is where their points | are. | some_random wrote: | Are the fees because of lock-in from credit card points, or | are they just airlines squeezing as much money out of | customers as possible? I'm not convinced it's the former in | the slightest. It's also worth noting that much of these | onerous fees and cramped accommodations are not applied to | their high mileage customers who by your logic are the most | locked in. | aldebran wrote: | The CC interchange rate is fixed in Europe but not in the US. | Should they be? ;-) | some_random wrote: | I have no idea, but that would be a much more compelling | article than this | thmsths wrote: | Every time the subject of credit card rewards and the | associated credit card fees come up, there is a suggestion that | maybe this is a hidden and unfair tax on the economy that we | ought to eliminate. This is arguably a fair point. But in | practice I don't believe that we will see the prices go down by | 2/3% if we regulate these fees like the EU did. The only thing | that will disappear is the rewards. So in my opinion a net | positive for the sellers that will be able to effortlessly | increase their margins but a small negative for the consumer. | staringback wrote: | If a business is willing to offer a discount for paying with an | alternative method, they are free to do so. | 6stringmerc wrote: | HEB makes / made a fuck ton of money in Texas - specifically DFW | - buying property and selling it when people find out HEB bought | it and potentially could put in a location of some sort. I mean | it's good business sure. Ruthless? Kinda. | suckitsam wrote: | Forget crypto; let's replace The Fed with SkyMiles(tm)! | motohagiography wrote: | Subsidising flight costs with what is essentially a mix of | futures options and a lottery in points systems is probably | beneficial all around. The diversification keeps prices down, and | maintains it as a viable business. I'd wonder what other defacto | utilities could add similar features. | | A market for options on road pricing would be useful, last mile | internet service needs something more than | surveillance/advertising. | dncornholio wrote: | This article makes no sense. | | > They make more money from mileage programs than from flying | planes--and it shows. | | I spend 15 minutes of my time trying to find where is shows but I | couldn't. All I can see is you get points from spending money and | the difference now is, people get less points and perks. | AnimalMuppet wrote: | Perhaps they meant that it shows in how bad the experience of | actually flying is. | surfingdino wrote: | Any sufficiently large commercial organisation is a bank. | Starbucks, airlines, utilities... | RajT88 wrote: | I think Doctorow said something along those lines, no? | | "Any sufficiently advanced technology ends up regulated as a | bank" or similar | griffinkelly wrote: | It's been funny to me that the mileage calculations oftentimes | have no tie to the trip mileage--I'm a civilian pilot and often | track the flight via foreflight. I'm a frequent filer on United, | and I've often wondered the crazy math they come up with to get | the number of 'miles' I earned--as the article says I think its | purely based off of dollars now despite United also having | 'premier qualifying points' which is directly tied to dollars | spent. | ghaff wrote: | PQP used to be tied to miles ( with adders for business/first) | so miles were used for status and points. Now, except for | lifetime miles, it's all just dollars. | sokoloff wrote: | I'm not as familiar with United's program, but Delta's earning | of miles redeemable for awards is entirely based on a | multiplier of money spent. | | United's appears that way for typical tickets on United/United | Express metal as well: | https://www.united.com/ual/en/us/fly/mileageplus/earn-miles/... | schainks wrote: | Relevant video: https://youtu.be/ggUduBmvQ_4 | asah wrote: | What's lost about dereg, is that dereg inspired waves of | entrepreneurs and inventors which regulation stifled. | | No, I will not produce evidence for this absurdly obvious point. | feoren wrote: | Go find a cross-section of things random internet strangers | consider "absurdly obvious" and you'll start to understand the | need to provide evidence. | | Fun fact: did you know that different regulations are | different, and produce different outcomes? What waves of | entrepreneurs and inventors are stifled by the regulation that | you can't dump arsenic in rivers? | somethingsidont wrote: | One of my favorite YouTube videos on this subject: | https://www.youtube.com/watch?v=ggUduBmvQ_4 | | Key point: airlines are more powerful than normal banks - they | are central banks, with complete control of the money (point) | supply. On the trilemma [0], they chose to control the exchange | rate (points to flight value) and have an independent monetary | policy (how many points to issue to flyers or other buyers). | | [0] https://en.wikipedia.org/wiki/Impossible_trinity | rawgabbit wrote: | When fliers realize points-miles are a fool's errand, they will | simply ignore them and go back to only considering price, | flight time, number of stops, and customer service. | | Points-miles are a way for airlines to lock and keep their | customer base while treating their customers like cattle. | Throwawayh89 wrote: | Hasn't this been true for decades at this point? | next_xibalba wrote: | Is anyone else annoyed by headlines like this? It's clickbait | adjacent "Counterintuitive, I must click to learn more." | | But the reality is, airlines are still airlines. They fly people | from A to B, employ many thousands of pilots, flight attendants, | baggage handlers, etc. In other words, no, they're not banks. Not | by any normal definition. | slavboj wrote: | At a certain size, every business becomes a bank - stable | businesses usually get more marginal return from optimizing their | capital structure than actual product development. | paulusthe wrote: | As someone who has studied financial crashes extensively, I | agree with you but worry that we lack the regulations. All | these bank-ish companies offering credit cards are having | impacts on the money supply (every loan they issue becomes an | asset somewhere), and at some point their interconnections with | the financial system are going to become a risk. I assume most | to all fund their loans with money market borrowing, for | example. | | Then there's the broader question of whether this is good for | productivity. If every company is a financial company, who | actually makes tangible stuff? | kylebenzle wrote: | When you triple the money supply every couple years what's a | few extra trillion here and there? | | /s | | Hyperinflation is coming, the kind that will be THE central | issues for everyones life for awhile. When it happens it | won't be these guys fault. I would not blame airlines and | home Depot credit cards for the coming hyperinflation, just a | symptom of its approach. | TheGigaChad wrote: | [dead] | rcarr wrote: | What makes you think hyperinflation is coming? If anything, | inflation seems to have peaked and is now starting to fall. | The only way I can see hyperinflation happening is if | there's another major conflict, climate change causes some | major simultaneous disasters, or some kind of black swan | event like another pandemic. Of course, individual | countries might see hyperinflation if they're mismanaged | (e.g Argentina right now) but I can't see it happening | globally except in the cases listed above. | adolph wrote: | > If anything, inflation seems to have peaked and is now | starting to fall. | | Before folks make comments about currency still inflating | (gerund), let us stipulate that the noun "Inflation" is a | positive rate and the rate has recently decreased. Let us | all be thankful that there exists some amount of | inflation which in a broad sense reflects a growing and | dynamic world (how closely remains to be seen) as opposed | to deflation. | NoMoreNicksLeft wrote: | How does hyperinflation even work in a country like the | United States, in an age like ours? | | If you needed a wheelbarrow of cash to buy break at the | bakery, it was still true that there was a tiny downward | pressure from the baker in that the bread would eventually | rot, so he might as well sell it now if they were just shy | of the asking price. | | If everyone's buying household goods off of Amazon, their | pricing algorithm will never be even that much forgiving. | | When it last happened here, many workers were still being | paid in cash as soon as the timeclock whistle went off on | Friday. Now everything's direct deposit, but not | necessarily instantaneous. At my last job, the funds were | released at midnight that payday, but with the current job | for some reason they're not released until the morning | (business open, I imagine). | | Are people going to starve, because they have the wrong | bank and the money's not there for several hours before | everyone else's and it has lost too much value? | some_random wrote: | What do you mean when you say these companies are offering | credit cards? Aren't those cards still managed by Visa, | Mastercard, AMEX, or Discover? My understanding is that | they're just running the rewards system and putting their | name on the card. | lotsofpulp wrote: | Visa and Mastercard just operate the network, they do not | control the funds or take on any credit risk. Amex and | Discover do operate as lenders, and also operate the | network. | some_random wrote: | Right, but what's the risk to the financial system | paulusthe was talking about above in an airline | partnering with Chase and Mastercard to to offer a credit | card? The lender in all cases isn't going to be the | airline, right? | lotsofpulp wrote: | For sure, the airline is never the lender on a branded | credit card, and takes in no credit risk. It will be a | licensed a bank. | seanhunter wrote: | That's not what a bank is or does. | lxgr wrote: | Not every large business effectively takes customer deposits of | that magnitude, though. | | Starbucks is another good example of one that does (with gift | cards instead of points); Amazon might be another. | purpleflame1257 wrote: | Starbucks isn't making extra money directly when you load a | Starbucks card, though. They "make" money when you leave a | balance on the card. | lxgr wrote: | They're definitely making money: You pay them the full | amount of the gift card upfront, in exchange for coffee | later. That's an interest-free loan to Starbucks, and these | have a monetary value these days! | | > They "make" money when you leave a balance on the card. | | In many US states, the money interestingly goes to the | state in the end when unused, under a common law doctrine | that doesn't exist in many other countries: | | https://en.wikipedia.org/wiki/Escheat | | In that case, there is no breakage income for the gift card | issuer, but the interest free loan, together with people's | tendency to spend higher total amounts at the same merchant | when using gift cards, still makes them an amazing deal to | the issuer. | | I suspect that there's also a non-negligible benefit being | exploited in the form of differences in subjective value | between gifter and giftee: In a nutshell, the gifter spends | more money than they normally would at a store they | frequent, or viewed from the giftee's perspective, they | spend "money" at a company they normally wouldn't. | eszed wrote: | "Directly"? Isn't the point that they get to invest the | money their customers add to their cards, for whatever time | Starbucks hold it? That some customers also fail to redeem | the balance is for them a bonus, but not what the | "Starbucks is a bank" comment addresses. | lxgr wrote: | > That some customers also fail to redeem the balance is | for them a bonus | | Starbucks does not get to keep unredeemed balances | indefinitely in most US states! | slavboj wrote: | Any large manufacturer or retailer is in the credit business | - taking credit from their suppliers and extending credit to | their customers. | BiteCode_dev wrote: | I'm flabbergasted that points are not considered taxable at this | point. | dehrmann wrote: | Not really. | | They're like banks in the same way insurance companies are like | banks and can make make money on the float. | | That's not what this is saying. I'm not sure what it's saying. | It's a cutthroat industry where infrequent travelers (and there | are a lot) have driven margin for economy seats booked early to | almost zero. So you make money on premium services and loyalty | for customers that are less price sensitive. Thinking about miles | like a real currency gets you lost in the weeds of what's just a | complex loyalty program. | killjoywashere wrote: | With LEO constellations coming online rapidly, I think it's time | the railroads start competing for pax travel again. Start at the | high end. My dad worked for BN and I remember the corporate | business car: walnut paneling, frosted glass, brass, comfortable | seats. I would totally take that: package up the cost of hotel, | half the airfare, and meals, and have your offsite, workshop, or | other in-person event on the train. | ant6n wrote: | If you put 10 passengers in one fancy business railcar, it will | cost 50c/km and reduce greenhouse emissions relative to flying | by half rather than by a factor of ten. | | Night/hotel trains only make sense with decent density. | finfrastrcuture wrote: | I'm not one to wear a tin-foil hat, but the timing of this piece | is interesting. the Credit Card Competition Act (CCCA) may be | lumped into the upcoming spending vote [1]. basically, this would | end card rewards under the premise that merchants would pass | along interchange savings to consumers. the same argument was | made for debit, yet of course the savings never materialized. | | 1. | https://subscriber.politicopro.com/article/2023/09/senator-t... | joshstrange wrote: | > basically, this would end card rewards under the premise that | merchants would pass along interchange savings to consumers. | | I mean, I wouldn't expect merchants would lower prices by <2% | but maybe they waited longer to raise prices later? I mean | debit cards are cheaper than credit cards but not by much the | last time I looked (like ~1% cheaper, around 2% vs closer to 3% | for CCs). | neonate wrote: | http://web.archive.org/web/20230921191028/https://www.theatl... | | https://archive.ph/A8cxk | jacknews wrote: | "the blame ultimately lies with Congress." | | For de-regulating? Sure. But it shows that market capitalism is | actually the problem, and governments are to blame for not | managing, harnessing, and policing it stringently. | RajT88 wrote: | Dunno why you're getting downvoted from this. All that | deregulation did increase America's GDP, but at the cost of | income inequality and lack of real wage growth for most. | | If you're lucky enough to get into a profession for upper- | middle class people, you'll be in good shape (like most of the | people on this forum). Most people don't make it. Perhaps | that's where the downvotes come from, is the tendency of people | to think subconsciously, "I did it; everyone else can too, it's | not that hard". | jdminhbg wrote: | Cheaper flights didn't cause income inequality. | refurb wrote: | How is capitalism the problem? | | Go back to the 70's before regulation when the government | enforced minimum fares. | | Air travel has gotten _much cheaper_ and far more accessible to | lower income people. | | That sounds like a win for deregulation. | throw1234651234 wrote: | I thought this was going to be about over-leveraging. Aka banks | loaning out more than they have. Aka airlines overbooking seats | on a flight in hopes people don't show up. I saw 6 people told | there is not enough space for them on a recent flight. | bluedays wrote: | I remember when I was younger when planes didn't fill | completely. You'd have so much room. You always prayed your | seat mate didn't show up. Times have changed for sure | GuB-42 wrote: | Frequent flyer programs can be seen as bribery. | | Here is the thing. Often, when travelling for work, the company | pays for the flight, but the traveler get the points, the | traveler can then use the points for personal travels. | | Maybe the frequent flyer programs are worth more than the | business of flying planes, but without business travel expenses, | my guess is that you wouldn't have these bank-like frequent flyer | programs. As the article mentions, these are just kickbacks. | lysecret wrote: | Bribery, or tax evasion. | sokoloff wrote: | In the US, it's not tax evasion, because the IRS has declared | it so more than two decades ago: https://www.irs.gov/pub/irs- | drop/a-02-18.pdf | lastofthemojito wrote: | You're correct, but (IMO) it's such a weird stance for the | IRS to take. In response to "is X taxable income?" for | almost all values of X, it seems like the IRS's answer is | yes, if non-trivial amounts of money are involved. | | You sell a couple of items on eBay, yeah it's fine not to | report that as income. But if you sell tens of thousands of | dollars worth of stuff on eBay the IRS would see that as | taxable income. | | Your kid has a savings account with a hundred bucks in it | and they earn a few dollars interest - not taxable! You | keep $100k in a savings account and earn thousands in | interest, yep the IRS gets notified and you pay taxes on | it. | | You earn a handful of frequent flier miles this year after | a couple of trips home to see Grandma? Nah, that's not | taxable. But if you travel multiple times per week for work | and accrue tens of thousands of dollars worth of flier | miles that you get to keep? Not taxable income for some | reason. _shrug_ | sokoloff wrote: | > You earn a handful of frequent flier miles this year | after a couple of trips home to see Grandma? Nah, that's | not taxable. | | Those would never be taxable, as you paid for the miles. | When a company sends you a rebate check for an item you | bought for personal consumption or when you buy a gift | card, it's also not taxable income as it's in exchange | for [post-tax] money that you paid. | | > But if you travel multiple times per week for work and | accrue tens of thousands of dollars worth of flier miles | that you get to keep? Not taxable income for some reason. | | The IRS alludes in their policy statement to the | complexity as being the reason to not treat it as income. | If I flew for work for a decade and accrued a bunch of | miles and redeemed them only later, in what year would | they be taxable? If I mixed personal and business travel | in earning miles, what portions would be taxable and | when? If the miles are subject to a substantial risk of | forfeiture, that would usually be treated the same as | other possible future income which is still subject to a | risk of forfeiture (which is to say: not be taxed until | that risk has collapsed to zero). | lastofthemojito wrote: | > Those would never be taxable, as you paid for the miles | | Good point. | | > If I flew for work for a decade and accrued a bunch of | miles and redeemed them only later, in what year would | they be taxable? | | The year you redeem them I would think. Just like you | don't recognize typically recognize investment gains | until you actually sell and receive those gains. It'd be | nonsensical to tax me on fake airline bucks for an | airline that might be out of business later this year, or | might devalue their points. The (as I would see it) | taxable benefit occurs when I successfully redeem those | fake airline bucks for a real, valuable service. | | > If I mixed personal and business travel in earning | miles, what portions would be taxable and when? | | Seems like you'd need to maintain separate accounts, so | when you redeem them you say, "yeah I'm using 20k points | from my personal account and 30k from my employer-paid | perk account, knowing I'll be taxed on the current value | of the 30k taxable points". | | Overall it does seem like a PITA, it's just funny to me | because "this is too much of a pain to deal with so let's | ignore it" doesn't seem like something the IRS usually | says. I suppose overall the issue must be (as another | commenter put it) "small potatoes" to the IRS. | TeMPOraL wrote: | > _Just like you don 't recognize typically recognize | investment gains until you actually sell and receive | those gains._ | | Those miles seem to me to be close enough to securities | that I'm not sure why the same rules don't apply to them. | ghaff wrote: | And it's small potatoes mostly. Leaving aside airline | status-which would be impossible to value even my 50K | miles per year pre-pandemic (some of it personal) would | only be worth $500 or so at a penny per mile. | remram wrote: | This is also how credit card rewards/cashback works, no? | aidenn0 wrote: | AFAICT, cash rewards to an individual on expenses reimbursed | by a company are taxable as income. Non-cash rewards are a | bit of a gray area that the IRS believes to be taxable, but | is currently agreeing to not pursue for the time being. | ghaff wrote: | Without business travel expenses the airline industry would | also be a fraction of its size and personal air travel would be | much more expensive. | | Companies have on occasion tried to claw back frequent flier | points from employees. Those policies were not popular | personally I have zero issue with people who fly a lot getting | a minor perk for a lifestyle I suspect many people here would | absolutely hate. | grumple wrote: | It appears that business travelers are only 12% of passengers | but they make up most of the profits due to higher rates: | https://www.investopedia.com/ask/answers/041315/how-much- | rev... | | If you got rid of business passengers, you'd have to increase | rates to get the same profit, sure, but I suspect competition | would keep prices low. The reason business rates are higher | is because big businesses don't look too closely at prices | and better service is seen as a little perk for employees. | ghaff wrote: | I've seen somewhat higher numbers but I'm still surprised | it's that low if only because many business travelers | travel so much more. It's the rare person who travels 50K | miles per year for pleasure and that's not a typical | company employee for many positions but it's by no means an | outlier. | | Business travel, especially sales, also involves a lot of | last minute booking and changes and those are expensive on | both many planes and long distance trains. But, yes, at | most companies you can't just book business but you can | always plead better schedule and also avoid economy basic | sort of torture. | seydor wrote: | i dont see a problem ___________________________________________________________________ (page generated 2023-09-21 23:00 UTC)