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

It appears that taking advantage of human imperfections and irrationality are taking up more and more of companies' strategies and time.

You've got folks thinking constantly about advertising, pricing strategies, dark patterns, network effects that prevent or discourage churn, etc., in ways that tend to exploit flaws in the consumer's decisioning process or gaps in their knowledge, to the consumer's disadvantage.

It feels rare to see an actual new valuable product or improvement.

Aren't flights at an inflation adjusted all time low and most airlines operating at a razor margin? Seems like the market doing their job. Also price discrimination sounds a lot worse than what it really is? Idk, I don't like that air travel is so easily accessible but, the pricing stuff is the least of our worries.

I prefer airlines that don't nickel and dime. In fact, I prefer to fly less since the experience has consistently deteriorated over decades. If you travel internationally you get the added fun of dealing with border agents. And even they have discovered price discrimination, with their VIP lines.

All told, is all this chicanery benefiting airlines?

This always happens when growth of a good or service slows but the provider is still expected to keep delivering growth.

Historically it has led to finding efficiencies - but that takes R&D, not just financial engineering.

In the near future humanity will to do a mix of three things: a) accept that growth is over (it’s not, this is temporary until the next thing is invented), b) find a way to return to the frenzy of innovation that pushed us to expect growth (likely by leaning back in to R&D), and c) legislate the types of squeezing we’ll tolerate (as the EU is doing)

Companies that invest in R&D need to start winning to kickstart growth again. Big companies can do it - eg. Google Gemini is topping leaderboards.

While you wait for a return to R&D, contemplate the miracle of the complex economy that led us to the point where lower middle income people can have a Basic Economy seat on a tin can in the sky.

A masterclass that has had no discernable affect on revenue, in fact revenue for the airlines is down over the past 10 years, but I guess it has kept those revenue analysts employed.

>Inflation-adjusted PRASM (Passenger Revenue per Available Seat Mile) for major U.S. domestic carriers from 2015 to 2024, all expressed in 2024 dollars for consistency:

  Year Delta (¢) American (¢) United (¢) Southwest (¢) Alaska (¢) JetBlue (¢) Spirit (¢)
  2015 14.8 14.6 14.3 13.5 13.9 13.0 11.3
  2016 14.2 13.9 13.7 13.0 13.4 12.5 10.9
  2017 14.5 14.1 13.9 13.2 13.6 12.7 11.0
  2018 14.7 14.3 14.1 13.4 13.8 12.9 11.2
  2019 14.9 14.5 14.3 13.6 14.0 13.1 11.4
  2020 13.2 12.5 12.6 11.8 12.1 11.0 9.7
  2021 13.5 12.8 12.9 12.0 12.4 11.2 9.9
  2022 14.0 13.2 13.4 12.5 12.9 11.7 10.3
  2023 14.3 13.4 13.6 12.7 13.1 11.9 10.5
  2024 14.1 13.5 13.8 12.3 13.0 11.5 10.4

I used to think Basic Economy was just airlines making things uncomfortable on purpose. Then I realized it’s really about separating customers based on how much they’re willing to pay. They’re raising revenue without changing the base price. You see this more and more now. The default option keeps getting worse, not to cut costs but to make upgrades feel worth it. I’m not sure if people will just get used to it or eventually start pushing back.

Low effort, AI generated, catchy title. Perfect recipe for making it to the top of news aggregators.

It's already a regulated market. If we want to stop fare practices we do not agree with then mandating specific bundling in luggage, legroom, food and credit/rebook is available as a regulation. And of course the economic arguments against it, and legal/philosophical.

Very unpopular opinion, but I personally find price discrimination somewhat appealing. Both me and the richest person on the plane get to the same destination at the same time. And yet he payed 4x as much for the same privilege. It's one of the few forces left in the economy that actually reduces inequality (somewhat).

I'm an absolute cheapskate and I love flying, so I never really fall for the need to upsell. I'll fly with my family and not pay for assigned seats (I've joked with gate agents "I dare you not to sit me next to my children" - in reality they are happy to make sure you sit together anyway).

I get that people value different things differently, but with so much price discrimination the value gets more efficient and you increasingly get exactly what you pay for - no more or less. Which just unlocks the hacker ethos in me.

At the end of the day, you are paying for insanely fast travel across the sky. It's a miracle, let alone at the insanely low prices you can get these days.

With the oligopoly situation, us Americans don't usually have a point of reference, so here's one from a trip I've taken: Indonesia to Malaysia (DPS to KUL), an international 3 hour flight one-way, for $62 on Air Asia [1]. There is enough leg room that you can cross your legs, and they will feed you a meal! There may be some regional differences in "labor" like the US Major airlines claim, but I don't think enough to match the reality of their scalping.

[1] https://www.google.com/travel/flights/search?tfs=CBwQAhoeEgo...

So aside from potentially allowing more price-limited consumers the ability to fly via Basic Economy fares, it’s just enshittification of the Aviation Industry: worse products at higher prices.

We really need to step up regulation to disincentivize “infinite growth” as a mindset and prioritize stable returns over time (e.g., dividends and profit sharing). Everything is slowly getting worse and more expensive, and contrary to (seemingly) popular belief there is no “floor” to reach in this foolish pursuit. Businesses and capital will always pursue more money for themselves no matter the cost to consumers, workers, vendors, or governments, unless something incentivizes more societally-healthy behaviors.

>> Third-Degree Price Discrimination: The seller charges different prices to different groups of consumers based on identifiable traits or segments, often tied to different demand elasticities. Common examples in airlines include offering discounts to seniors, students, or military, or more broadly, the use of market segmentation by travel purpose.

Military discounts are not a marketing trick. Some companies actually want to be nice to those who serve. Many a corporate leaders are themselves vets.

I just got back from a week-long vacation where I flew Southwest. It was my first Southwest flight in a while and I will now not fly any other airlines.

The rise of "basic economy" seems a lot like the general phenomena of "enshitification" and has a similar motive - degrade your product to squeeze the last drop out of the consumer. And it seems logical that charging by the "degree of shit" in a product means every level is going to be shit actually.