> 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.
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.
> 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.
> 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.
Not to mention the government is still actively involved through programs like Essential Air Service [1]
It wasn't fully deregulated and left alone, some aspects were deregulated. As usual people like to bucket government policy as black and white but in reality it's usually somewhere in the middle.
Airlines have also had really shitty luck as an industry, that isn't high margin to begin with, facing two exogenous near death experiences in 20 years with 9/11 and Covid.
> when there's an economic downturn and the government bails them out
It's more that the government subsidizes their lack of resiliency in a back-handed way. This might not be so bad because markets are usually short-sighted and fail at this, so the only way for it to exist in a market system is for the government to pay for it. This is what the Farm Bill does. It subsidizes food production because people starve when markets are too efficient.
> 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)
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.
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.
I think the biggest problem with the terminology is that domestic (US) First is often hardly comparable to international Business Class, but more like European regional Business, which is more often than not just the lack of a middle seat.
The large US airlines even have different terms for their international Business offerings: United Polaris, American Flagship, and Delta One.
> 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.
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.
The drop in price has a great deal to do with improving technology not simply competition driving down prices and how little room people are willing to accept.
An apples to apples comparison with equivalent legroom etc a domestic flight in 1970 was often cheaper than what people see today. The cheapest thickets on long haul flights have fallen significantly, but that’s also where technology has made the greatest strides with more efficient engines requiring less fuel and thus less weight which increases efficiency which then compounds on longer trips.
> The drop in price has a great deal to do with improving technology not simply competition driving down prices
And this improved technology was an inevitable, foregone conclusion?
People make arguments like this as if it was some passive thing, as opposed to thousands if not millions of conscious decisions to improve turbines, airframes, and myriad other technologies, then actually implement them in real aircraft, then acquire and deploy a commercial fleet.
People made these decisions because they were incentivized to trade time and money today for material improvements tomorrow. Why do you think that might have been?
Hint: think about industries where there isn't much competition. Do we see similar improvements there, usually?
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.
> 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.
> Thankfully for airlines, it seems flying is a lot more indispensable than riding by rail.
I think a big aspect of this is that railway workers were much more unionized than airline ones. So what better way to kill the unions than to kill the industry.
> 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
> 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.
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.
> 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.
> 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.
> 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.
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.
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.
This is an interesting point that I hadn't thought of. A counterpoint would be that the economy has also grown more complex since then, but I don't think it has to the same extent that computational power has increased.
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).
> you can still buy service at 2x the price in first class
Writing this demonstrates you don't know what you're talking about. Plenty of people would happily pay double for a first-class seat but that's not nearly enough. At best paying double gets you into premium economy.
Most domestic (USA) first class tickets are 3-5x the cost of an economy ticket. For international flights, business tends to be 3x and first class is something like 7x-10x.
I had to fly coast to coast in the US and I was pretty disappointed that for a 6hr+ flight you can't get a seat that turns into a bed even in first class. Especially on an overnight flight.
> 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.
Really - most of the large, heavily regulated or government-owned industries I can think of have runaway prices and seem very inefficient. In some cases the government will also pay some or all of the price themselves. Education and healthcare come to mind.
Can anybody think of an industry where government ownership leads to more efficiency and lower prices (including the amount the government pays)?
One argument I've heard in favor of government-owned industry is for things that must be more or less guaranteed for everybody, regardless of capital.
Drinking water, postal service, election management, and violence (police, national guard, military) come to mind.
Those examples might be more efficient and affordable if privatized, but then it might be expensive or unreliable to get mail in Alaska, or there might be lawlessness near parts of the Mexican border, or elections might be fraudulent in some districts.
Throwing tax dollars, laws, and bureaucracy at these things doesn't necessarily improve them, but maybe it raises the bottom, at considerable cost.
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.
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.
> 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.
> 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.
Deregulation worked, but in a capitalistic society bigness has benefits. Rolling up your competitors has advantages, both from a financial and business point of view.
The problem isn't deregulation, it's preserving competition.
> 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.
>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.
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.
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.
> 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.
Since I lost all my status during COVID I changed my approach: no frequent flyer programs, far fewer flights, and only ever book first class.
No more worrying about upgrades, middle seats, air-ragers, and all it took was a little more money.
Of course now sometimes I fly on airlines I’ve never heard of whereas previously, I had taken exclusively American for my last 200 or so legs. I think the effects of shaking up these programs will be to make consumers like me much, much less brand sensitive.
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.
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.
> 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.
Many government-type travelers are obligated to go with the cheapest airfare that’s reasonable. I know folks who take 5:30am Delta flights so they can get loyalty benefits while obeying those rules, but these new spending levels makes gaining status that way impractical.
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.
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.
> 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?
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.
>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.
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.
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.
> 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.
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.
>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).
>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.
> 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?
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.
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.
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).
>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?
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.
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.
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.
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.
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.
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.
> Is this a good deal for the American consumer? [...] 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.
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.
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.
> “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?
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.
This is how it works in my country (Sweden). Everything that provides any sort of personal benefit to an employee is taxed as ”benefit tax” which simply increases the taxable income. Very few exceptions exist for small yearly gifts, health benefits and a few other things.
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.
> 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:
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.
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.
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.
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.
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.
The credit-card side of the miles programs would have to change (but most people who dig deep into it use the cards for the bonuses and run purchases through better rewards cards anyway).
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.)
> 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.
> 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.
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)
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.
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."
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.
"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.
> 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 €40 to almost €180. [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).
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.
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.
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?
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.
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.
Readit News
https://archive.ph/A8cxk
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.
> 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.
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.
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.
It wasn't fully deregulated and left alone, some aspects were deregulated. As usual people like to bucket government policy as black and white but in reality it's usually somewhere in the middle.
[1] https://www.transportation.gov/policy/aviation-policy/small-...
It's more that the government subsidizes their lack of resiliency in a back-handed way. This might not be so bad because markets are usually short-sighted and fail at this, so the only way for it to exist in a market system is for the government to pay for it. This is what the Farm Bill does. It subsidizes food production because people starve when markets are too efficient.
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)
I think the biggest problem with the terminology is that domestic (US) First is often hardly comparable to international Business Class, but more like European regional Business, which is more often than not just the lack of a middle seat.
The large US airlines even have different terms for their international Business offerings: United Polaris, American Flagship, and Delta One.
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.
the benefits to society is in terms of reduced fuel consumption, only because that’s directly aligned with the airline’s profits.
An apples to apples comparison with equivalent legroom etc a domestic flight in 1970 was often cheaper than what people see today. The cheapest thickets on long haul flights have fallen significantly, but that’s also where technology has made the greatest strides with more efficient engines requiring less fuel and thus less weight which increases efficiency which then compounds on longer trips.
And this improved technology was an inevitable, foregone conclusion?
People make arguments like this as if it was some passive thing, as opposed to thousands if not millions of conscious decisions to improve turbines, airframes, and myriad other technologies, then actually implement them in real aircraft, then acquire and deploy a commercial fleet.
People made these decisions because they were incentivized to trade time and money today for material improvements tomorrow. Why do you think that might have been?
Hint: think about industries where there isn't much competition. Do we see similar improvements there, usually?
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.
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.
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.
I think a big aspect of this is that railway workers were much more unionized than airline ones. So what better way to kill the unions than to kill the industry.
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
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.
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.
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.
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.
Huh?
airline deregulation != command economies
airline deregulation == free market
This statement sounds like it should read: "airline deregulation shows just how bad laissez-faire economies are at planning and allocating resources"
Writing this demonstrates you don't know what you're talking about. Plenty of people would happily pay double for a first-class seat but that's not nearly enough. At best paying double gets you into premium economy.
Most domestic (USA) first class tickets are 3-5x the cost of an economy ticket. For international flights, business tends to be 3x and first class is something like 7x-10x.
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.
Can anybody think of an industry where government ownership leads to more efficiency and lower prices (including the amount the government pays)?
One argument I've heard in favor of government-owned industry is for things that must be more or less guaranteed for everybody, regardless of capital.
Drinking water, postal service, election management, and violence (police, national guard, military) come to mind.
Those examples might be more efficient and affordable if privatized, but then it might be expensive or unreliable to get mail in Alaska, or there might be lawlessness near parts of the Mexican border, or elections might be fraudulent in some districts.
Throwing tax dollars, laws, and bureaucracy at these things doesn't necessarily improve them, but maybe it raises the bottom, at considerable cost.
It's REALLY hard to compare anything 1973 vs 2023 as there are way more factors in play than just "oh it was X then and is Y now"
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.
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 Comment
> 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.
The problem isn't deregulation, it's preserving competition.
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.
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.
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.
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.
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.
No more worrying about upgrades, middle seats, air-ragers, and all it took was a little more money.
Of course now sometimes I fly on airlines I’ve never heard of whereas previously, I had taken exclusively American for my last 200 or so legs. I think the effects of shaking up these programs will be to make consumers like me much, much less brand sensitive.
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.
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.
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.
Every successful company eventually becomes a bank. See also Apple.
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.
The more successful, the larger the pile of money and more likely to look bankish.
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?
https://airandspace.si.edu/stories/editorial/airline-deregul...
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.
Air Canada spun out aeroplan, and then years later re-acquired it.
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.
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).
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.
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?
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.
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).
Wow, okay, big jump here buddy. What happened to being profitable and actually committed to offering a core competent service to customers?
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.
"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.
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.
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.
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.
> Is this a good deal for the American consumer? [...] 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's the economics of "scrip". https://www.investopedia.com/terms/s/scrip.asp
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!
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.
or golf trips, fancy dinners, etc.
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
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Now you're getting it!
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?
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.
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/
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.
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.
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.
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.)
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.
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)
This seems to describe a lot of sectors of the economy, unfortunately
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.
"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.
If the answer is no, then they are not a bank.
A bank doesn't need to fly planes to be in business
"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...
> 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 €40 to almost €180. [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...
That really is nothing whatsoever to do with what an airline does.
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.
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?
/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.
Starbucks is another good example of one that does (with gift cards instead of points); Amazon might be another.