Gary over at Viewfromthewing.com and Scott at Hackmytrip.com have an interesting little discussion going over whether or not coach passengers are subsidizing the extravagance of flyers in business class and first class. Essentially Scott argues that ancillary fees charged to coach flyers are tipping the airlines into profitability and the ability to invest in their product. These investments in product improvement are generally targeted at nicer planes and amenities that premium flyers get to enjoy. Ergo, coach flyers pay for the improvements for the elite.
Gary, explains the business practices of airlines and how Scott’s analysis is more or less misguided as it doesn’t fundamentally examine the airline business. His explanation explains why all of the pricing is a rational way to get the most revenue out of each passenger and essentially be all things to all people. Coach flyers are most motivated by low fares and prefer a la carte pricing for all of the ancillary benefits, as it ensures the lowest possible price point for their travels and gives them control over each dollar. Flyers in the front of the plane have a different agenda and a different series of rational decisions which explains the investment airlines make in amenities and luxuries in order to provide them a simple, elegant, “all-in” service and pricing model.
Each author is, naturally, correct int heir own way and I am sympathetic to both. What is really going though, I think, is that airline economics reflect the increasing inequity in society and the world. The US and much of the world have never been so unequal with rising GINI coefficients. There are few other endeavors in modern life where this smacks you in the face so much, and where the various strata of the modern economy are sharing a tin tube to the same destination. A corporation, investment bank, financier, or lucrative consulting company has a different economic agenda and the airlines must meet their needs at the front of the plane. Airlines must also, of course, meet the needs of a cost conscious middle and working class, and this is reflected in their coach pricing and setup.
This may seem like I am agreeing more with Gary and I suppose I am to an extent. Still, I think the larger picture may point in Scott’s direction. Our economy, regulatory system, taxation system, and budget policy have increasingly focused on maximizing the gains for the top earners while keeping the middle class in a protracted struggle to keep their heads above water and make incremental gains. While I don’t believe that economics is a zero sum game, certain policy decisions must help one set of actors or another, there are real winners and losers. Over time, politics and economic philosophy have tilted towards the rich, wealthy, and powerful at the expense of the rest. This is true in the US and perhaps even more true in the developing world, perhaps explaining the even more blinged out nature of air travel on Asian and Middle Eastern airlines.
So if you want to understand the broader economy, maybe it is best to take a walk through the cabin.
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To clarify, I don’t actually believe fees are directly subsidizing premium cabin improvements. My original post was meant to criticize Brett Snyder’s article on Conde Nast Traveler for getting too close to that claim when he opened with the statement that “fee revenues have allowed airlines to start investing in their products again.” His piece seemed to defend the use of fees because of the improvements they allow airlines to provide. And so I discussed how the people who benefit from most improvements and the people who pay most fees are not the same group.
I’m well aware that revenue is fungible and can go toward a wide variety of purposes, including improvements to both cabin classes. I clarified at the end of my post that I don’t believe the airlines are actually using fees to subsidize premium cabins, but that I believed it was a reasonable interpretation of Brett’s post.