> 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.
You don’t just get to say “from first principles” and then put forward your obviously-American POV as some immovable basis from which everyone else should be arguing from.
Regulation routinely reduces cost. It’s all to do with the nature of the regulation. Only one party is incentivised to say trot out this “regulation is bad” BS and its businesses that want to operate in an ancap utopia because they weren’t lucky enough to make regulatory capture work for them. It’s always disappointing when individuals get swept up in believing this tripe.
The Americocentric nonsense is always prevalent in discussions like this, to the point that often the conclusion ends up being that America is so “special” and “unique” in its issues that any of the solutions other nations have come up with would supposedly never work.
In terms of regulation reducing costs, you only need to look at Europe.
Regulations in education, housing, medication, cellular networks, utilities, etc. have all driven cost down to one degree or another depending on which specific regulation a country has implemented.
“Ah”, says the American, “but now show me regulation in a competitive market” as they rub their lower back in an effort to quell their aches from carrier that goalpost.
And then you point out that those examples are of a competitive market.
Only for them to pull a “gotcha”, because surely it couldn’t be that competitive if it had a cost reducing effect.
The further you entertain, the more they move the goalposts and introduce circular reasoning, because in their mind anything that challenges their worldview must simply not be true.
Can you provide an example of this actually happening in a competitive market?
> Only one party is incentivised to say trot out this “regulation is bad” BS and its businesses that want to operate in an ancap utopia because they weren’t lucky enough to make regulatory capture work for them.
Businesses that want to challenge an incumbent who succeeded in making regulatory capture work for them would be an obvious counterexample, and for the same reason the customers who want to see the challenger succeed in making the market more competitive.
> Can you provide an example of this actually happening in a competitive market?
No doubt you'll no-true-scotsman "competitive market", but buying a house in the UK got significantly smoother/cheaper when sellers were required to provide a certified survey to all interested parties, rather than each buyer having to commission their own survey. Lemon laws are widely recognised as making it cheaper to buy a reliable car. Food safety regulations made food a lot cheaper by rendering imported food trustworthy.
What you're getting at here is regulations that... increase the competitiveness of a market. Which does imply something about the preexisting competitiveness of that market, and was the reason for that caveat.
Competitive markets are what keep prices down, and you need a regulatory environment that facilitates them. The trouble is you can't even say things like "food safety regulations increase competition by rendering unknown sources trustworthy" because it depends on both details and context. You could easily have food safety regulations that impose high overhead and drive small providers out of business, or different market dynamics that provide an alternate way for customers to evaluate trustworthiness.
And each attempt is an opportunity to make a mistake and do the opposite of what you intended -- or the exact thing the incumbents wanted and lobbied for. It has to be done with care, and rarely in only cases of great need, because it's so easy to screw up. And then competition can't fix it, because regulations are enforced by a monopoly. Which is where we are now, in all too many cases.
Well, I'm as pro-market as the next person, but surely fire brigades are the classic anti-example: the market was competitive with many fire brigades, prices were inelastic sure, and there was a lot of time-elasticity of demand, but the customer had the short-term ability to shop, etc. Government regulated fire brigades reduced competition and decreased cost.
I default to "regulation increases cost" as well, and think that the default position should be to justify it, but I don't think the opposite is a zero-instance situation.
The time-elasticity of demand is the reason there was no price competition. You use whichever fire brigade arrives on the scene first. So you get lots of competition for getting there fast but not for lowering the price. It's like a competition for who gets to be the monopoly today.
And then because it was a chance to monopolize something it got infested with organized crime. Which is the main reason it was short-lived and never got to evolve into a functioning market. Governments found it easier to prohibit whatever was going on there than hire enough police to arrest all the firefighters.
There are fairly obvious ways to recreate something that looks pretty much like the modern system without government regulation. A city has however many fire houses that major fire insurers prepay a rate negotiated based on how many homes they insure in that service area. Since prepaying is cheaper than paying per-incident that's what substantially all the insurers do, which mutes the incentive for firefighters to hack each other to pieces to get there first.
That still isn't a lot of competition, but at least now you're negotiating for a price before the house is on fire. Which could be enough to cost less than what the government currently does.
You are blinded by your love of the market. "The market" (the unregulated one) is a very unstable and unsatisfying beast. It is precisely because of regulations that western countries and some Asian ones are so succesfull.
Many regulations are needed to keep the "free" market from destroying all the good that it can do. One famous example is monopolists that are created in a free market and then use their power to make the market unfree. Only government regulations destroy these monopolies with anti-trust laws.
Then there is pricing in so called free markets that are not in fact free. Such as pricing of infrastructure and services.
To name one perfect example of where government regulations lower the prices of services is in the healthcare industry. In most western countries (not the us tho) healthcare is relatively cheap and also accessible. This is because it is regulated. In the US it is barely regulated and very expensive. Without regulation the market will also destroy the environment. This is a "hidden cost" or an externality.
I'm not patiënt enough to write a more coherent and better written response. But if you are at all interested in learning something or allowing yourself to be disproved, I would suggest you start by googling: "succesful regulation" or "examples of market failure".
> One famous example is monopolists that are created in a free market and then use their power to make the market unfree. Only government regulations destroy these monopolies with anti-trust laws.
The thing about "free market" is that it's like "reasonable person" in that it's an ideal rather than something you can actually find in the street. You want to get closer to it even if you can never actually find a flawless example.
A monopoly is basically the opposite of a free market. But where does a monopoly come from? For the most part they're a result of government regulations. The monopoly sucks and everyone hates it so you want to go into competition with them, what stops you? For the monopoly to persist there has to be some law that prohibits anyone from doing that or makes it infeasibly expensive.
The problem here is that unless you're going to go ideologically pure full anarchist, you can get to that point if the government does as little as enforcing contracts or property rights. Because then you could have contracts for selling your children into slavery or a single corporation that the government says owns all property.
So once the government gets involved with something, it has to be sure nobody is leveraging that into a private monopoly. But this is why government involvement should be minimized -- that risk increases the more they do, and there is abundant evidence that governments repeatedly fail to mitigate it effectively and prevent private monopolies from forming.
> Then there is pricing in so called free markets that are not in fact free. Such as pricing of infrastructure and services.
You're referring to natural monopolies, which is once again obviously not an example of a competitive market. The key in these cases is to narrow the natural monopoly as much as possible and prevent anything more from being tied to it than is absolutely necessary. For example, one of the classic mistakes we've made is allowing the natural monopoly on the physical last mile for data service to be leveraged into control over interconnection and over the top services like video and telephone.
> To name one perfect example of where government regulations lower the prices of services is in the healthcare industry. In most western countries (not the us tho) healthcare is relatively cheap and also accessible. This is because it is regulated. In the US it is barely regulated and very expensive.
The US healthcare industry is one of the most highly regulated industries in the world. Competition is low because FDA approval is hard to get and the AMA uses regulatory capture to limit the supply of doctors, government incentives promote employer-provided health insurance that disguises pricing from patients, "certificate of need" laws constrain competition between healthcare providers etc. etc.
The typical claim is that single payer systems have lower costs, but nearly everything has lower costs -- the US has some of the most expensive healthcare in the world -- because it has some of the most onerous healthcare regulations. Meanwhile countries like Singapore have lower costs and good outcomes with a predominantly private healthcare system, because it is less inefficiently regulated.
> Without regulation the market will also destroy the environment.
This is clearly not an example of regulation lowering consumer prices. The claim was never that regulation can never be necessary. You don't want the widget factory dumping industrial waste in the river, but prohibiting that isn't generally a means to lower widget prices.
It can even do both things at the same time. You can have a regulation that succeeds in reducing pollution while also being dramatically less efficient than some other means of achieving the same goal. This is why government regulation is so precarious: If you get it wrong nobody else can fix it because anybody who tries to do it another way is incarcerated.
I’m not sure if it’s relevant to the issue here, but if you want an example of a regulation that reduces cost: “you cannot sell medicine X for more than $Y”. You could argue that in a pure market such a rule would never help (a competitor would naturally offer it cheaper, if possible). But if you look closely there few “pure” markets.
I am speaking from experience here. I'm an anesthesiologist, and with three exceptions I can think of, our drugs are all off-patent, so their prices are basically a function of production costs. But the federal government of the US, which buys a lot of drugs under the VA and Medicare, has a rule that you can't increase the price by more than X% per quarter (or year, not sure). Now, we all agree that this sounds like a good regulation. Right? Nobody can just raise the price of insulin by 40000%?
Except that generic drugs really don't make much money, and when one company leaves the market for a given drug (there are usually only 2-3 manufacturers per drug), the remaining corp(s) can only make up the shortfall by moving to 24-hour operations (in the short term). Staffing that means hiring more people and paying overtime. So the cost of production... doubles, at least.
The part that is missing: it's a drug that sells for twenty cents for a sterile ampule. Doubling it to forty cents is not going to break the bank. It's cheap, it will continue to be cheap, and yes - in the long run, someone will set up a line to make it for ten cents and sell it at twenty. But in the short run? You run out of drugs. I've seen it in almost every category of anesthesia drugs (induction, opioids, paralytics, paralytic reversal, etc.) in the last ~20 years. You'd think that "not being aware during surgery" would be one of those things that people would care about, but it isn't.
Or lower margins. After you spent millions/billions on R&D, testing and approval, why would you purposefully decrease your product just because your margin now is not 2500% but 1000%?
Of course this might affect your willingness to invest into developing new drugs in the future
It leads to shortages in a competitive market and lower margins in an uncompetitive market.
But if you have an uncompetitive market on purpose as a result of patents meant to increase margins to fund R&D, a law capping prices is a screw up because it was meant to be the way it was.
Whereas if you have an uncompetitive market unintentionally as a result of some other regulatory failure, a law capping prices is a screw up because you're not actually lowering margins from 2500% to 1000%, you're just raising them from the ~5% they ought to be to 1000% instead of 2500%, which is still bad.
Which is better given an uncompetitive market, an regulation that says "you cannot sell medicine X for more than $Y," or a regulatory change that restores competition to the market?
The latter is better to such a degree that the former is just a toy example with no practical use outside of academic discussions and corrupt politicians who want to avoid solving the underlying problem on purpose.
Living in utopian abundance would be even better but sometimes not every option is feasible, especially in the short term. The objectively inferior option might still be better than doing nothing.
Inefficient hacks are often worse than nothing because they remove the momentum behind fixing the underlying problem. You reduce the margin from 2500% to 1000% and think you're helping, but what you're really doing is condemning yourself to paying a 1000% margin forever because it's now below the threshold that people get outraged enough to do something about it.
>>Can you provide an example of this actually happening in a competitive market?
Tobacco companies probably made a bunch more money as aspects of their advertising became restricted/regulated/banned - because they were basically in an arms race with one another and spending more and more to maintain market share. But that is a pretty specific case, I'm not going to make any claim that's general or applies to airlines.
Either there isn't a lot of competition between carriers there and they were just sticking the roaming fees in their pockets before, or there is a lot of competition and the carriers had to make up for the increased usage and loss of roaming fees by raising the prices of phone plans.
This isn't the same thing as whether you like the result of the rule. Maybe paying a little bit more in total in exchange for having a more predictable monthly bill is something people like. It would still be paying a little bit more, if the market there is competitive.
It's not assuming the market is competitive. Wireless markets are often not competitive, because entry is limited by scarce spectrum availability etc. which incumbents lock up to limit competition. The point is that if you had a competitive market, margins would be thin and the only place for lower prices to come from without a reduction in operating costs is higher prices somewhere else.
It's easy for regulations to lower costs in an uncompetitive market because the lack of competitive pressure allows the incumbents to do all kinds of inefficient nonsense that would drive them out of business if it was actually practical for new competitors who don't do that to enter the market and undercut them on price. But what you want to do in those cases to the fullest extent possible is to restore competition to the market, not try to regulate the incumbents while keeping them as a monopoly/oligopoly. A set of regulations that gets you 8% of the benefit of actual competition can be a significant improvement from the status quo while still being by far the less effective solution.
Roaming used to be very expensive and so people almost never used it. Instead they would buy cheap local prepaid SIM cards when they traveled across intra-EU borders.
The carriers would charge high prices to each other for roaming, and pass those on to their customers. The market had worked itself into a stupid corner where nobody wanted to come down on wholesale roaming costs because they would lose out to cross-border carriers.
The EU capped the wholesale rates and mandated that there be no retail cost, so now carriers are charging less to each other and consumers are roaming on their own numbers without worry, and without the hassle, expense, and waste of buying SIM cards all the time.
It's been moderately beneficial for carriers, and a huge benefit for the public. The imposition of regulation has enabled the companies to be more profitable and consumers to get more value.
> Roaming used to be very expensive and so people almost never used it. Instead they would buy cheap local prepaid SIM cards when they traveled across intra-EU borders.
So it was already available at a low price via a different route.
> The carriers would charge high prices to each other for roaming, and pass those on to their customers. The market had worked itself into a stupid corner where nobody wanted to come down on wholesale roaming costs because they would lose out to cross-border carriers.
You're describing an uncompetitive market. The local carriers have such high market share that charging otherwise-profitable wholesale rates would deprive them of a monopoly rent so they're not willing to do it.
Compare this with a market where there are carriers with low market share who don't care about cannibalizing someone else's retail sales to get more wholesale customers.
> It's been moderately beneficial for carriers, and a huge benefit for the public. The imposition of regulation has enabled the companies to be more profitable and consumers to get more value.
The drawback of this approach isn't that it can't produce an improvement relative to a preexisting uncompetitive market, it's that it leaves the uncompetitive market in place. Which is almost certainly itself a result of existing regulations.
Suppose the way mobile networks operated is that anyone can build an independent cell tower and then auction off capacity in real time. Which makes it easy to operate a cell tower; you just build one and sell into the market. So you end up with dozens of local cell tower operators or more and any carrier, local or otherwise, with a customer in the area can bid for capacity from any of them. Which also means that anyone can start a carrier, because "carrier" just means you resell wholesale capacity from all these independent cell towers and your business is to bill the customer and provide customer service.
Doing it that way is going to solve your roaming problem and seven hundred other problems and lower prices. But existing regulations don't facilitate this, do they?
So unless you have 3-5+ of towers in every area what prevents the company which owns them from charging whatever it wants? As pong as that whatever is less than the cost of building a tower yourself?
It makes about as much sense as having multiple competing rail networks or power lines, the more tower there are the higher overall cost per user.
> So unless you have 3-5+ of towers in every area what prevents the company which owns them from charging whatever it wants? As pong as that whatever is less than the cost of building a tower yourself?
That's the amount you'd expect them to charge -- the cost of building a tower. That is what they have to recover.
If they try to charge much more than that then it's profitable for someone else to build one.
> It makes about as much sense as having multiple competing rail networks or power lines, the more tower there are the higher overall cost per user.
If you have more towers you can reduce the transmission power of each one and it increases the available bandwidth by reducing signal overlap. If the towers themselves used realtime spectrum auctions then the tower nearest the user could come in with the lowest price because it could use lower transmission power and less spectrum.
You can also very reasonably have competing rail networks or power transmission lines because they don't have to use 100% all the same routes to ultimately still connect all of the same cities. Then some may be more efficient for certain routes but the alternative still puts an upper limit on what they can charge, and provides for redundancy in case one of the lines or networks is unavailable.
The a priori that regulation reduces cost is a good one, but neither of you are compelling because the question has to include a time horizon with respect to resource consumption and other factors otherwise regulation reduces cost would be true only so much as a meaningless technicality.
Similar to what you said I find it’s disappointing when individuals get caught up in believing that regulation or “more government” must be good while they ignore the externalities that the government brings to bear - I’m still trying to figure out why the government is regulating my EV like it’s a super duty F-250, and why the government made it illegal in my state to bring my own bottle of wine to a restaurant.
I’m also trying to figure out why the government is leasing my land in Alaska (I’m an American, therefore it’s mine as well - yes I’m aware of recent Biden admin actions +) for oil and gas companies but won’t approve new nuclear reactors.
It’s also crazy to me that the government doesn’t regulate by making mandatory seatbelts a requirement for school busses, and why it fails to regulate (ban) additive sugars and vaping and all sorts of other harmful products.
I’m not trying to both-sides it here, but the central theme is everyone has an opinion on this stuff and the truth is regulation is good and bad, and it can cost or save money. We shouldn’t get into X is good, Y is bad. It lacks nuance.
There are so many cases in which a regulated market shows lower costs, that not seeing it is just not wanting to see because it touches your core belief system instead of using reasoning. Regulation is needed to ensure property rights, contracts law, ward of monopolies, ward of externalisation of costs by companies unto the general population or the environment, to stop lies from being told as much as possible, to destroy rent-seeking behaviors.
These are all legitimate reasons for government regulations and make the market better.
There is of course a time and place for regulations. There IS such a thing as too much regulations.
That prices were falling prior to deregulation and did not fall even faster after deregulation proves that deregulation wasn’t a factor.
If you’re coasting to earth in a parachute and someone gives you a cup of coffee to drink which does nothing to change your rate of descent, would you then attribute your descent to the cup of coffee?
You even say it yourself: There’s lots of reasons… but deregulation wasn’t necessarily it especially not in the axiomatic way you say when you say that by “first principles”, regulations increase prices.
E.g., regulations and legislation around marijuana access have decreased prices, the ultimate “price” being a stint in jail for possession.
You are wrong that prices falling prior to deregulation proves that deregulation wasn't a factor in declining prices. A graph of numbers showing decreasing costs measures purely quantitative factors. The trend continuing completely excludes qualitative factors, of which you must understand to properly understand what is going on.
For example, the article says that what was expected to happen was that costs would fall because there would be an influx of hundreds of competitors. That in itself is a misunderstanding of qualitative factors. Imagine there being 100 different airlines. More than half of them would be incompetent. The correct qualitative understanding of the situation is that deregulation allows the most competent airlines to consolidate/buy underperforming ones. Did service really get worse? Or is the difference really just that these airlines are now able to transport way more people at a cheaper cost because they are no longer catering to smokers who like to leer at PANAM blondes in short skirts?
Also, regulation around marijuana has not decreased prices. This is obvious because in places where marijuana is now decriminalized people still prefer to buy from illegal sellers... because it is cheaper.
In this case it is trivially true because the CAB indeed did set the minimum price that an airline could charge (mainly to avoid railroads going bankrupt—when Amtrak took over passenger rail, that fig leaf was removed)
Air travel was glamorous because if you can’t compete on cost you compete on service.
That’s only true if there were airlines that charged the minimum and would have charged even less in the absence of the regulation. The existence of the regulation is not proof of that alone.
The existence of the regulation is evidence of that in itself, because the alternative would be that someone for unexplained reasons put in the time and effort to pass a regulation that has no effect.
Which is why it's evidence. The presumption is that it was enacted with a purpose rather than without one because the vast majority of legislation is enacted to bring about some intended effect. To rebut this presumption you would need some explanation for why this legislation is an outlier.
Because regulatory capture is a thing, and in absence of competition your goals are often to increase your costs which in turn means that you can charge more while still appearing to maintain a small profit margin.
It doesn't need to be higher prices, but regulation tends to bring in enough distortion that isn't transparent so we cannot know what a proper price really is.
Yes and: regulation is just a scary word for rules. As you know, there's always rules. Even informal markets have rules, known by all the players, even if they're not written any where.
Being an idealist, I prefer rules which lean towards fairness, legibility, and predictability.
Regulation has to increase some expenses. If nothing else it's one more thing on the todo list and time has a cost too.
Note: I'm not saying anything about cost/benefit. It could definitely be true that the benefits are well worth the cost. And it could also be true that a benefit is a lowering of an expense somewhere else lowering overall prices. (which is the thing that is not obvious and need to be explained) But there is a cost that needs to be covered by something. And that cost is usually going to result in increased prices in one form or another.
I can't believe that I continue reading this on HN. Unless something is a commodity prices are not determined by costs! That really is economics 101.
The funny thing is that this is being brought up again and again as an argument against regulation. You'd think the smart business people would know some economics, so they are either lying or not that smart.
Would it help if the concern were expressed as regulation being a constraint on supply? There’s not really an economic distinction to be made here: If regulations demand all airplanes be painted with an expensive shade of neon pink, on the margin fewer planes can be built for the same capital investment and all else being equal supply will decline.
Have you read the article? It makes some solid arguments why it isn't. I mean the existence of points programs and all the different fare codes and conditions is a pretty good indication that it isn't.
Some regulations limit prices or price increases, or create a more favorable environment for consumer price negotiation.
Some regulation may lead to negligible higher prices, so it bears asking not just is there an effect, but what is the magnitude of the effect. If minuscule, then we can ignore it.
> Some regulations limit prices or price increases, or create a more favorable environment for consumer price negotiation.
Even these regulations can increase prices, for example by driving market consolidation or reducing price transparency and increasing overhead as people devise convoluted workarounds.
Price controls also have a tendency to create shortages, causing the product to only be available via black markets that carry a risk premium (and so high prices).
> Some regulation may lead to negligible higher prices, so it bears asking not just is there an effect, but what is the magnitude of the effect. If minuscule, then we can ignore it.
A regulation setting a maximum price of a trillion dollars would have negligible negative impact because nobody would charge that much anyway, but it would also have negligible positive impact because nobody would charge that much anyway. You can obviously pass a regulation that does nothing and then it does nothing.
Customers prefer lower prices all else equal, so that's what they'll choose when all of the options are on the table. Prohibiting certain things only takes options away. If they weren't the lowest cost options to begin with then prices may not increase, but then you have to ask why anybody would have chosen that to begin with over the thing that costs less. If the thing you prohibit was the lowest cost option, prices go up.
> Even these regulations can increase prices, for example by driving market consolidation or reducing price transparency
Or (as they occasionally do) they can achieve the complete opposite. Making such an argument (from both sides) completely worthless without additional context.
The trouble here is that context is expensive. You have to not only look at what the rule purports to do but also what it actually does in practice, including the second and third order effects.
But the people who have time for that are the incumbents, so you end up with rules that on their face are supposed to help the little guy and in actual fact do quite the opposite.
Here's an example. It's a common trope that consumption taxes hurt the poor because they spend a higher proportion of their income so we need to use income tax. But if you look at the numbers, the upper middle class spends the large majority of their income too. You don't get to people who only spend a small fraction of their income until you're into the investment class -- and those people don't pay income tax either. Partially because of transfer pricing and things like that, but at root because they reinvest whatever they don't spend and business expenses are tax deductible. So the claim is BS.
Meanwhile the huge advantage of a consumption tax is that it's hard to avoid. What rich people actually do when there is an income tax is minimize their "income" and buy on credit, which in many cases lowers their taxable income even more if the interest is tax deductible. Whereas with a consumption tax, if you want that yacht you're paying the tax whether you took out a loan for it or not.
So the powerful put out this propaganda that the tax they would actually have to pay is the one that hurts the poor and the one they have many ways to avoid is the one we need to use. But ordinary people aren't all that familiar with how rich people accounting works, so they buy that theory and fight against a change that could shift more of the tax burden from the middle class to the rich. There are also a bunch of things about how the income tax on capital gains benefits not only rich investors but huge conglomerates, on and on.
So unless you have some way to counter this information asymmetry -- and as yet this appears to be an unsolved problem -- the default presumption has to be that a given regulation is inefficient or corrupt. Because most of them are.
Currently, when you carry out task Foo, you perform steps A, B, C and D. Regulation is introduced which says you cannot under any circumstances omit step C.
Even if no one is skipping step C, the enforcement mechanism requires auditing. If there exists an alternative to step C, is it compliant with the regulatory requirement? The regulation itself introduces legal risk which needs to be mitigated. So yes, it increases expenses.
Those expenses are on the part of the regulator, which is funded differently. As a society, we may be paying more to say "you must do step C", but as a customer or provider of Foo, there's no change.
No? Entities don't get to write off the cost of being audited, there's a very real expense associated with both documenting the regulated process in a compliant manner and working through the audit process with the relevant regulatory body.
You can be regulated not to do something, for instance if the regulator banned airline loyalty schemes then none of the airlines would have the cost of administering those schemes, or the cost of competing against each other on perks, so the total amount people spent on airlines would go down.
Not always. Some regulations set price ceilings, which is essentially sets a lower prices than the market rate. This leads to shortages, of course, but it is the obvious counter example.
Regulation can drive up certain cost but the whole economic cost can come down at the same time. On the other side you have technology driving down the cost.
Cars are a good example. They've been dropping in price historically as the government adds on more regulation.
It's not an ad hominem. OP is saying that the person's entire job in writing such an essay is to think and make intelligent arguments about this particular area, and they have failed to do so in an obvious and silly way.
It's just like saying "embarrassing that $person is a firefighter and set their home on fire playing with matches" would not be an ad hominem.
An ad hominem would be: "embarassing that $person is a Harvard grad, making such an argument.", or "of course, we can expect such reasoning from someone writing an article for $publication"
Actually, an ad hominem is when you try to discredit an argument somebody made by attacking that person.
The example you cite seems closer to attacking a person based on their arguments being (perceived or claimed to be) bad. If you say "embarrassing an XY grad would make such a stupid argument" it will only discredit the argument if I believe XY graduates are stupid (I guess the $publication example aims at this). Meanwhile, if I don't see why the argument is bad and don't have a bad opinion of XY, your statement is entirely unconvincing.
Hard agree. If anything, it’s an ad-professorium attack using the discredited argument as (purported) evidence.
Convincingly discrediting someone’s argument and then marveling that such error or oversight would emanate from someone so credentialed is not ad-hominem. Ad-hominem is the exact reverse.
Let us at least strive to keep our error classification and biases in good order.
Cost of flying was dropping continuously in the past 50-60 years and it has less to do with competition but with advances in the industry. While many planes 60 years ago had 4 people in the cockpit (pilot, copilot, navigator and mechanic officer), now they reduced it to 2 (navigator no longer needed with inertial navigation and later on GPS, mechanic officer no longer needed as planes are more reliable and have more sensors and automation). Also the fuel consumption, the biggest cost today, decreased with every generation of engines, time and time again.
Plus, on average on the whole cabin, budget airlines are that much cheaper than others. There is a floor of what an average ticket can cost, defined by operating cost of an aircraft. And not even Ryan Air can ignore those without loosing money.
Sure. And Ryanair does everything to lower down that cost: they operate only one type of aircraft and they do maintenance themselves instead of contracting it out.
Inferior only by single criteria. If you take multiple, not by a long shot. Ryanair, if I remember correctly, has very good delayed and cancelled flight stats, better than most classic airlines.
> From first principles, you should always expect that regulation increases prices and the burden of proof is to argue why it would not.
This reads like:
From first principles, you should always expect that adding lines of code increases the time it takes to execute and the burden of proof is to argue why it would not.
Just like code, economies can be made more complex, which can increase their efficiency.
> From first principles, you should always expect that adding lines of code increases the time it takes to execute and the burden of proof is to argue why it would not.
I would also argue this is true? Assuming more lines of code directly translates to more CPU instructions
> You can add lines of code which use a more efficient algorithm.
Yes, so the burden of proof is on the algorithm. Adding more lines of code, by default, makes the code slower. If the algorithm is more efficient, it can make the code faster. But it must be more efficient.
This logic seems to hold up to me, but maybe I’m missing something here?
The key is that code isn't running in a vacuum. It's operating on data (or controlling systems, etc). A smaller amount of code may be operating on the data in an inefficient manner, whereas a larger amount may be doing it more efficiently.
In the above talk, this contrast is very stark, because the "more code" version does some stuff and then does the exact thing the "less code" version does, yet is faster.
This kind of thing is common enough (albeit less stark than in the above example), that "less code is faster" is not a great "default" assumption to make.
Having more lines of code doesn't even reliably map to having more machine instructions let alone time complexity of solution. Given 2 programs lines of code is a measure so worthless that no reasonable evaluator would start with the assumption that the smaller solution is faster and work from there. They would instead start with the actual code. The point of the analogy which is easily lost in comparing the mechanics of the actual thing is that you must in truth examine the regulation to discern if it on overall makes things more expensive rather than starting off by making the assumption that it does.
Sure, lines of code doesn’t correlate to how much actual code is produced, but I feel like that’s just being pedantic. The assumption that I’m stating here is: the more stuff a CPU has to do, generally the longer it’s going to take to do the stuff.
I’m not arguing that a more complex algorithm can do the same stuff quicker. Of course you can do that. There’s plenty of examples of that. But in the general case, doing more things takes longer.
Of course, the CPU can execute instructions in parallel, it can pipeline instructions and gain a higher throughput, it can predict branches, etc. But those are things you have to be intentional about enabling more often than not. Making small changes in the higher level code can ruin whatever performance gains you had gained because you accidentally trashed the throughput or something.
Generally, more instructions takes longer to process. Of course, a more complex algorithm can do the stuff quicker. But it’s not the default and depending on the problem, it can be very difficult to get it to go quicker with more instructions.
This isn’t even something that should be hard to conceptualize. Getting an element out of an array using an index is O(1). Getting an element out of a hashmap is also O(1) (when there’s no collisions). Even though these both perform the same in terms of complexity (“constant” time) the array will win every time if you already know the index. Why? Because the hashmap uses more instructions to figure out where the index is.
So I really don’t understand why the assumption that: generally, more code = slower is a bad one to make. Unless you explicitly try to make the code with more instructions faster, it will usually be slower than if you did it with less instructions.
> Sure, lines of code doesn’t correlate to how much actual code is produced, but I feel like that’s just being pedantic.
It is actually the core of the entire understanding. There is no mapping whatsoever lines of code and instructions executed. A finite program that doesn't halt will result in infinite instructions. Less pedantically a sorting function that is far more efficient will result in the instructions corresponding to individual operations being called thousands of times less.
Basically everything from function calls to loops ruins any mapping between brevity and execution time.
Normally I don’t continue with arguments like this haha. But I just want to point out that I keep saying generally more code means a slower algorithm. And when I say slower algorithm, that implies I’m comparing it to something. The thing I’m comparing it to is an equivalent algorithm with less lines of code. An infinite loop will run forever with just a few instructions. But I’m not comparing an infinite loop to anything here.
And just to be clear, I do agree with everything you’re saying here, but I do think you’re still being overly pedantic.
> Less pedantically a sorting function that is far more efficient will result in the instructions corresponding to individual operations being called thousands of times less.
Exactly. The goal is to spend fewer instructions to achieve the same outcome. As soon as you start thinking about how different instructions take different amounts of cycles and you can speed up an algorithm by using more instructions that are cheaper, that kind of proves my whole point. You can speed up an algorithm by using more instructions, but you have to be intentional about it. The default will never be: more instructions = faster.
If you mean to say that on average, if you sample from a distribution of randomly-assembled instructions, then code with more lines will run longer, then that's fair. However, I don't think that most code is randomly-assembled, so sampling from that distribution doesn't make realistic sense to me.
Basically,
> You can speed up an algorithm by using more instructions, but you have to be intentional about it.
I feel like most code is written with some intention. It depends on whether or not you believe that most code is written competently, I guess.
It doesn't matter whether it's written competently. The original debate was about lines of code. There is no mapping between lines of code and instructions executed because loops and conditionals are a thing. EG even if 20 lines of code results in twice as many instructions as 10 it tells you absolutely nothing about how many times each instruction will be executed and ergo nothing about the clock time required to execute the program.
Of course it's not always true but I think there's an implicit assumption of "all things equal". The same efficient algorithm written in more lines of code vs less lines of code would be less cpu instructions in the latter.
> 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.
Airlines are just a terrible business. Massive fixed costs, massive variable costs, tons of regulation, tons of competition, constant bankruptcies, and the outlook for the industry only gets more grim. COVID is just a 1 in a hundred year event, terrorist attacks happened before and after 9/11.
It’s a miracle that airlines are as functional as they are. People REALLY like flying.
I'm not sure people LIKE flying, it's just the best of a lot of mediocre alternatives depending on the distance you're traveling and the time you're willing to allocate.
I've certainly had a few airline experience that ended in my wishing I had just driven from A to B because delays and the general inconvenience of it all meant that it would have been faster AND cheaper to drive, but of course we didn't know that when we booked the flight.
The TSA is definitely the worst innovation of the last 20 years. Additional to that, lost luggage, missed or delayed flights, expensive changes - and I will still happily get on a plane without a second thought whereas I may have abandoned some other industry over far less. The ability to fly is truly miraculous. For $500 or less I can travel most of the way across two continents at non-peak times, and for about a grand I can cover most of the globe. Even poor people can scrape together that kind of money every once in a while.
> 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)
Prices are also different based on the language you use on the airlines website. US to EU prices tend to be different if you use the carrier's native language vs English.
It would not be as long as they were accessible to everyone.
> However, traders may still set different net sale prices in different points of sale, such as shops and websites, or may target specific offers only to a specific territory within a Member State. Under EU rules, all these offers must be accessible for consumers from other EU countries.
They are not allowed to redirect you without your consent, and you must also be able to change location at any time.
>Where a trader has several country versions of the same website, such as a webshop selling products to different countries across the EU, you should be able to choose to view which version you visit. You must give your permission to be redirected to a specific country version of the website. You should also be able to change your choice at any time.
With respect, you left out the next paragraph from your quote, which shows that in the case of airlines, it would indeed be unlawful:
> However, there is no possible justification for differences in access to goods or services for customers from different EU countries in the following three situations:
> sale of goods without physical delivery – for example, if you buy something online that you will collect from a shop, rather than have it delivered to your home
> sale of electronically supplied services (excluding copyright protected content) – such as cloud computing services, or website hosting
> sale of services provided in a specific location – for example hotel bookings, car hire, tickets for entry to theme parks
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.
It's price discrimination. Some airline users are not price sensitive (the wealthy, corporate travelers with expense accounts) and they don't care about getting maximum value for their dollar. Economy fliers do.
Charging that much seems fine to me, I think doing what you are describing would create a market inefficiency. 5x seems to be what the market is willing to pay for that seat, which is fine. It excludes lower income people from ever taking business class but those higher priced seats help make travel more affordable in the uncomfortable, jam packed rear of the plane
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.
Unlike domestic flights, international flights are often priced as essentially round-trip only. In the sense that buying one-way is almost as expensive as round-trip.
I haven't yet figured out what the exact logic is behind this and when it applies; it's just been my personal experience.
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.
I fly back and forth from the EU to the US and I've flown multiple times in business or first, and to this day I have no idea what the difference is between the two. If they charge more for one than the other, then I'd really like to know what they're charging for.
> 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 benefit to customers was the planes were directed to where the customers were and flew to where they wanted to go. There was not a sudden decrease in aircraft flying.
> the benefits to society is in terms of reduced fuel consumption, only because that’s directly aligned with the airline’s profits
Companies don't burn fuel for fun. The fuel is about 40% of the cost of your ticket. Increased fuel efficiency is the major driver of new airline designs.
> an industry that periodically starts a fare war that requires federal bailouts
American airline tickets contain a 7.5% excise tax, $5.60 per-trip September 11th fee and another excise tax of $4 per flight segment. (That's in addition to the usual sales, payroll and corporate taxes.) Taking just the former, I'm curious what the net give/take ratio is. Because it might be argued that we run our airlines as an indirect tax on high earners to fund the jobs program that is the TSA.
Bankruptcy doesn't mean failure for large airlines. The shareholders get wiped out and bondholders take a haircut but the airplanes keep flying during the bankruptcy resolution so it's fine.
Why would an airline be too big to fail? They don't have counterparty risk like banks.
The airline would go bankrupt, the shareholders would lose their investment, the bondholders would own the new corp, and perhaps the aircraft fleet would get a new livery.
> The benefit to customers was the planes were directed to where the customers were and flew to where they wanted to go.
FTA: "Worse still, without mandated service, cities and regions across the country have lost commercial air service"
It sounds like planes stopped being directed to where customers were and no longer fly to where they wanted to go in many instances. This is not a win for the consumer.
> without mandated service, cities and regions across the country have lost commercial air service
Yes, because nobody wants to run a business at a loss.
> It sounds like planes stopped being directed to where customers were
You're assuming the airlines are stupid. The fact that the airplanes were often nearly empty under regulation and nearly always full when unregulated is pretty strong evidence they were serving a far larger number of customers.
> Yes, because nobody wants to run a business at a loss.
Which is why some important services (like the post office) shouldn't be run as businesses.
> The fact that the airplanes were often nearly empty under regulation and nearly always full when unregulated is pretty strong evidence they were serving a far larger number of customers.
They are serving a far larger number of customers in areas A and B while now serving zero customers in areas C D E F and G. It might be far better if fewer people in areas A and B could fly if it meant that more people in the other areas could.
Airlines aren't stupid they are just doing everything they can to deliver the least to the public while charging the most they can extract from the public. Also, it isn't as if the changes airlines made to fill up seats couldn't have happened under regulation, or even that they never would have.
You're suggesting that it's better to serve 10 people at double the price instead of 100 people at half the price. Never mind the enormous environmental cost of this inefficiency.
> they are just doing everything they can to deliver the least to the public while charging the most they can extract from the public
If you are sure they are gouging and making excessive profits, buy stock in the airlines and get your share.
> it isn't as if the changes airlines made to fill up seats couldn't have happened under regulation, or even that they never would have
They had 40 years to fix it and never did. The airlines fixed it overnight.
> You're suggesting that it's better to serve 10 people at double the price instead of 100 people at half the price. Never mind the enormous environmental cost of this inefficiency.
Yeah, I suggesting that at the very least it could be, if it means more Americans have access to an airport and airlines served a larger percentage of the country as opposed to only the areas that generated the most profit for them.
> If you are sure they are gouging and making excessive profits, buy stock in the airlines and get your share.
This wouldn't be the worst time. They suffered during the worst of the pandemic but are profitable this year. They'll be looking to claw back the profits they missed too so I expect prices and fees to continue to soar.
> Yeah, I suggesting that at the very least it could be, if it means more Americans have access to an airport and airlines served a larger percentage of the country as opposed to only the areas that generated the most profit for them.
This exact kind of logic was why, during communism here in Eastern Europe, we couldn’t find anything in stores: the government in its infinite wisdom was deciding who should build what and how much. Because the greedy companies would’ve built only whatever was profitable for them.
The predictable end-result? We were starving looking at empty shelves, while greedy capitalists in western countries were spoiling the consumers for choice.
> Yeah, I suggesting that at the very least it could be, if it means more Americans have access to an airport and airlines served a larger percentage of the country
Why would it mean that? It obviously didn’t work that way before deregulation and afterwards air travel became much more accessible to more people
If you want a similar situation, look at Amtrak - it has stops in tiny towns that may see less than fifty disembarks/embarks a year, but it's nearly impossible for them to close the station or not stop there. Many times it'd be cheaper for Amtrak to hire a car to drive the people who use that station to the next station, but they're not allowed to reduce service because those small towns complain loudly.
> It might be far better if fewer people in areas A and B could fly if it meant that more people in the other areas could
How "might" it be "far better" to the public at large for airlines to serve fewer people at a higher cost?
> Airlines aren't stupid they are just doing everything they can to deliver the least to the public while charging the most they can extract from the public.
If they did as you suggest, they'd be demonstrably and measurably delivering FAR less to the public while charging even more money. You're arguing in both directions!
> How "might" it be "far better" to the public at large for airlines to serve fewer people at a higher cost?
For the same kinds of reasons it's better for the post office to serve people in remote areas at higher cost as opposed to leaving them without service and cut off. The same reasons why it's better for more Americans to have access to broadband, not just the Americans who live in the areas that would make ISPs the most profit. It can be worth it to spend more money when it means providing access to important services to more Americans vs a select few.
> If they did as you suggest, they'd be demonstrably and measurably delivering FAR less to the public while charging even more money.
Which is exactly the case. They ARE delivering less. Less access by only providing service to the locations which give them the most profit. Less leg room so that they can cram more people into every flight. Less service by cutting staff. Giving passengers fewer options/less choice. Allowing less baggage. Flights are increasingly canceled and delayed. Customer satisfaction gets lower and lower all the time. They are giving us less.
They are also charging more and more. Airline tickets are skyrocketing, outpacing inflation. Even as the service airlines provide keeps getting worse and worse, the prices keep getting higher, and higher but there are also the endless bullshit fees for everything they can think of (https://www.elliott.org/on-travel/hidden-airline-fees-are-ev...) which are often hidden.
These examples are not demonstrative of what you are arguing. If you were to instead propose "closing half of all UPS stores in densely populated cities and reallocating them to rural environments" it would be an apt comparison, and equally illogical.
There is an argument to be had (maybe) about expanded airline access for less populated geos. There is only an asinine argument to be had about doing that at the cost of reduced service for major population centers.
They are serving far more people at far lower ticket prices than when they were regulated. I.e. deregulation enabled them to put the planes where the people are.
Do you know how much it costs to fly a jetliner? Why does it make sense to you that a 767 should fly into a rural airport to pick up 3 passengers?
Congress still subsidizes airlines to fly to some smaller airports through the Essential Air Service program. It's not a mandate; airlines can choose whether to participate.
Congressmen who are elected to represent the will of the people and serve in their interests. I'll take that over the airlines who serve only themselves and whose only motivation is to take as much money from the public as possible.
An individual has more power in the airline case: you can fly a different airline much more easily than you can move to a location with a different representative.
Not at all, one individual won’t do anything against a business that large. And what if 1000s more people fly the airline and it becomes so wealthy it buys up all the other airlines? Corporations are authoritarian, tyrannical institutions where only the wealthy have any ability to make change. The US government may be immensely corrupt, owned by the rich, etc but at least it’s a democracy.
> And what if 1000s more people fly the airline and it becomes so wealthy it buys up all the other airlines?
Then there is gonna be a gold rush of airline startups leading to amazing innovation, offers and low prices for consumers.
Unless your government intervenes and regulates the market into a monopoly of incumbents, of course.
> Corporations are authoritarian, tyrannical institutions
Corporations are at the mercy of their consumers and investors. They get toppled every day. Remember Nokia? Motorola? IBM? Zoom? Heck even Intel lately?
I’m replying here since the other comment is too deep.
Congress very specifically, by design, does NOT represent the will of the people. It represents the will of land area. Even the part that was originally supposed to be representative of population no longer is due to shenanigans, and also over-represents land instead of people. We probably shouldn’t get into the pros and cons of this system here, but I did want to correct your fundamental misunderstanding.
The main difference is that if you don't like how congress runs something, you can vote in someone else. You can't vote out the CEO of Delta Airlines. You are powerless and should expect the airline to treat you as such
That assumes you have the option. Not all airlines fly to all locations. They love to carve up route maps and build up fortress hubs to prevent competition.
The places that lost service were small population areas that nobody wanted to fly to/from. Places that people want to fly get service, and it is a lot cheaper as they don't have to subsidize empty flights where nobody wants to go.
> the benefits to society is … only because that’s directly aligned with … profits.
Yeah, that’s the magic of capitalism. You make society more efficient and get paid for that.
You say that being crammed into planes isn’t a benefit. But the opportunity costs should be taken into account. Every resource not spent on airlines is a resource spent on something else.
> Yeah, that’s the magic of capitalism. You make society more efficient and get paid for that.
you get paid for giving people what they want, not necessarily making society more efficient. It's more profitable to sell a car to everyone than it is to sell them bicycles, even if the latter is "more efficient" in terms of space, mineral and fossil fuel resource usage, pollution, health of users...
and God forbid you just tell people to walk.
I used to work at H&M - getting low quality disposable clothing from Bangladesh isn't "more efficient" then buying a sewing machine and making your own clothing, at least not if you consider transport or environmental costs. But people are lazy, and they're easily bored, and they like "new" looking things, so H&M keeps on selling clothes.
I guess basically what I'm getting at is tragedy of the commons. You let people mindlessly pursue their short term interests, it doesn't necessarily lead to efficient behavior at the aggregate level.
Arguably what has made society more efficient, at least for automobiles, has not been "capitalism", but government regulation - safety, environmental, and cutting down on drunk driving. If you consider "dying en route" to be "inefficient", then you'd agree that while just building nicer looking cars with bigger tailfins to please the market didn't really do much to reduce this inefficiency, government mandating bumpers and seatbelts and airbags did.
> buying a sewing machine and making your own clothing
But why stop there?! Cultivate your own cotton, make your own cloth. Mine and smelt your own iron. Cut the woods and build your tools, then build your sewing needles from scratch.
Funny enough during communism here it was close to impossible to find modern sewing machines - they were the product of the evil capitalist countries, of course. So the old foot-operated Singers were selling at quite the premium.
And yes, we did walk quite a lot - car production and gas distribution in a planned economy meant tens of years on waiting lists.
there is no magic to capitalism, only greed. when that aligns with your definition of efficiency it’s a coincidence.
capitalism can also be very harmful and inefficient for society. companies draining aquifers and producing tons of disposable plastic bottles to sell people that water for profits is a net negative for modern society. that money should go towards improving our water infrastructure so no one feels that their water is unclean. so much plastic pollution is the result of capitalism too.
It certainly was magical after the fall of communism in Eastern Europe to be able to visit capitalist countries and wonder at the shelves full of products and the countless affordable offers.
Starving under communism on the other hand was not magical at all. We were told incessantly that we were making the world a better place, improving the society unlike the evil capitalism that was destroying everything - but we were starving.
Funny enough the capitalist countries looked better and were less polluted too. Turns out rich societies tend to care more about the environment and invest accordingly too.
It also happened because airlines were suddenly allowed to offer discounts to fill seats as the takeoff date approached. That practice did not exist during the pricefix era.
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?
There very much was global competition in the airline manufacturing market in the 1970’s. US airlines also weren’t the only people buying aircraft at the time so those regulations didn’t actually impact manufacturing very much.
As to improvements without competition, it’s surprisingly common. AT&T was a huge hotbed of technical innovation when they were a monopoly from ever improving switches and fiber optics etc but they even produced one of the first commercial Unix System V. They also played a surprisingly large role in early satellites literally owning the first commercial communications satellite used for the first live transatlantic television signal. https://en.wikipedia.org/wiki/Telstar
Monopolies often spend huge sums on R&D outside of their core business. Google’s self driving car is exactly the kind of investment you see when companies have more money than they know what to do with. Xerox for example developed the desktop UI mouse included when they held a huge monopoly, not that it helped them but it did push the industry forward quite a bit.
AT&T may have innovated in their labs, but they were glacially slow pushing innovation out to consumers. AT&T launch the push button phone in 1963, but it wasn't until the 80's (deregulation in 1984) that a majority of dial phones had been switched over to touch tone. One didn't their home phone, they rented from AT&T, so what was their incentive to innovate?
That’s not a lack of innovation, that’s a slow rollout. Innovation is the creation or introduction of some new thing not its takeover of the market.
Your primary care physician is in a competitive market yet presumably still makes appointments over the phone rather than allowing people to schedule online. Such technology has existed for decades and some doctors let you, but adoption is still slow.
It stifled innovation in the home phone market - everyone had the same phone for 40 years. When people were allowed to own their phones, you immediately had innovation. Some stupid consumer aesthetic innovation, but also more real changes like cordless phones, answering machines..
Except they did actually innovate headsets several times including inventing the push button phone. They were even working on Cellphone technology as they were broken up.
AT&T was hardly the only phone company in that time period, people just didn’t really care. Phones just cost a lot and spending more to have buttons just wasn’t considered worth it.
Even into 1982 most people were still renting their phones from the phone company: “Some resistance to buying phones might be evident in the response to the sale offers made in New York, California and Oregon. In New York, those who now rent a plain rotary dial phone pay $3.03 a month and have the option of buying it for $35, which means that the phone would pay for itself in reduced bills in one year. The return on some other models is even faster.
Even into 1982 most people were still renting their phones from the phone company:
Exactly! You had to. 1982 is a very relevant year, the last year before AT&T was broken up. People did want to own their phones, and they wanted choice, and they wanted fun weird phones, or cheap phones, or whatever. Monopoly quashed that.
From 1960 -> 1980 phones barely changed. Compare that to the changes from
You seem to misunderstand, this is months after the breakup and people still rented the phone. It stopped so quickly because the practice was literally banned by the FTC.
It seems strange today that people would rent phones, but they used to be very expensive items even outside the US. The practice ended because prices fell so far not because people’s preferences changed.
practice ended because prices fell so far not because people’s preferences changed.
As if prices aren't a part of preference? As if innovation isn't lowering costs? That alone torpedoes your claim - why wasn't AT&T innovating on lowering prices? Obviously because they were a monopoly and how no incentive.
What you you may not know, is that people didn't switch from renting to buying the same boring phones, the market exploded with phone options. Where was the AT&T cordless phone pre-1982?
> think about industries where there isn't much competition. Do we see similar improvements there, usually?
I can't think of an industry without competition where said industry doesn't try to improve their product or production for more profit. Maybe something in the medical space that I'm unaware of, but this definitely doesn't fly for aviation or transportation in general.
> but this definitely doesn't fly for aviation or transportation in general.
Precisely because those fields are in a high economic (and consequently technology) competition, you see innovation as you noted. The parent comment is that you cannot throw away the competition and still expect innovations to happen.
And my question is what industries that don't have competition also don't innovate? I am not aware of nor can play devils advocate and try to imagine an example.
Had deregulation not happened for airlines in the 70's, why would we expect that they wouldn't innovate to produce less expensive and more reliable aircraft? Any sort of improvements there makes a bigger profit and avoids killing customers (also pretty good for profit).
There are plenty of examples. I will give one in transport, as we are discussing here.
Seoul and Tokyo have the most extensive subway systems in the world. Both have both privately owned and de facto government-owned lines through government business entity. The innovation here is connecting key areas in the city. The new lines that connect new city centers that emerged are privately owned; they care about profit and they are incentivized to provide popular, convenient services by connecting new city centers. Also, there are other innovations like self-driving trains in those private lines (see Shinbundang Line, the newest in Seoul). A government line with legally guaranteed profit is less poised to innovate although some innovations happen due to popular demands or government initiatives.
It's not that government-led projects have zero innovations, but they tend to have less momentum than well-motivated well-aligned private corporations. Well-aligned (with the public's interest) is the key here.
I don't know if particular examples prove anything, but you asked for examples, and here it is. We do have decades of economic research that competition generally leads to innovation in services and technology.
I love how you start with critical thinking, essentially asking for evidence, only to then turn around, put on your cheerleading outfit and make heaps of implications and assumptions in favor of deregulation and capitalism without so much as a notion of evidence.
You didn’t even bother to argue against the points raised by the article itself, which goes as far as to say that the benefits you attribute to deregulation hasn’t occurred beyond the first few years after deregulation.
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.
I would argue that the energy sector of most developed nations as a counterexample. I think we can go back and forth all day about the extent to which they are true command economies, but the ultimate point that natural monopolies can and often are successfully managed by nations in a centrally-planned manner I think is clear.
Oh! Let's talk about the energy sector! I worked professionally in that area.
Europe and the US are most definitely not counter-examples. Power generation is almost everywhere done commercially. Transmission is more often publicly owned, but even that is not universal.
The closest example to the command economy is rail in Europe. And it's predictably struggling.
The European grid is not centrally planned. It's certainly affected by the government policy, but its development is driven by private profit-seeking companies.
Right, so let's say Duke Energy is a private profit-seeking company in the eastern US. In many areas it is the only energy company in town. Are you trying to say that, just because it's a private company, it's not centrally planned? That each section of its business is in some sort of free market?
Private corporate ownership and central planning are not mutually exclusive. Texas is maybe the only place in the US where energy production isn't centrally planned, for any reasonably local definition of "central."
> Are you trying to say that, just because it's a private company, it's not centrally planned?
Correct. For example, the government is not saying that Duke must put ten gas power plants in a particular location for $10 by 2025.
> That each section of its business is in some sort of free market?
Funnily enough, this is pretty close to how Duke operates. The central holding company only deals with the strategic planning, and its subsidiaries make their own plans to implement these plans.
But anyway, even in the areas where Duke has a legal monopoly, it has to contend with other utilities, otherwise its monopoly will end.
> Private corporate ownership and central planning are not mutually exclusive.
They are. Central planning from the government means that there's no meaning in private ownership. Centrally planned industries are not affected by the market forces, so they can become inefficient without the market feedback.
It looks like we're working off fundamentally different definitions of central planning, so of course we disagree. Central planning, in my vernacular, does not at all imply government control. It simply means that most decisions are made by some sort of central authority and executed by decentralized agents, rather than plans being made by the agents themselves. This is how most non-franchise businesses operate.
If you require central planning to retain an element of planning by the government in your definition, then I agree, energy is not a good example of this.
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.
Idk why everyone interpreted this comment as asserting that we should switch to a centrally planned economy nationally, I'm just clarifying that the argument "centrally planned economies don't work, therefore nationalizing natural monopolies is folly" doesn't hold water.
Most of the "natural monopolies" we have were created directly as such by governments.
Electric utilities? There used to be competition. Idk what happened exactly, but then we had no competition and they were regulated.
Public transportation? New York's subways (90% of existing track!) were built by two competing companies, then NYC regulated them into bankruptcy, and then NYC acquired them. Similarly with busses and trolleys. There used to be a vibrant trolley system in New York, then the city killed it and "nationalized" it. Compare to Buenos Aires, where they never nationalized the bus system, and which has a privately operated bus system that is the envy of every American city!
Cable systems also had competition, but then all the towns regulated them.
If Edison and Westinghouse could compete a century ago, they could compete today.
Roads are pretty much the main case where I'd agree there's a natural monopoly, and then only because there's not enough physical surface space for competition.
In any case, airlines are far far from natural monopolies. Airports might be, but not airlines.
Natural monopoly in the formal macroeconomic meaning of very high fixed cost with virtually zero marginal cost (ex. it costs ~nothing to transmit an extra watt of power, fly one more passenger, insure one more person, etc). In these cases basic econometric theory shows that production cost is lowest with a single provider, adding two or more competitors increases total cost of production without changing the total output. Obviously nothing obtains these conditions precisely in the real world, but in general the principal holds for big infra stuff. I think your example of a bus system faces the obvious fact that the US dumped a ton of resources into private auto travel which makes it challenging for any public/shared transit to succeed.
The power grid is another classic example of a natural monopoly, it costs a lot to make a power plant and hang a bunch of wires, but once it's running it's basically free to send a small unit of additional power to a person. For this reason the US was going to nationalize the grid back in the 20s but at the last minute decided to lease to a "regulated monopoly" private corp (IIRC it was some dude in Chicago who convinced them to give him the lease). Texas tried to roll this back in the like the 90s and their power costs shot through the roof and still remain nationally high.
> 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.
That's a trivially true statement for any descriptor which can be applied to both a business and a nation? National economic collapse generally means civil war and anarchy in almost any case.
Nation is like "too big to fail" businesses and both are bad because of this. Free market system requires everyone to be able to be eliminated from the competition.
Although sometimes I imaged UBI to instead enhance free market because it allows every person to contribute to the competition and can still fail gracefully. Instead poor person is now also "too big to fall" because they're betting their livelihood for each proposal.
> 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.
Every business once it gets out of its rapid growth phase seems to want to become a bank. Car companies are all about loans now, "X" is an attempt to turn social media into banking (and not the first), Google and Apple are both into payments and other financial services, and the list goes on and on.
Either the market has an endless appetite for banking or capitalism does not in the end deliver what markets want.
You say that as if you cannot buy a car or an airline ticket. In fact you can, because airlines fly planes and sell tickets on them, and car manufacturers make cars and sell them.
It may be cute to say “X is a bank”, but an airline is not a bank. Besides the obvious facts that you cannot withdraw money from an account or pay your bills, if they didn’t fly planes the points would be ~worthless.
The fact that they don’t profit from those activities is a market economy working as intended*. Cars and flights are easily substitutable goods, you’d expect to see the profit competed down to ~nothing.
*Arguably there is getting to be too much consolidation in the airline industry, and also legal limits on airport gates act as a huge barrier of entry for new competition.
I suspect in the end, the financial component of any business has the highest margins, so business seeks it like a plant growing towards the sun.
To do the "actually send passengers from LAX to ORD" part of running an airline you have to pay for pilots, gate agents, planes, the world's smallest cups of flat ginger ale...
But shuffling around frequent flyer miles as a psuedo-currency? No actual tangible expenses there, just some obligations that end up on some future quarter's balance sheet.
> Either the market has an endless appetite for banking
I don’t like it but I think it’s clear this is the case. The demand for “buy now, pay later” seems to be huge, even if it costs more in the end, even for seemingly trivial amounts of money for regular purchases. But I really have no idea how much things like affirm on Amazon actually get used, maybe no one else is using it either.
Kinda? The era of technological or business innovation for large airlines may basically be over. If you take that bet you want the airline you invest in to focus on financial wheeling and dealing to ensure they save a few pennies on fuel in 2035 or earn a few more pennies on affiliate credit card spend in 2027.
So you're admitting that innovation isn't downstream from market incentives in this case, but financial wheeling and dealing is. I'm glad we are on the same page.
I'm admitting there isn't much innovation left in pure airlines. The customer has spoken, they want cheap flights. Some are willing to pay for legroom, some are willing to pay for luggage, [insert a bunch of other things] but will do without for cheaper tickets. It is very hard to find any more innovation that hasn't already been found in this space. Airlines are working on the things grandparent named because it works to consumer wants: lower prices.
I think part of the problem with air travel is it’s hard to know what you’re actually getting. The seating chart doesn’t visualize leg room or cleanliness or the details of the seat design on that particular flight. If there were reliable indicators of these things, people might choose to pay more for some of those.
One consequence of giving everything a discrete price is that it drives customers to consume all services they pay for completely.
If you say "I can take two checked bags, it's included in the fare", I'll probably only take one because I only need one for the duration of my trip. But I'll feel good knowing if I decide I see something awesome while on my vacation, I can take it home without too much care for penalty fees.
But if you say "Each checked bag is $50", people will pack everything up to and including an entire 1996 Toyota Corolla into their free carry-ons, exhaust the available space, and the airline has to say to the economy class late-boarding group 'everyone after this line has to check their bag anyway, but we won't charge you the $50."
As an added plus, the price awareness reduces the quality of the travel experience-- you end up asking "can I fit another souvenir in my little free bag", and often deciding against it, because it's insanity to spend $50 in bag fees for a $10 book.
Most of the spending of the middle class, and all of the spending of the working class, is already spoken for.
If you want to make money from the middle class, you have to do better at something than whoever is doing it now.
If you want to make money from the rich, you just have to dream up some new twist on their wants (sure, it has to be executed reasonably well, but you're not competing in the same way).
So sure, most of the money that changes hands does so via the daily/weekly/monthly spending of regular people. But that's not where the big money is unless you come up with a truly mass market new thing. The big money is in providing for the wants of the rich, because the marginal utility of what they spend on wants is so low to them.
Or you make what the middle class spends money on. This is generally an easier path. Making something unique can make money, but generally it is safe to assume if nobody else is making it, it is because nobody wants it -not that you are the first with a new idea.
If the middle class spends money on it, then in general, someone is already making it, has established customers, distributors etc. This is a high barrier to entry.
For what it's worth, I (mostly) disagree with your detractors in the other comments and agree with your sentiment (I think).
Markets care about "aggregate
demand". Rich people can be lucrative individual customers because they have more to spend and often less price sensitivity. But they have limited capacity for consumption in many areas; they only eat three meals a day and only fill so many airline seats at once. The middle class and even lower classes have much higher capacity for consumption and are worth targeting - think McDonald's or even Google (advertisers want all the eyeballs they can get, even if they prefer wealthy ones)
Wealth (i.e. net worth) isn’t the relevant statistic for how much the market “cares” about a particular demographic. Aggregate disposable income is.
A young doctor with $100k in med school loan debt is part of that “bottom 50%” of wealth but nonetheless an extremely attractive target for “the market”.
By default, company executives are beholden to the shareholders (i.e. the wealthy).
In a healthy competitive market, they're also reactive to customer desires, but when they're presented with the opportunity to decrease competition through consolidation or other means, it's blatantly obvious where their true loyalties lie.
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.
I mostly agree with this sentiment, but I think it goes too far.
> 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.
Hmm. This seems unfair to the military during wartime? WW1 feels like a huge example.of advancement driven from very command-ey institutions; from the idea of the tank to deal with machine guns and barbed wire to nitrogen-ating fertilizer in Germany to withstand the British blockade. (Never mind DARPA and the internet or the moon missions during the Cold War, or the Manhattan Project)
(Yeesh, not that I'm suggesting it would be preferable to pursue this as a full-time model - it's literally fascism, but it's important to understand why these systems were pursued in the first place - the point is that there do at least appear to be high profile success stories)
We could have oodles of data and yet not have the data that matters to making distributed decisions, which is price signals.
A modern digital command economy wouldn't have price signals, but even if it did it wouldn't make decisions like the individuals would precisely because the point of a command economy is to deny individuals freedom. And that is a reason that digital command economies wouldn't have price signals: there's little point when the point of the command economy is to ignore those price signals.
> the point of a command economy is to deny individuals freedom.
This is an unsupported generalization. Command systems exist to mandate production and distribution of goods, e.g. to ensure sufficient food production and equitable food distribution. They eliminate the "overhead" of competition and the need for marketing. Look at any self-sufficient commune and tell me their internal economy has anything to do with imposing limits on freedom. Don't let your negative feelings toward certain historical examples cloud your understanding of the matter at hand.
> > the point of a command economy is to deny individuals freedom.
> This is an unsupported generalization. Command systems exist to mandate production and distribution of goods [...]
This is exactly denying individuals freedom. It's right there in the word "mandate". If you want to produce some thing or service at some price, you don't get to unless that's what the planners want. If you don't want to produce some thing or service at some price, you may be forced to by the planners. You don't have freedom of agency, and you can't have freedom of agency, in a planned economy.
> I own all factories that can produce X, and am by some benefit of scale now the only one reasonably able to make an X-factory. If I didn't do it, probably nobody could.
> I have command of the X-economy and can mandate the production and distribution of these goods
> The intended point of all this is somehow to deny individuals their freedom to fail to create an X factory, rather than to ensure that X gets created and distributed at all
This problem always resolves itself naturally. Competitors arise. Disruptive innovators arise. It's a great problem to have precisely because it leads to innovation. Everyone salivates at a cut of what the 800lb gorilla is taking, and the gorilla grows slow as it grows large, and it sits on its laurels extracting rent (vendor lock-in), and then the gorilla gets out-innovated.
Regardless of whether this is a "problem" that gets "resolved," surely you understand you have failed to support your conjecture that my command of the economy is purpose-built to limit freedom.
What if there is no profit? What if I operate at 100% loss, year after year, propped up by the subsidy of a fiat currency, to provide something everyone needs, and don't think the goods and services which sustain life should come at any cost? I am overwhelmingly popular. Nobody is going to seriously compete with me, although they're free to try. Nobody is forced to work for me. Whose freedom have I limited? Doesn't this sound like a lot of things we take for granted every day which are centrally planned?
If you pointed out any contradiction, you did an unfortunately poor job of elucidating exactly where that contradiction occurred. Furthermore, you failed to support your claims even a little bit.
But I hope you sleep well! It's crucial for proper brain function.
Claiming that you've made an unsupported generalization, and then making one, is not a contradiction; it's hypocrisy.
In any case, your statement still fails to hold water. Consider the ISS: there is central planning and command of the entire economy of the vessel, from its air, water, and food to its electricity and the time of the astronauts themselves. But the 'point' of this command economy is not to limit freedom; it is to keep the astronauts alive. This is the most extreme example, but obviously there are other situations (ships at sea, camping trips with a group, military operations) where centralized control of the goods produced and services performed serve the goods of the group's goals, and have nothing to do with intentional limits on freedom.
> Claiming that you've made an unsupported generalization, and then making one, is not a contradiction; it's hypocrisy.
It's not just claiming I made an unsupported generalization and then making one, it's the the one you made was the same as the one you claimed I was making! Strictly speaking it's not a contradiction, I suppose, but if you did it unthinkingly then I think calling it a contradiction is fair. Though if you want to call yourself a hypocrite, don't let me stop you!
(EDIT: Ah, you weren't contradicting yourself. You were agreeing with my "unsupported generalization"! Heh.)
As for the ISS, it's not exactly comparable to the subject in this thread (airlines) in scale. The ISS is the only destination for the "airlines" that service it, and there's only two of those "airlines", and they both fly very rarely, and the passengers are 99% not tourists. Nor is there much of a business in sending tourists to space at this time. But if ever there is such a business, it will be because companies like SpaceX and Blue Origin make it so, not because the government "regulated" space travel before "like airlines". The comparison is not apt is just not apt.
As to central planning reducing freedom, that is most certainly true, though if a government imposes central planning only for a very small part of the economy, then the reduction in freedom is not very great and maybe barely noticeable. At the limit central planning definitely eliminates a lot of individual freedom. We've seen this many times with Soviet communism, Cuban communism, Eastern European communism, Chinese communism, East Asian communism, etc. They don't just eliminate much individual freedom -- they kill a lot of people on purpose, and then even more via famines caused by their vaunted central planning.
Beginning to think you're actually incapable of understanding what I'm saying so I'll be as clear as possible.
You said, "the point of a command economy is to reduce individuals freedom." I have provided numerous arguments that a command economy could serve another purpose -- survival in extremis, provision of public goods at a loss, and creation of a communal sense of obligation.
I made no argument about the specific context of this thread. I made no argument that it does not decrease individual freedom. It does, as does any situation where the principal decision maker and executive agent are not the same person. But that is not always the purpose. Your inability to understand your own words and their implications astounds me.
There have never been any self-sufficient communes. They always depend on external inputs. Over the long run, command economies always collapse into famine. It's impossible to command most people to work hard over a long career without free market incentives.
Over time, all systems collapse eventually. That sentiment is worthless.
Furthermore, nobody said anything about working hard.
Surely you're not about to claim that all pre-colonial civilizations with functional governments either somehow had free market incentives or collapsed into famine.
"There have never been X" is always an extraordinary claim and you've done a poor job making it.
The problem is that too much of the innovation in our system targets ways of becoming a new middleman in existing economic exchanges, because collecting 1% of "all X" is much more valuable than collecting 100% of "a few Y".
The incentives to innovate in ways that actually benefit people are weak in our system, because the disincentives to innovate in ways that just make you a bit wealthier are small to non-existent.
That's not a real problem worth worrying about. Look outside the tech industry bubble. There is a huge amount of innovation happening in sectors beyond of finance and software, but they don't get much attention on HN. Of the IPOs this year, what percentage are just middlemen?
The US military's many labs, test sites, software foundries, federally funded research and development companies, and research institutes are laughing at this sentiment. Innovation is routinely commanded -- look at Skunkworks, JPL, heck even the USSR's space program.
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).
> Having individual agents plan their own economic choices is much more efficient
There's a great deal of inefficiency in our current system as well, though.
I suppose I'm talking more about the "how much grain should we grow this year" sorts of questions that the Soviet Union failed at. It's almost certainly impossible with early 20th century tech, but with modern computing it seems like it might be more efficient to solve by one party with great resources, rather than by many parties with more primitive predictive tools.
When it comes to the discussion at hand, transportation infrastructure is one of the few areas that's inarguably more efficient when centrally conducted, which is why our roads and subways are government-operated, and why the airlines have an insatiable desire to consolidate.
> with modern computing it seems like it might be more efficient to solve by one party with great resources, rather than by many parties with more primitive predictive tools
I'm not sure what technology we have now that the Soviets didn't have that would allow for successful central planning of agriculture. Local boots-on-the-ground conditions vary so much, even from one end of the field to another.
That aside, even if we had technology sufficiently advanced so as to be indistinguishable from magic, there's the other great problem that central planning couldn't overcome, which is the problem of human nature and incentives. Many parties with primitive tools who have a direct incentive that their crop is bountiful will beat out the one central party with great resources that nevertheless lacks skin in the game.
> 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.
>Even assuming 1%, for an airline to lose $10,000 in profit, you would have to be spending $10,000 / 0.01 = $1M per year on that credit card.
I think you missed the part where they're losing ALL of my business, including dozens of flights a year.
>I assume there are lots of smart people working at airlines that can work out which of their policies earn and lose money, especially now that all the competition is minimal except on the most popular routes.
I assume they think customers with lots of miles banked won't go through the effort of dropping them entirely. I think they're wrong.
When you're losing customers that have million miler+ status, you've made a pretty poor decision.
> I assume they think customers with lots of miles banked won't go through the effort of dropping them entirely. I think they're wrong.
I agree with you on this. Nobody who flew Delta did it for the value of SkyPesos anyway. The airline miles on Delta have historically had the lowest value among US major carriers and that hasn't gotten any better, so frankly I have no issue giving up my miles. I flew Delta for better hard product and a better set of co-brand + FF perks. By changing the latter, the difference on the former is mostly ameliorated, and the miles are basically meaningless. At most a skypeso is worth maybe 1 cent. A million skypesos is only worth $1k in EV, and that's being generous. A one-time cost of $1k that isn't even a fully realized loss (I can always use the miles later without seeking status) is nothing compared to the betrayal of the program changes.
Mostly agreed, but still ... I used to fly United/American from PHL to LHR all the time because .. well, its a hub city and I lived there and they were the best deals and had convenient departure times for the transatlantic crossing.
Then I moved to New Mexico, and found that Delta was the obvious choice for getting to London from here. And OMFG ... the difference in the product was just spectacular. Seats. Food. Movies. Uniforms. Air quality (not kidding). Probably will still use them when I do this journey.
Domestic flights it's a big difference, but for international flights if you're in Polaris at the front of the bus, United is actually better than Delta, although the United food is pretty horrid even in Polaris. The best news though is with United you can fly Turkish Airlines, Lufthansa, or Singapore Airlines on United. Singapore Airlines has the best business class hard product in the world. United and their partners also heavily operate 787s, which are great for noise and air quality.
United domestic routes are disgusting though. Most of the planes are falling apart CRJs without IFE and WiFi, and if they do have WiFi they charge you for it, and the domestic United staffers are not good. I would put United service quality on-par with Spirit or Frontier. Easily the worst in the big 3.
That said, I'd still rather develop status on United, take directs, and then fly Polaris full-fare or Singapore Airlines biz class for my personal / international trips now that Delta has made these changes to the medallion program.
I guess we will have to let it play out and see. I’ll take the bet that the same airlines that exist today will be there earning the same measly profit margins in 10 years (except JetBlue, which may not be around).
10 years ago there was USAirways and Continental, and Northwest a little before that. Reduced competition buoys the remaining survivors, but the history of bankruptcies in the industry certainly lends quite a bit of doubt towards your assumption.
The assumption is that as they become fewer, the ones that remain gain staying power. Which is why I excepted JetBlue since they could get sold or fail, I think they are hoping their Spirit purchase goes through.
Crazy to think JetBlue wanting Spirit. I remember when JetBlue started, their goal was to provide a better experience than all the other airlines. It is really a cutthroat business. Virgin Airlines had to be folded into Alaska too.
I think in many cases they are just buying routes/gates. If the airports are maxed out in gates how is the company supposed to grow? And a company that doesn’t grow is a “bad” company, or at least management doesn’t get paid as well for high profitability/low growth it seems
I imagine they meant the airline as a whole is losing out on the $10s of thousands due to lost loyalty resulting from removing convenience. Not just the 1%, but the whole spend is lost.
In that case, airlines have sub 5% profit margins, so $10,000 / 0.05 = $200k spend on flights before the airline comes close to earning $10k in profit.
Huh? Citation? Delta's profit margin last quarter was 12%, and that's a horrible way to calculate per-ticket profit. When I'm spending $1200 on a ticket to fly 500 miles round trip on a flight that's packed, they're making a LOT more than 12% on that ticket.
Did you actually bother to verify those links? They're wildly inaccurate. It claims Delta is making $50B/quarter??? They make roughly $13B/quarter. Your very first link claims Delta's profit margin 6/20/23 is 5.36% - it was 11.72% per their earnings report. 12/31/22 - claims 2.61%, it was 6.17%. Garbage in, garbage out.
And again, that doesn't address the fact their net profit margin has literally 0 relation to their profit margin on MY TICKET which is CONSIDERABLY higher than 11.72% on average.
And page 63/64, it seems like Macrotrends is using “net income/loss” row and the “total operating income” row, and Google is also using the same, so not sure why the quarterly figures are different. Macrotrends does look erroneous here.
>And again, that doesn't address the fact their net profit margin has literally 0 relation to their profit margin on MY TICKET which is CONSIDERABLY higher than 11.72% on average.
Yes, the delta bosses are not considering the profit margin from your specific flights, but assuming the vast majority of their business is flights where their airline miles come into play, then I figured it is a good assumption that, on average, losing a flight costs them the around the same profit margin.
Of course it is possible they lose so many flights that it cuts into their fixed costs, but I assume they are smart enough to make those calculations.
The allocation of profits down to specific activities depends on the allocation of revenues and expenses amongst activities, and all such allocations are inherently arbitrary. They depend on the stories we tell.
I worked with accounting enough to know that it is unable to provide a proper analytical framework for social or economic problems. Or, as Lenin put it, "For practical work, we need to have figures ... But we will defer the verification of the accuracy of the figures, the estimated percentage errors, etc., to a later period.”
The macrotrends graphs are clearly labeled TTM (trailing twelve months), and seem accurate to me cross-checking just a few Delta measures against published financials.
> especially now that all the competition is minimal except on the most popular routes.
I guess airlines are betting sufficient passengers have no better option, and I would bet that too. I cannot remember the last time I got to pick an airline without heavily inconveniencing myself and wasting tons of hours with extra stops. Even a busy airport like Newark, you are basically flying United for 90% of destinations if you want to get there in the shortest amount of time with the fewest stops.
You're generalizing to the overall population, but "tw04" already said he was leaving the airline, so I guess he's determined that alternatives do exist and aren't that inconvenient.
True but moreso than your average business, airlines are dependent on the revenues from the customers at the margins. In the short term, the plane needs to fly whether it's full or not. Even the lowest fare customer brings in more revenues than the added costs of flying them. It's the fixed costs that need to be spread across a plane full of passengers in order to make it all profitable.
An airline like Delta will adjust but there will be pain for them in the short term and pain for customers in the medium and long term with fewer, more expensive flights. All of this assumes these changes actually lead to customers changing their behavior rather than simply saying they will.
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'm a little torn. I've never had a problem with spend, but there have been years where I didn't hit my MQMs, and just to make status, I'd fly a trans-pacific. It's giant waste for everyone involved, so I'm glad to not have to do that anymore.
I can spend $35k on flights, but I can also fly private for about the same amount, excluding most trans-oceanic. So I'm not sure what I'm going to do about next year. I'm not sure if it's really worth it. It's a weird calculus. To hit the number, it's basically buying a bunch of F/J fares. If I'm already doing that, I don't care about upgrades.
> 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.
Exactly - traveling for work can be fun for a year or two, but once the novelty wears off it's just tiring and stressful. Having preferred status with airlines and hotels makes things much more bearable, and all the miles that you rack up can be spent on the occasional trip with your partner, who has to endure you being away from home so often.
Even as much as knowing there will be a bottle of water in your room or what type of meals will be served on your flight make a huge difference. It’s one less thing to think about. There’s a lot of these types of things and being a regular is important. I’m grateful I did my turn of it when SPG was still a thing. Damn they treated us well.
> the constant stress of being in an unfamiliar place
Is this a thing for most people?
Being in an unfamiliar place is one of my greatest joys. I am never more relaxed than my first day in a new city where I know absolutely nothing, and turning each new corner is a revelation.
> 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.
>and the employer can't use the points from the frequent flyer program anyway
This isn't always true. Some employers insist you book through their internal travel department or use their corporate FF accounts, which kick all the mileage and hotel night benefits to them. It's not common, fortunately, but it does happen.
Yep I was just going to say I'm flying and staying in a hotel for a conference next month and although I have loyalty programs with the airline and the hotel I am getting zip for those because I had to book through my employer's travel system.
Some of those companies have discovered that those travel departments are a profit center and so they can make more money by booking the most expensive economy seat.
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 no technical reason everyone should not just have an electronic money account at the Fed itself for receiving and sending money.
Yet you complete leave out the non-technical reason why that's a terrible idea.
Systemic Single-Point of Failure, extreme vulnerability political exploitation, no robustness or process/partition based discorrelation to stave off or slow down financial contagion.
Robustness is entropic. It uses more energy, but gains in it's ability to remain up in the face of a myriad of quantifiable stimuli instead of falling apart at the slightest touch.
All eggs in one basket is a bad idea. No one makes a good enough basket.
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.
You’d be surprised but there are still regional airlines. This is because a company like delta franchises some routes basically. You might go on a delta flight and ride on a delta plane, but the operating company is some almost unheard of regional one.
I’d guess also you wouldn't have to handle the maintenance end of these smaller planes eg. your bombardiers and what have you if you’ve spun off all those flights
>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.
You and I seem similar in travel and Delta medallion status.
I'll enjoy my last year with GM in 2024 I guess.
Of the options I have for BOS <> SFO, Delta still probably has the best hard product offering there. But this is definitely changing my dogged loyalty. I'll be trying Alaska soon enough. Not sure I'll ever do United again...
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.
Source that they are they ignoring their core competency?
Modifying a rewards programs should require a very miniscule portion of ann airline’s available labor hours, and aligning rewards to be proportionate to profitability seems like a common sense business move.
Yes, often. It has been the same experience (satisfactory), except some have newer planes. Avoid buying the lowest tier pricing (stick to economy, or whatever has free carry on and lets you pick a seat).
I end up paying roughly $50 per hour of flight plus or minus, and it’s been consistent for my adult life (15+ years). Which is surprising considering inflation.
The only problems I have with flying are TSA and airport runway congestion itself.
If you're flying at all, it's likely you are going to be spending some amount of money. In reality, it would be wildly unlikely that a person could afford a $200 ticket and not a $300 one with proper planning.
It's really about the whole expereince. Once I'm on the airplane, it's usually pretty OK. The security anal exam and general airport experience of modern-day air travel is what makes it unpleasant and is largely not the airlines' doing.
But yeah I agree, if it's less than 6 hours I'll almost always just drive.
5% margins? Becoming banks? Scarce innovation in the space? Lack of cleanliness on airplanes? How depressed every other attendant seems to be these days? The safety issues we’re seeing with counterfeit parts?
That they should spend more money and lower profit margins even more? Or that they should increase prices so that they can spend more money to improve the things you listed?
Surely, airline employees are more knowledgeable about how much customers are willing to pay than non airline employees.
They should be broken up to increase competition. European (and asian) airlines provide better service at lower cost. The US airlines get bailed out every 10 years and so there is no incentive for them to improve their companies at all.
Banks are the convergent evolutionary endstate of business, much like crabs are observed to be somewhat of a hobby of Nature in terms of the end state of evolution of many crustacean species. Or the capacity to send email is the evolutionary end state of software. Or politics is the end state of most fotms of online rhetorical discourse.
There is one step, and it is bank (Past a particular threshold).
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.
While the ability to accrue miles for miles traveled wasn't removed, I'll bet that that's the only thing 'offered' in the employment documents (typically the handbook).
I'd challenge anyone to find an employee handbook that specifically references expense reimbursement in this context. Indeed, ours has always said "corporate cards should be used whenever possible". This was just changing to more forceful language.
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.
Yeah, I hate traveling for work, and if I could pick I wouldn't do it. Worse, I hate keeping track of every receipt and expensing every little thing post work travel.
This is exactly why I'm often confused about cuts to these kinds of programs from companies. The downside of people frustrated with the cut cannot be worth it from a monetary perspective. Even if you reduced how many raises you were going to give out, I think people would care less than "I no longer get upgraded for flying"
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.
I saw a similar business, which was run by someone with a severe physical handicap. Orders with them could basically get around most purchasing card or procurement issues, and they added a percentage. Seemed like a really nice business.
This might be a win-win. They may earn 10% on every order going through them, but they also do the paperwork and probably take some degree of liability off your employer. Middle-men aren't always a problem.
They're also almost certainly enabling the company to float 30-90 days, which itself has some value (suppliers often give you a discount for paying within 30 days).
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.
The guidance is from 2002. The airline reward programs have changed in the meantime. As the original article notes:
”In short, SkyMiles is no longer a frequent-flier program; it’s a big-spender program.”
So I wonder if the IRS might come to feel that rewarding spend is different from rewarding miles flown. Unlike air miles, the benefit to the employee is in direct proportion to the money spent by their employer.
> So, where do cash-back reward programs fit in? It varies. If a cash-back reward is credited directly to your credit card account, then the income is generally considered a nice rebate that comes with the benefit of using the card. If you actually receive a cash-back check directly, though, it gets a little trickier: It probably also would be considered a type of rebate, but it could technically count as income.
> IRS does not say cash back rewards from credit card spend is taxable income
No, it's just a rebate/discount made directly to the purchaser. For tax purposes, if they buy something for $100 and get a $2 cash back, it just means they spent $98.
It's very different when there's a third party - employee - involved. The "reward" is going to someone who never spent any money, and so generally would be considered taxable compensation to them. OF course, regulatory exceptions in the tax code are nothing new, and it seems like this might need to be re-visited soon.
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.
I think we're saying the same thing. What I was trying (poorly) to say is that the airlines offering the employers the ability to compensate their employees is indirectly a service that airlines offer to employers.
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.
It’s similar to tipping, once one guy starts doing it all the others look like assholes unless they start doing it too. A similar phenomenon happens sometimes in drive-through coffee shops: someone will pre-pay for the coffee of the person behind them in line, then that person is informed that a stranger paid for their coffee. There is then a social expectation to do the same thing for the next person in line to keep the chain of anonymous “charity” going. Nobody wants to be the asshole that breaks the chain. It’s certainly an odd phenomenon, but many people love it.
The stated reasons is patriotism. The real reason is that the military buys a lot of airline tickets and the military member gets to choose from a list of flights from a variety of airlines.
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.
"The Federal Reserve System therefore began operations with no
effectiye legislative criterion for determining the total stock of money.
The discretionary judgment of a group of men was inevitably substituted
for the quasi-automatic discipline of the gold Standard."
I really don't understand how gold/silver provide any protection beyond paper currency. What's stopping any government from just deciding that instead of two ingots, you owe them three now? They own the scales, they can put their thumb on whatever side they want as hard as they want. If you want to argue with that, you ultimately have a gun pointed at you. It's the same thing with a slightly different set of steps.
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.
This understates things, perhaps, as it's unclear whether it captures the financialization of non-finance sectors. (e.g. auto leasing, and what the article in the OP describes.)
Needless to say, this is historically unusual. And you don't need to go very far back in time to find a period where manufacturing was 25% of GDP and FIRE just 10%.
Real estate has ballooned everywhere and I wonder what the real GDP growth is without it, since it should be a basic service everyone gets and the real value offered in many cases doesn't contribute anything to actual progress.
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.
What about the term “airline”? You’d be surprised how well it describes what an airline does.
Yes big companies have big financial and treasury functions. Maybe that’s surprising to some folks, but not to anyone who’s actually worked in any kind of industry. Trying to fund your activities is one of the most important parts of any business and companies who get really good at that even sometimes find ingenious ways to make it generative of PNL in and of inself. That doesn’t make them banks or financial institutions.
My favourite example was one a friend told me that he had learned at business school doing an MBA. They did a study on Bailey’s Irish Cream (the liqueur). It came about apparently because there were big government subsidies to support dairy farmers and support Irish whiskey producers. So the farmers and distilleries where producing far more than they could sell in order to collect the subsidies. The genius inventor of Bailey’s came up with the business idea of getting the producers of cream and whiskey to pay him to take their excess inventory which he then turned into the liqueur which he sold for a profit. So he had a manufacturing business where he was getting paid by every part of his own supply chain.
"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.
> "Just a bank" doesn't fly airplanes. It may own them, but it doesn't fly them.
I don't know. Big companies sometimes do silly stuff - even if this day it's mostly outsourced to marketing agencies. It wouldn't surprise me to learn that some bank somewhere is operating a de-facto airline for some reason that somehow makes them money...
The banks either did this themselves or had a company that did it for them. They physically flew checks to the city of the bank they were written on, because flying the plane was cheaper than one day's interest on a billion dollars worth of checks.
This stopped, IIRC, back in the 1990s, once electronic settlement got fast enough.
> 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.
It's marketing. The dumber and more obnoxious something is, the better it is, because people talk about it. Just look at your own comment - as much as you dislike the name, it's you who brought up X/Twitter into the conversation, reminding us about the brand at this time and place. The name is working as intended.
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.
Visa and Mastercard just operate the network, they do not control the funds or take on any credit risk. Amex and Discover do operate as lenders, and also operate the network.
Right, but what's the risk to the financial system paulusthe was talking about above in an airline partnering with Chase and Mastercard to to offer a credit card? The lender in all cases isn't going to be the airline, right?
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.
How does hyperinflation even work in a country like the United States, in an age like ours?
If you needed a wheelbarrow of cash to buy break at the bakery, it was still true that there was a tiny downward pressure from the baker in that the bread would eventually rot, so he might as well sell it now if they were just shy of the asking price.
If everyone's buying household goods off of Amazon, their pricing algorithm will never be even that much forgiving.
When it last happened here, many workers were still being paid in cash as soon as the timeclock whistle went off on Friday. Now everything's direct deposit, but not necessarily instantaneous. At my last job, the funds were released at midnight that payday, but with the current job for some reason they're not released until the morning (business open, I imagine).
Are people going to starve, because they have the wrong bank and the money's not there for several hours before everyone else's and it has lost too much value?
What makes you think hyperinflation is coming? If anything, inflation seems to have peaked and is now starting to fall. The only way I can see hyperinflation happening is if there’s another major conflict, climate change causes some major simultaneous disasters, or some kind of black swan event like another pandemic. Of course, individual countries might see hyperinflation if they’re mismanaged (e.g Argentina right now) but I can’t see it happening globally except in the cases listed above.
> If anything, inflation seems to have peaked and is now starting to fall.
Before folks make comments about currency still inflating (gerund), let us stipulate that the noun "Inflation" is a positive rate and the rate has recently decreased. Let us all be thankful that there exists some amount of inflation which in a broad sense reflects a growing and dynamic world (how closely remains to be seen) as opposed to deflation.
They're definitely making money: You pay them the full amount of the gift card upfront, in exchange for coffee later. That's an interest-free loan to Starbucks, and these have a monetary value these days!
> They "make" money when you leave a balance on the card.
In many US states, the money interestingly goes to the state in the end when unused, under a common law doctrine that doesn't exist in many other countries:
In that case, there is no breakage income for the gift card issuer, but the interest free loan, together with people's tendency to spend higher total amounts at the same merchant when using gift cards, still makes them an amazing deal to the issuer.
I suspect that there's also a non-negligible benefit being exploited in the form of differences in subjective value between gifter and giftee: In a nutshell, the gifter spends more money than they normally would at a store they frequent, or viewed from the giftee's perspective, they spend "money" at a company they normally wouldn't.
"Directly"? Isn't the point that they get to invest the money their customers add to their cards, for whatever time Starbucks hold it? That some customers also fail to redeem the balance is for them a bonus, but not what the "Starbucks is a bank" comment addresses.
I suppose everyone has their own priorities, but it's insane to me that someone would willingly take layovers, crappy routes and less desirable destinations just to chase airline status for a given calendar year. And for what? An eventual upgrade that may never come because someone else bought a higher fare class or business is full? Free access to cheap beer and sad sandwiches inside a packed lounge? Slightly earlier boarding, which any $95/yr airline credit card would give you anyway? These so-called perks can't be more valuable than the time wasted gambling on dodgy connections.
At the end of the day, it's easy to hack the system: just do what 99% of the people are too lazy to do. Plan trips early and study routes carefully. Use 3P tools to optimize fares. Pack and travel light. Arrive early at the airport. All these are much cheaper than what airlines are asking to bump your status level and go a long way in making the perks feel like they don't really make that much of a difference.
Is "All businesses eventually become financialized" the business equivalent of Zawinski's Law[0]? "Every program attempts to expand until it can read mail. Those programs which cannot so expand are replaced by ones which can."
> Unleashed from regulation, airlines devised new tactics to capture the market. American Airlines was one of the most aggressive. In the lead-up to the deregulation bills, it created discount “super saver” fares to sell off the final few remaining seats on planes.
Strategies like these are great, otherwise those empty seats just go to waste.
I consulted for an online travel company. Interestingly in source code stuff like airline tickets were collectively called “pGoods”. After a while (limited documentation) I found out the “p” stood for “perishable” which is an apt description. Of course airlines provide a service, not “goods”. — naming things.
Here is the thing. Often, when travelling for work, the company pays for the flight, but the traveler get the points, the traveler can then use the points for personal travels.
Maybe the frequent flyer programs are worth more than the business of flying planes, but without business travel expenses, my guess is that you wouldn't have these bank-like frequent flyer programs. As the article mentions, these are just kickbacks.
Without business travel expenses the airline industry would also be a fraction of its size and personal air travel would be much more expensive.
Companies have on occasion tried to claw back frequent flier points from employees. Those policies were not popular personally I have zero issue with people who fly a lot getting a minor perk for a lifestyle I suspect many people here would absolutely hate.
If you got rid of business passengers, you'd have to increase rates to get the same profit, sure, but I suspect competition would keep prices low. The reason business rates are higher is because big businesses don't look too closely at prices and better service is seen as a little perk for employees.
I’ve seen somewhat higher numbers but I’m still surprised it’s that low if only because many business travelers travel so much more. It’s the rare person who travels 50K miles per year for pleasure and that’s not a typical company employee for many positions but it’s by no means an outlier.
Business travel, especially sales, also involves a lot of last minute booking and changes and those are expensive on both many planes and long distance trains. But, yes, at most companies you can’t just book business but you can always plead better schedule and also avoid economy basic sort of torture.
You're correct, but (IMO) it's such a weird stance for the IRS to take. In response to "is X taxable income?" for almost all values of X, it seems like the IRS's answer is yes, if non-trivial amounts of money are involved.
You sell a couple of items on eBay, yeah it's fine not to report that as income. But if you sell tens of thousands of dollars worth of stuff on eBay the IRS would see that as taxable income.
Your kid has a savings account with a hundred bucks in it and they earn a few dollars interest - not taxable! You keep $100k in a savings account and earn thousands in interest, yep the IRS gets notified and you pay taxes on it.
You earn a handful of frequent flier miles this year after a couple of trips home to see Grandma? Nah, that's not taxable. But if you travel multiple times per week for work and accrue tens of thousands of dollars worth of flier miles that you get to keep? Not taxable income for some reason. shrug
> You earn a handful of frequent flier miles this year after a couple of trips home to see Grandma? Nah, that's not taxable.
Those would never be taxable, as you paid for the miles. When a company sends you a rebate check for an item you bought for personal consumption or when you buy a gift card, it's also not taxable income as it's in exchange for [post-tax] money that you paid.
> But if you travel multiple times per week for work and accrue tens of thousands of dollars worth of flier miles that you get to keep? Not taxable income for some reason.
The IRS alludes in their policy statement to the complexity as being the reason to not treat it as income. If I flew for work for a decade and accrued a bunch of miles and redeemed them only later, in what year would they be taxable? If I mixed personal and business travel in earning miles, what portions would be taxable and when? If the miles are subject to a substantial risk of forfeiture, that would usually be treated the same as other possible future income which is still subject to a risk of forfeiture (which is to say: not be taxed until that risk has collapsed to zero).
> Those would never be taxable, as you paid for the miles
Good point.
> If I flew for work for a decade and accrued a bunch of miles and redeemed them only later, in what year would they be taxable?
The year you redeem them I would think. Just like you don't recognize typically recognize investment gains until you actually sell and receive those gains. It'd be nonsensical to tax me on fake airline bucks for an airline that might be out of business later this year, or might devalue their points. The (as I would see it) taxable benefit occurs when I successfully redeem those fake airline bucks for a real, valuable service.
> If I mixed personal and business travel in earning miles, what portions would be taxable and when?
Seems like you'd need to maintain separate accounts, so when you redeem them you say, "yeah I'm using 20k points from my personal account and 30k from my employer-paid perk account, knowing I'll be taxed on the current value of the 30k taxable points".
Overall it does seem like a PITA, it's just funny to me because "this is too much of a pain to deal with so let's ignore it" doesn't seem like something the IRS usually says. I suppose overall the issue must be (as another commenter put it) "small potatoes" to the IRS.
And it’s small potatoes mostly. Leaving aside airline status-which would be impossible to value even my 50K miles per year pre-pandemic (some of it personal) would only be worth $500 or so at a penny per mile.
AFAICT, cash rewards to an individual on expenses reimbursed by a company are taxable as income. Non-cash rewards are a bit of a gray area that the IRS believes to be taxable, but is currently agreeing to not pursue for the time being.
While this article is about credit cards and miles, the moment I realized they were banks was when I learned that most airline's fleets are leased. Since maintenance and planes are so expensive, lots of airlines lease a fleet with support contracts from places like GE Capital. From an MBA perspective, it makes sense, but it is such a weird concept to me that you don't own such a pivotal part of your business.
This... makes sense? Airlines provide air transport services, and the actual "hardware" is pivotal but not integral to their core business. Airlines are much more than just "flying planes" — there's route planning, crew management, fuel pricing and forecasting, regulatory and legal compliance, operational logistics, landing/takeoff slot allotment, customer service, marketing, etc. that the airline is responsible for.
Think of Netflix using AWS. Digital content delivery is obviously crucial to their business (DVD deliveries aside) but it's not vital that they own their own servers — they're first and foremost a video streaming service, not a CDN datacenter business.
There are also various types of leases [1], commonly "wet" or "dry", which are analogous to managed/unmanaged/raw metal cloud services.
It makes perfect sense if you realize that the airline execs are maximizing their bonuses for the next quarter or four, and not optimizing for the health of the company for the next 10 years. Being stuck with a company and losing a job if the company goes bankrupt is for losers like us, not for those who will leap off with the golden parachute and land another cushy job somewhere with their "years of experience driving growth and providing value to the shareholder".
Executives build the company that the investors want them to build.
By far, the biggest costs of running an airline are the planes and the fuel. But the investors don't want to bet on the value of physical planes, nor do they want to bet on the price of oil. If they wanted to place those bets, they'd just invest in Boeing or Exxon. Instead, they usually want to bet that one airline will perform better than her competitors over the next year or so.
So, airline executives lease their fleets and buy tons of oil futures. This gives them a better shot of hitting their targets even if the price of oil skyrockets, it makes their fleet easier to scale up or down according to demand, and it makes their stock more attractive to investors who want more predictable performance.
> Executives build the company that the investors want them to build.
Assuming they're mindless drones of the faceless "investors" with no free will or intent of their own.
> But the investors don't want to bet on the value of physical planes, nor do they want to bet on the price of oil. If they wanted to place those bets, they'd just invest in Boeing or Exxon.
You're putting the cart before the horse since that's a choice by the exec. If they wanted to derisk themselves they could as well hedge by buying puts on Boeing or calls on Exxon.
Overall, who decides what a good business is? Unfortunately, that's come down to a gang of Wall Street suits who would much rather punish good businesses for not catering to their attention span deficient trading/gambling habits. We would much rather have some jack of all trades making business decisions based on their next year's bonus/chalet/yacht rather than people who depend on those businesses (customers and employees), so of course we get to this state.
Something that is non-obvious in this space is that some of this can be down to tax treatments and asset depreciation.
In a nutshell, when you buy an asset you can depreciate the value of the asset over the working life of the asset and in many tax jurisdictions (my knowledge/experience comes from the UK and US asset financing industry) offset that depreciated amount against profits, in the year the asset depreciates.
This means that you can essentially offset capital expenditure against tax, which is good business.
But if you don't make enough profit through the use of the asset at the right time, you end up losing the benefit.
But there exist large companies that make lots of profit, such that they can always offset the depreciation. And so _they_ can buy the asset, use the depreciation against their profits and then lease the asset to you. They might even be able to do this at a rate that ends up _being cheaper than you actually owning the asset_, depending on circumstances.
Most tech companies lease their hardware too. OpEx is always better than Capex.
I mean AWS is the obvious example, that's basically leasing your hardware. But even companies with on-prem data centers lease most of that gear. It's way better for cash flow to make monthly payments than an up front one.
What I'm not understanding is how it's more profitable to involve a 3rd party company, who will be taking their costs and adding a profit margin, rather than doing it all in-house?
If it costs on average $X/month to maintain a plane, then the maintenance company is going to charge you $(X+Y)/month, where Y is a decent profit margin. Certainly you'd save money by not involving the third party, right?
Or are these companies happy to pay it because that $Y also covers risk of a sudden expensive repair?
From that perspective every large company is a bank. This is part of the reason everyone wants a subscription business. Not only do shareholders love recurring revenue, but so do lenders. In essence every business is a investment bank that has a few investment available that are closed to everyone else (the core business).
> Consumers now charge nearly 1 percent of U.S. GDP to Delta’s American Express credit cards alone.
$269 billion, if true. Amex normally charges more than other credit cards. Let’s say 4%, so they’d gross $10 billion in fees. That’s… that’s a whole lot of money for a single card.
Keep in mind that the $10B in fees isn't profit - some half of that goes to Delta as miles for the users, and some proportion of it actually keeps the network operating.
I'm not one to wear a tin-foil hat, but the timing of this piece is interesting. the Credit Card Competition Act (CCCA) may be lumped into the upcoming spending vote [1]. basically, this would end card rewards under the premise that merchants would pass along interchange savings to consumers. the same argument was made for debit, yet of course the savings never materialized.
> basically, this would end card rewards under the premise that merchants would pass along interchange savings to consumers.
I mean, I wouldn't expect merchants would lower prices by <2% but maybe they waited longer to raise prices later? I mean debit cards are cheaper than credit cards but not by much the last time I looked (like ~1% cheaper, around 2% vs closer to 3% for CCs).
The fact that these programs obscure or even hold hostage the different fare classes is what I really dislike about them. The only fare class that you can get realistic, transparent pricing on is the most basic economy class. Sometimes "premium economy" as well. Anything higher than that has a suggested price that is ludicrous, often being 10x an economy fare, which nobody in their right mind would pay, yet the seats always end up filled. They end up going to people with "status" or some other angle used to slide into the higher class seat. It's annoying because I am willing to pay a higher price for a better experience, but I don't want to play status games across 5 different airlines.
Is anyone else annoyed by headlines like this? It's clickbait adjacent "Counterintuitive, I must click to learn more."
But the reality is, airlines are still airlines. They fly people from A to B, employ many thousands of pilots, flight attendants, baggage handlers, etc. In other words, no, they're not banks. Not by any normal definition.
They're banks and their currency is miles. Their customers have accounts with balances, transactions, and they make money by selling miles that they make out of thin air. They don't just create miles from travels, they also sell them for real money to customers and business partners.
They're "more" banks than airlines in the sense that their loyalty programs valuation is roughly twice that of the airlines themselves.
The people transport business could continue on as a stand-alone business without the miles/loyalty business, whereas the opposite is not true. Also, banks typically take deposits, facilitate payments, etc.
I really hate all these stupid loyalty points programs that have permeated nearly every industry. I flat out refuse to participate. I'd rather the vendor just mark down their sticker prices instead of playing these games. If you want my loyalty, here's a tip: treat me as a valued customer not cattle.
My main pains with flying are completely unrelated to the airline, like waking up early, packing, taxis, layovers, delays and endless dead waiting time in the most sterile environment imaginable. Any flight under ~4h all I care about is reducing the amount of time, not increasing the amount of comfort. Drinking while sitting down alone to the pleasurable tunes of 80db ambient noise, really? Do these people think it’s luxury to sit on the couch with their laptop at 11am on a Tuesday with construction workers outside? I cannot wrap my head around how that mediocrity is thousands of dollars worth of luxury when you can get a better experience for $20-$50 on the outside, with minuscule effort. I’m convinced a large appeal is simply the flex that others can see you in first- or business class.
I'm a bit too tall for airplanes so I would love a business or first class seat purley for pain avoidance. Especially on an overnight flight - I cannot sleep in a coach seat without causing myself harm. Outside of that, I totally agree. And on any short flight (< 4 hours) I could stand for all I care.
Ah yes luckily I don’t have that problem but that’d be infuriating. They should really have extra leg space in a set of economy/coach seats as well that you can claim if you’re taller. I mean, you pay equal for being twice the weight so I don’t see why being a less than a foot taller than average should be such a crazy thing to accommodate.
How often do you manage to book the exit row seats? I assume a lot of non-tall folks take them too just for the extra space.
Business travelers don't really have the option of spending the time outside instead. They can only choose between somewhat tolerable and not very tolerable.
For business class, its often less expensive to buy airline miles than buying a cash ticket. Consider Lufthansa and their Miles & More program. You can currently buy 160k miles for $2,010 (1.26¢ per mile). A return business class flight from the West Coast to Germany is 156k miles and ~$100 in fees. The same flight is usually at least $5,000 for the cash ticket. In my experience, Miles and more tickets are superior to cash tickets, as they can be cancelled and changed for free.
There is availability from SF to Munich on the 25th for 78k miles - go enjoy Oktoberfest!
>Is this a good deal for the American consumer? That’s a trickier question. Paying for a flight or a hotel room with points may feel like a free bonus, but because credit-card-swipe fees increase prices across the economy—Visa or Mastercard takes a cut of every sale—redeeming points is more like getting a little kickback. Certainly the system is bad for Americans who don’t have points-earning cards. They pay higher prices on ordinary goods and services but don’t get the points, effectively subsidizing the perks of card users, who tend to be wealthier already.
It sounds like their actual issue is CC fees, so why not write about that? Why not demand congress institute fee maximums or something? Meanwhile, I still don't understand what the actual harm is in airlines being "quasi-banks", other than these fees which are not set or managed by airlines.
>what the actual harm is in airlines being "quasi-banks"
The word "air" in "airline" implies that the main purpose of the business is to move passengers and freight via aircraft. If the main purpose of the business is to generate credit card swipe fees it will probably not do a good job at moving passengers and freight through the air since that part of what it does doesn't generate most of the profits. And we've seen this already with the onerous fees and packed planes that are the standard model now ... because each airline has a captive population that flies it because that is where their points are.
Are the fees because of lock-in from credit card points, or are they just airlines squeezing as much money out of customers as possible? I'm not convinced it's the former in the slightest. It's also worth noting that much of these onerous fees and cramped accommodations are not applied to their high mileage customers who by your logic are the most locked in.
Every time the subject of credit card rewards and the associated credit card fees come up, there is a suggestion that maybe this is a hidden and unfair tax on the economy that we ought to eliminate. This is arguably a fair point. But in practice I don't believe that we will see the prices go down by 2/3% if we regulate these fees like the EU did. The only thing that will disappear is the rewards. So in my opinion a net positive for the sellers that will be able to effortlessly increase their margins but a small negative for the consumer.
> Paying for a flight or a hotel room with points may feel like a free bonus, but because credit-card-swipe fees increase prices across the economy—Visa or Mastercard takes a cut of every sale—redeeming points is more like getting a little kickback.
And the ones that give a cash kickback (1.5% or occasionally more with a few specific cards) are even easier and more straightforward about this.
Suppose someone wanted to reverse this trend and just make everything cheaper rather than having interchange fees of which the cardholder gets a fraction back? What incentive structure would move towards a model with goods whose prices don't need to buffer the 3+% haircut of credit card fees?
Interesting, I watched a video about this topic a while back[0].
I don't remember it exploring the larger impacts related to government and such but instead digs into how exactly airlines make money from this system.
HEB makes / made a fuck ton of money in Texas - specifically DFW - buying property and selling it when people find out HEB bought it and potentially could put in a location of some sort. I mean it’s good business sure. Ruthless? Kinda.
Key point: airlines are more powerful than normal banks - they are central banks, with complete control of the money (point) supply. On the trilemma [0], they chose to control the exchange rate (points to flight value) and have an independent monetary policy (how many points to issue to flyers or other buyers).
When fliers realize points-miles are a fool’s errand, they will simply ignore them and go back to only considering price, flight time, number of stops, and customer service.
Points-miles are a way for airlines to lock and keep their customer base while treating their customers like cattle.
I generally agree with the article's premise and conclusions, but the lead in is not true:
> They make more money from mileage programs than from flying planes—and it shows.
Delta reported 5% of its revenue came from its loyalty programs in 2022 (2.5B of 50B according to 2022 10k). Although in the June annual shareholder meeting, it expected >6.5B in AMEX remunerations in 2023 with a long term goal of 10B.
American Airlines may have been closer to 10% (4.5B of 49B according to 2022 10k). I can't quickly find any public data on it's long term goals.
Both still well short of "more money" than from flying planes.
I don't know the details of the industry but that is revenue ignoring expenses. Presumably it is orders of magnitude more expensive to fly the planes than manage a rewards system.
I expect the author is saying that if your split each up into profit, the profit is greater on the rewards program than the flying part.
The points are not "free" to airlines, though. (Without looking at every airlines 10k, at least one mechanism is to): Account for them as a liability on the balance sheet as "deferred revenue." They then recognize the revenue when the points are redeemed, meaning they incur the same blended Cost per Available Seat Mile (CASM) as a purchased ticket. That's in addition to the significant costs of managing a loyalty program (IT, Partnerships, Legal, etc.)
They're like banks in the same way insurance companies are like banks and can make make money on the float.
That's not what this is saying. I'm not sure what it's saying. It's a cutthroat industry where infrequent travelers (and there are a lot) have driven margin for economy seats booked early to almost zero. So you make money on premium services and loyalty for customers that are less price sensitive. Thinking about miles like a real currency gets you lost in the weeds of what's just a complex loyalty program.
The article mentions that due to consolidation there are only 4 major airlines in the US and they are very aligned in their prices and policies thus giving little choice to US consumers.
Doesn't that mean there's an opportunity for someone to start a new airline that could compete with the big 4 by offering better prices or more lenient policies?
Demand for flights is clearly very high right now; perhaps there's an entrepreneurial opportunity here?
Thoughts?
There's almost a dozen other national-ish airlines and a few dozen regional and commuter airlines, but it's hard to compete with the big ones because they can't offer the same number of routes. I fly JetBlue whenever I can because I'm tall and they have the best legroom, but about half my trips end up on other airlines because JetBlue doesn't fly everywhere. But people who fly a lot and use Delta or United can travel virtually anywhere without ever having to go "out of network". The smaller airlines can capture the people who frequently take a small number of routes, but the best customers are always going to gravitate towards an airline they can use a much as possible to maximize status and rewards.
There are tons of airlines. I can often have my choice of airlines to fly to a particular city, nonstop, within a given hour. Where's the lack of choice? Economy tickets range from cheap to very cheap, unless you need to fly somewhere like Guam. Renting cars and booking places to stay are both significantly more expensive pieces of traveling. As long as that's true, it's hard to justify flights getting that much cheaper... unless you're flying a family of 6+, in which cases you're part of a small market.
That sounds like Virgin America 20 years ago and I think it worked out well for them and for consumers. They had really cheap, reasonable flights, and they forced everyone else to put entertainment in the seat backs. I really miss their silly purple lighting and lounge music when you boarded.
Not exactly. Airlines (in my view) are not a perfectly competitive industry: there are extremely high setup costs and barriers to entry. It would be very very difficult for a newcomer to compete with the established ones, at least in the US.
With LEO constellations coming online rapidly, I think it's time the railroads start competing for pax travel again. Start at the high end. My dad worked for BN and I remember the corporate business car: walnut paneling, frosted glass, brass, comfortable seats. I would totally take that: package up the cost of hotel, half the airfare, and meals, and have your offsite, workshop, or other in-person event on the train.
If you put 10 passengers in one fancy business railcar, it will cost 50c/km and reduce greenhouse emissions relative to flying by half rather than by a factor of ten.
Night/hotel trains only make sense with decent density.
Every public company, once they get to a certain size and scope, end up "financializing" some or all parts of their business to keep chasing those quarterly profits and never-ending growth. It's just a lot easier to generate magic coins from thin air to collect & store / earn interest on, than to keep building and innovating new physical products.
Even Amtrak, a government train service with no competitors, has a rewards program.
The part of the equation that I think the article is missing is that air travel is an industry with an extremely high level of substitute options. Rewards programs are there to try and combat the fact that their products are 100% interchangeable and create some level of loyalty.
Yes, they're also a convenient financial instrument, but I'm personally failing to see how that's a problem requiring intervention. Even with these programs as a profit center, airlines are overall some of the lowest profit margin businesses you can find. There aren't many travelers out there who have much justification to be upset about the prices they pay to fly when the airline is only making single-digit percentage profit off their flight.
The article, in my opinion, was too zealous about advocating for reinstatement of a style of regulations that I don't think makes a lot of sense for consumers or the airlines. It's well-understood that fares decreased and service volume increased after the Airline Deregulation Act was passed. Many aspects of the defined routes and fares setups of the Civil Aeronautics Board actively stifled competition by preventing competition from entering routes and fixing prices.
> The Civil Aeronautics Board decided which airlines could fly what routes and how much they could charge.
Doesn't that sound kind of awful? This would be like your local health department regulating the precise recipe of each meal served at a restaurant, going above and beyond regulating health and safety practices.
The article acts like the airline industry is just 100% devoid of regulations, but that isn't at all true. For example, airlines are required to advertise the tax-inclusive airfare, required to refund fare plus penalty in cash in the event of bumping overbooked customers, and obviously long list of safety regulations, and numerous other requirements.
> The part of the equation that I think the article is missing is that air travel is an industry with an extremely high level of substitute options. Rewards programs are there to try and combat the fact that their products are 100% interchangeable and create some level of loyalty.
I agree - but thought of it a different way.
Delta has a reputation among frequent flyers for having the best operations of any domestic carrier. AKA, if you need a flight that gets there on time, Delta is your best bet.
So, I expect these changes to their frequent flyer program (which pretty much all frequent flyers have reacted to with universal hate) are a recognition of that. AKA, we're offering a good product, so why should we be generous with our mileage/reward program.
Delta were already regarded as having one of the least valuable award points of any program.
As to why the changes are so hated, take this example.
Imagine you're flying economy 1x a month from Los Angeles to Amsterdam on Delta. Each flight would cost around $800, and earn you 11,120.
Under the current program, you could have Silver Medallion halfway through your 3rd trip, Gold by your 5th and Diamond by the end of the year.
(Some caviats that you wouldn't make it that far without a waiver for MQD spend you could get with a credit card).
Under the new program, it'd take you 7.5 months to earn Silver, and you'd never make it past Gold Medallion flying that same route every month.
> The part of the equation that I think the article is missing is that air travel is an industry with an extremely high level of substitute options
That's the entire point of a free market. Obtaining perfect competition. If you are producing a product that cannot be easily substituted then you shouldn't get to have a fully free market. Customer lock-in is the opposite of the concept and benefit of a free market.
Second, and industry with high startup costs, extreme barriers to entry, limited access to fixed resources (airport runways), and is of strategic importance to a country will always be regulated. Airlines will never be left to die (like for example the NFT market) - and we saw this during the 2008 period. And if you're going to socialize loses and have govt as your back stop there are rules you have to adhere to to ensure customer benefit.
I have to disagree that airlines have extreme barriers to entry. Yes they are a capital intensive industry but starting an airline is actually pretty simple and there are seven national scale airlines that have been founded since 1980 in the United States and are still operating today.
To start an airline all you have to do is lease planes and gates and hire an interchangeable labor force. You don’t have to develop any technology outside of your reservation system, no factories, no research and development.
An example of a recent airline startup is Breeze Airways.
All of this is possible because credit cards are pervasive. I'd prefer getting some of those fees back by paying cash.
We could limit financialization of everything if we had a national payment network like other countries, and removed the inability for vendors to prefer cash by discount.
This reminds me that car manufacturers in Germany (maybe in other places too) are actually financial services companies with factories attached to them, or so the joke goes.
Almost everyone buys new cars through some form of financing, and the structure of the company reflects that.
This is not surprising .. A lot of department store retailers used to (still?) lose money on sales but push hard for all spend to be on some store credit card and make all their money there including accounting for the loss via sales.
The only issue with this system is the credit card fees being shared by non-card users. This is why the government needs to find a no fee alternative, or at least make it mandatory to charge a fee on card users to cover the costs.
Subsidising flight costs with what is essentially a mix of futures options and a lottery in points systems is probably beneficial all around. The diversification keeps prices down, and maintains it as a viable business. I'd wonder what other defacto utilities could add similar features.
A market for options on road pricing would be useful, last mile internet service needs something more than surveillance/advertising.
What's interesting about this is "Skymiles" are a form of private currency. Yes, there are many private currencies in use.
Banknotes also used to be private money. Each bank issued their own. The government eventually made that illegal, but banks still issue private currencies in the form of:
1. personal checks
2. cashier's checks
3. traveler's checks (though I think Amex stopped printing them)
I think you're conflating currency with interfaces to the financial system. The currency is the medium of exchange: the dollar itself. A debit card is merely a tool to transact using dollars.
I'm not conflating things. They're currency. I talked about this with my dad, who was head of the finance department at a college. He had a degree in economics from MIT and an MBA from Hahvahd.
> A debit card is merely a tool to transact using dollars.
And banknotes were just a convenient tool to transact gold that was on deposit in the bank vault.
But it isn't like they can make money from their mile program if they didn't fly planes so their business is still completely dependent on providing this service. So despite most of their money being made there I still wouldn't call it a bank unless it can be extracted from their core business and survive. Which it can't.
Sure. Try out this miles thing everybody here is chatting about. Amex rewards. A few months of spending for the average HN audience will get you a free flight or an upgrade on one. I recommend saving them up for an upgrade on an international flight
There isn’t a perfect one for everybody. Choose based on transfer partners and benefits you like. I’ve also heard capital one is great. But you can safely skip any Bank of America or Wells Fargo ones.
So is Apple. So is Starbucks. And really so is any large company with a "points card" system that lets you turn money into points or points into money.
They had a huge outage for over a week that left people stranded over xmas.
> More than 16,700 Southwest flights were canceled and 2 million passengers stranded between December 20 to 29, scuttling holiday plans and leaving mountains of unclaimed baggage nationwide.
It's been funny to me that the mileage calculations oftentimes have no tie to the trip mileage--I'm a civilian pilot and often track the flight via foreflight. I'm a frequent filer on United, and I've often wondered the crazy math they come up with to get the number of 'miles' I earned--as the article says I think its purely based off of dollars now despite United also having 'premier qualifying points' which is directly tied to dollars spent.
PQP used to be tied to miles ( with adders for business/first) so miles were used for status and points. Now, except for lifetime miles, it’s all just dollars.
> They make more money from mileage programs than from flying planes—and it shows.
I spend 15 minutes of my time trying to find where is shows but I couldn't. All I can see is you get points from spending money and the difference now is, people get less points and perks.
I thought this was going to be about over-leveraging. Aka banks loaning out more than they have. Aka airlines overbooking seats on a flight in hopes people don't show up. I saw 6 people told there is not enough space for them on a recent flight.
I remember when I was younger when planes didn’t fill completely. You’d have so much room. You always prayed your seat mate didn’t show up. Times have changed for sure
For de-regulating? Sure. But it shows that market capitalism is actually the problem, and governments are to blame for not managing, harnessing, and policing it stringently.
Dunno why you're getting downvoted from this. All that deregulation did increase America's GDP, but at the cost of income inequality and lack of real wage growth for most.
If you're lucky enough to get into a profession for upper-middle class people, you'll be in good shape (like most of the people on this forum). Most people don't make it. Perhaps that's where the downvotes come from, is the tendency of people to think subconsciously, "I did it; everyone else can too, it's not that hard".
Yeah, that's the problem. This is a deregulation that we can't even pretend caused any of those ills. It's kind of dumb to try to lump it in with the ones for which there's a case.
Go find a cross-section of things random internet strangers consider "absurdly obvious" and you'll start to understand the need to provide evidence.
Fun fact: did you know that different regulations are different, and produce different outcomes? What waves of entrepreneurs and inventors are stifled by the regulation that you can't dump arsenic in rivers?
https://archive.ph/A8cxk