Budget Flights Deliver Big Bucks

Andrew Sullivan —  Dec 30 2014 @ 8:30am

Operating Profit

Alison Griswold finds that, over “the past five years, ultra-low-cost carriers like Spirit and Allegiant have consistently outperformed their peers in terms of operating profit”:

That airlines like Virgin America and JetBlue can’t turn a strong profit while maintaining a better level of service speaks to the odd tastes of the American air traveler. As Matt Yglesias put it in Slate two years ago, “the basic moral of the story is that airline service is bad because customers want bad airline service. Or, rather, they don’t want to pay a premium for better service.” As far as consumer preferences go, this attitude is an outlier. The restaurant industry, for example, is well aware that diners are willing to spend more for what fast-casual Chipotle and Shake Shack serve up than for the stuff at Taco Bell and McDonald’s. “There’s a lot of customers who believe that every airline is the same,” says Paul Berry, a spokesman for Spirit Airlines. “They don’t think that way when it comes to restaurants … but they think the airline industry is different. And really, it isn’t.”

Also commenting on airfare economics, Tim Wu ponders the airlines’ increasing reliance on extra fees:

If fees are great for airlines, what about for us? Does it make any difference if an airline collects its cash in fees as opposed to through ticket sales? The airlines, and some economists, argue that the rise of the fee model is good for travellers. You only pay for what you want, and you can therefore save money if you, for instance, don’t mind sitting in middle seats in the back, waiting in line to board, or bringing your own food. That’s why American Airlines calls its fees program “Your Choice” and suggests that it makes the “travel experience even more convenient, cost-effective, flexible and personalized.”

But the fee model comes with systematic costs that are not immediately obvious. Here’s the thing: in order for fees to work, there needs be something worth paying to avoid. That necessitates, at some level, a strategy that can be described as “calculated misery.” Basic service, without fees, must be sufficiently degraded in order to make people want to pay to escape it. And that’s where the suffering begins.