[HN Gopher] Airlines make more money from mileage programs than ...
___________________________________________________________________
Airlines make more money from mileage programs than from flying
planes
Author : chapulin
Score : 334 points
Date : 2023-09-21 12:40 UTC (10 hours ago)
(HTM) web link (www.theatlantic.com)
(TXT) w3m dump (www.theatlantic.com)
| corbezzoli wrote:
| 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)
| kybernetikos wrote:
| Is that a deliberate reference to twiXter?
| kylebenzle wrote:
| They are saying, "______ (blank) is a bank", not X, formerly
| Twitter.
|
| Again, X is the dumbest possible name for aything, I will
| never user it, just call it Twitter if you have to.
|
| No one is saying X, the platform formerly know as Twitter, is
| a bank.
| Mechanical9 wrote:
| Honestly how is it even possible to name a company or a
| product after a single letter? That shouldn't even be
| trademarkable.
| xcxcx wrote:
| [flagged]
| pif wrote:
| I think I married her.
| xcxcx wrote:
| Let's double check on the We Are Married To The Same Wife
| Facebook group
| TeMPOraL wrote:
| 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.
| diordiderot wrote:
| Starbucks is the most famous
| woleium wrote:
| And to a lesser extent Apple has been trying
| somethingsidont wrote:
| Airlines are more accurately "central banks" than traditional
| banks -- they control the money/point supply directly.
| seanhunter wrote:
| 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.
| grecy wrote:
| Porsche is a hedge fund.
|
| "Porsche yesterday revealed it earned three times as much money
| from trading derivatives as it did from selling cars"
|
| https://foreignpolicy.com/2007/11/14/porsche-makes-more-mone...
| marcusverus wrote:
| Not really?
|
| > 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 EUR40 to almost EUR180. [0]
|
| They wanted to buy a chunk of VW. After they started doing
| so, they hedged against the stock price so that they wouldn't
| get screwed if the price of VW popped. Then the price of VW
| popped, and their options paid out big time. That doesn't
| make them a hedge fund, it just make them competent (and
| somewhat lucky).
|
| [0]https://foreignpolicy.com/2007/11/14/porsche-makes-more-
| mone... [1]https://dailyinvestor.com/world/10426/incredible-
| story-of-ho...
| corbezzoli wrote:
| That statement more accurate than OP's
| jacknews wrote:
| 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.
| AnimalMuppet wrote:
| It's a _clickbait_ way of saying it.
|
| "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.
| TeMPOraL wrote:
| > _" 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...
| AnimalMuppet wrote:
| Was, not is. And "banks", not "bank".
|
| 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.
| konschubert wrote:
| If they stopped flying planes, would they stay in business?
|
| If the answer is no, then they are not a bank.
|
| A bank doesn't need to fly planes to be in business
| derbOac wrote:
| > it makes more money from financial shenanigans than
| providing the product or service recorded on it's business
| registration
|
| This seems to describe a lot of sectors of the economy,
| unfortunately
| A_D_E_P_T wrote:
| FIRE is the largest slice of GDP (~20%), followed by
| services and government:
| https://www.statista.com/statistics/248004/percentage-
| added-...
|
| Legal services alone are about 3% of GDP.
|
| 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%.
| seanhunter wrote:
| 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."
|
| - https://www.investopedia.com/terms/b/bank.asp
|
| 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.
| pseingatl wrote:
| Forget the term "bank." If you use the term "financial
| institution" instead, you'd be surprised how encompassing
| it is.
| chollida1 wrote:
| > 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.
| cm2187 wrote:
| 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.
| ericmay wrote:
| > 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.
| brk wrote:
| >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.
| SoftTalker wrote:
| 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.
| gamblor956 wrote:
| With the major hotel chains like Marriot, you can change
| the loyalty account getting the points when you check in.
| bluGill wrote:
| 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.
| nemo44x wrote:
| 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.
| rrrrrrrrrrrryan wrote:
| 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.
| leoh wrote:
| >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?
| lotsofpulp wrote:
| 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.
| leoh wrote:
| Right. So they should ignore their core competency and
| operational excellence and become banks. Got it.
| lotsofpulp wrote:
| 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.
| shortrounddev2 wrote:
| > Source that they are they ignoring their core
| competency?
|
| Have you flown on an airplane in the last 10 years? I'd
| rather drive 15 hours to Florida than deal with the
| fucking airlines
| SoftTalker wrote:
| 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.
| yamazakiwi wrote:
| I'd rather not go to Florida in general if we're all
| speaking in extremes.
|
| I jest, but which airlines have you been on? I've enjoyed
| my airline experiences more now than in the past flying
| Delta, American, United.
| lotsofpulp wrote:
| 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.
| shortrounddev2 wrote:
| > Avoid buying the lowest tier pricing
|
| Easy to say when you have _money_
| yamazakiwi wrote:
| 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.
| leoh wrote:
| 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?
| [deleted]
| lotsofpulp wrote:
| What is your point?
|
| 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.
| leoh wrote:
| Airlines
|
| Shouldn't
|
| Be
|
| Banks
| shortrounddev2 wrote:
| 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.
| finfrastrcuture wrote:
| 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).
| envsubst wrote:
| > 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?
| maxfurman wrote:
| 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.
| Incipient wrote:
| I feel that's not specific to airlines however. Car
| manufacturers, groceries, white goods, etc.
|
| Big companies have just figured out that scale and vertical
| integration kills everyone smaller.
| 303uru wrote:
| No one figured it out, it's the logical end result of
| capitalism.
| rayiner wrote:
| They didn't figure it out. Technology enabled it.
| tbihl wrote:
| >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.
| colingoodman wrote:
| 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.
|
| https://airandspace.si.edu/stories/editorial/airline-
| deregul...
| kjkjadksj wrote:
| 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.
| organsnyder wrote:
| In many cases that's just to skirt around various
| regulations and union contracts.
| matteotom wrote:
| >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).
| Veliladon wrote:
| >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.
| matwood wrote:
| > This looks alot like car companies
|
| Every successful company eventually becomes a bank. See also
| Apple.
| pixl97 wrote:
| Turns out usury is profitable!
| contravariant wrote:
| Can you borrow credits? Otherwise it's not usury but
| seignorage.
| lotsofpulp wrote:
| For a less than useful definition of bank.
|
| 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.
| kuchenbecker wrote:
| 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.
| snowwrestler wrote:
| 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.
| tristor wrote:
| > 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?
| sethhochberg wrote:
| 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.
| aidenn0 wrote:
| > 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.
| fortran77 wrote:
| 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.
| tw04 wrote:
| >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.
| lotsofpulp wrote:
| 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.
| calderwoodra wrote:
| Typically 3 parties are paid by interchange: the bank
| (~50%), the brand (~50%), the processor (~$0.01).
| tw04 wrote:
| >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.
| lotsofpulp wrote:
| 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).
| listenallyall wrote:
| 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.
| lotsofpulp wrote:
| 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.
| tristor wrote:
| > 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.
| PaulDavisThe1st wrote:
| 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.
| tristor wrote:
| 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.
| ScoobleDoodle wrote:
| 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.
| lotsofpulp wrote:
| 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.
| brewdad wrote:
| 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.
| listenallyall wrote:
| Airlines have large fixed capital costs. The marginal
| profit of an individual ticket purchase is very high,
| certainly a lot higher than 5%.
| lotsofpulp wrote:
| That is true, but this also comes into play:
|
| > 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.
| listenallyall wrote:
| 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.
| tw04 wrote:
| 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.
| lotsofpulp wrote:
| This is every major US airline.
|
| https://www.macrotrends.net/stocks/charts/DAL/delta-air-
| line...
|
| https://www.macrotrends.net/stocks/charts/UAL/united-
| airline...
|
| https://www.macrotrends.net/stocks/charts/AAL/american-
| airli...
|
| https://www.macrotrends.net/stocks/charts/ALK/alaska-
| air/pro...
|
| https://www.macrotrends.net/stocks/charts/LUV/southwest-
| airl...
|
| https://www.macrotrends.net/stocks/charts/HA/hawaiian-
| holdin...
|
| https://www.macrotrends.net/stocks/charts/JBLU/jetblue-
| airwa...
| tw04 wrote:
| 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.
|
| https://www.google.com/finance/quote/DAL:NYSE
|
| 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.
| lucas_membrane wrote:
| >> profit margin on MY TICKET
|
| 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.
| hef19898 wrote:
| I hope you don't work in accounting.
| lotsofpulp wrote:
| Macrotrends has been pretty reliable in my experience. I
| am trying to verify the annual numbers:
|
| https://s2.q4cdn.com/181345880/files/doc_financials/2022/
| q4/...
|
| 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.
| sokoloff wrote:
| 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.
| sokoloff wrote:
| If you decide to stop flying Delta entirely, someone else
| will buy that $1200 seat because, as you observe, that
| flight is _packed_.
| sokoloff wrote:
| 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.
| chollida1 wrote:
| > 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.
| NikolaNovak wrote:
| >> Sooner or later some airlines will spin out their rewards
| business into a separate company to get the maximum valuation
| from it.
|
| Air Canada spun out aeroplan, and then years later re-acquired
| it.
| TeMPOraL wrote:
| 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.
| bdunks wrote:
| 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.
| BoiledCabbage wrote:
| 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.
| bdunks wrote:
| 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.)
| goldfish3 wrote:
| Revenue ignoring expenses is also known as revenue.
| sheepybloke wrote:
| 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.
| Sohcahtoa82 wrote:
| 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?
| polygamous_bat wrote:
| 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".
| rrrrrrrrrrrryan wrote:
| 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.
| jcalx wrote:
| 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.
|
| [1] https://en.wikipedia.org/wiki/Aircraft_lease
| joncrocks wrote:
| 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.
| ajmurmann wrote:
| 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).
| jedberg wrote:
| 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.
| tomcam wrote:
| > 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.
| Schiendelman wrote:
| 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.
| tomcam wrote:
| Agreed; that's why I said gross
| okaybutno wrote:
| [dead]
| librish wrote:
| 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.
| FireBeyond wrote:
| 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.
| rrrrrrrrrrrryan wrote:
| > when it's a perk only some people get
|
| 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.
| g_sch wrote:
| 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.
| ProfessorLayton wrote:
| 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.
|
| I'd take a company card any day.
| ttegloma wrote:
| 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.
| nerdponx wrote:
| 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.
| BoiledCabbage wrote:
| 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.
| nerdponx wrote:
| 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.
| adolph wrote:
| > 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:
|
| https://www.snopes.com/fact-check/pudding-on-the-ritz/
| ttegloma wrote:
| 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.
| solarkraft wrote:
| It's funny that that's even possible.
|
| For my next business, I'll personally pay companies' decision
| makers to choose me as a supplier.
|
| Hell, why stop there? I'll also pay politicians and judges to
| rule in my favor!
| [deleted]
| itsoktocry wrote:
| > _For my next business, I 'll personally pay companies'
| decision makers to choose me as a supplier._
|
| What you describe is one end of the spectrum (and probably
| illegal). But the line between that and good old discounting
| isn't very wide.
|
| discount -> p&l -> budget -> bonus
| dylan604 wrote:
| Since when was business solely run on decisions that were
| bounded by what was legal?
| dave78 wrote:
| 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.
| daniel_reetz wrote:
| 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.
| TeMPOraL wrote:
| 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.
| Metacelsus wrote:
| Sounds like VWR for ordering lab supplies.
| teaearlgraycold wrote:
| > I'll also pay politicians and judges to rule in my favor!
|
| Now you're getting it!
| joelfried wrote:
| So is Justice Thomas.
| [deleted]
| briffle wrote:
| 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.
|
| or golf trips, fancy dinners, etc.
| pavlov wrote:
| _> "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?
| gdprrrr wrote:
| 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.
| tbihl wrote:
| It gets discussed from time to time.
|
| 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.
| matsur wrote:
| https://tax.thomsonreuters.com/blog/are-employees-taxed-
| on-t...
| pavlov wrote:
| Interesting, thanks.
|
| 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.
| lotsofpulp wrote:
| I doubt it. The IRS does not say cash back rewards from
| credit card spend is taxable income, which is as
| explicitly rewarding spending as you can get.
|
| https://www.investopedia.com/ask/answers/110614/are-
| credit-c...
|
| > 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.
| pavlov wrote:
| But is someone getting personal cash back rewards from
| corporate credit card spending?
|
| That would be the equivalent of the airline situation.
| PopAlongKid wrote:
| > 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.
| lotsofpulp wrote:
| That is a good point. I guess it might be too complex to
| keep track of what entity paid for which points and so
| they let it slide.
| enkid wrote:
| Not just big companies, government travellers too. There's a
| reason military is allowed to board first.
| tbihl wrote:
| I suspect that one airline made the first step with that, and
| it was name-and-shame until everyone fell in line at that
| point.
| badcppdev wrote:
| What's the reason? I assume this is a US thing?
| enkid wrote:
| 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.
| callalex wrote:
| 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.
| JanSolo wrote:
| 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?
| standardUser wrote:
| 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.
| s3p wrote:
| 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.
|
| Edit: a word
| falcolas wrote:
| The cost of entry is absurd, and the industry is highly
| regulated. The profit margins for acting as just an airline are
| also pretty thin, IIUC.
|
| I think you're ultimately right, but finding an investor would
| be irrationally difficult.
| bvirb wrote:
| 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.
| tbihl wrote:
| Alaska airlines, hawaiian airlines, Breeze, Avelo, Spirit,
| Frontier, Allegiant.
|
| 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.
| jppope wrote:
| "A business either dies or lives long enough to become a
| financial company."
| huijzer wrote:
| For a compilation of Buffett and Munger saying that the airline
| business is a terrible business, see
| https://youtu.be/OHvzyLEzVBY.
| WalterBright wrote:
| 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)
|
| 4. credit cards
|
| 5. debit cards
| MikeTheRocker wrote:
| 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.
| WalterBright wrote:
| 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.
| TheRealPomax wrote:
| 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.
| mberning wrote:
| 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.
| izzydata wrote:
| 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.
| zeroCalories wrote:
| 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.
| Schiendelman wrote:
| Have you heard of FedNow?
| kylebenzle wrote:
| [flagged]
| aranchelk wrote:
| > 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.
| chem83 wrote:
| Re the link referred to in the article:
| https://thepointsguy.com/news/why-i-wont-chase-airline-statu...
|
| 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.
| fred_is_fred wrote:
| Which airline gets you lounge access with a $95 card? United's
| is roughly $500.
| chem83 wrote:
| You misread my comment.
| m3kw9 wrote:
| This is same thing as points except there is no mystique about
| points and money ratio. You spend X you get y. No difference
| omneity wrote:
| 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.
| forgingahead wrote:
| 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.
| rkagerer wrote:
| 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.
| standardUser wrote:
| The thing is, if you get status on airline, it's the only way
| they actually do stop treating you like cattle (mostly).
|
| That or be rich and always fly first class.
| supernova87a wrote:
| 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.)
| lotsofpulp wrote:
| > 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.
| WalterBright wrote:
| > 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.
| WalterBright wrote:
| "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."
|
| -- Monetary History of the United Stats pg 193
| knallfrosch wrote:
| 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.
| warkdarrior wrote:
| 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.
| dangus wrote:
| 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.
| atourgates wrote:
| > 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.
| BoiledCabbage wrote:
| > 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.
| jrwiegand wrote:
| 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.
|
| [0] https://www.youtube.com/watch?v=ggUduBmvQ_4
| cheeze wrote:
| I love Wendover! His videos are fantastic and always
| interesting.
| local_crmdgeon wrote:
| "Without industrial policy, all industries bend towards
| financialization"
|
| True here, true of auto manufacturers, increasingly tech,
| housing, etc.
| dehrmann wrote:
| > 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.
| gymbeaux wrote:
| 1978 right before Carter was sworn in or right after? This
| doesn't seem like something Carter would have signed.
| ls612 wrote:
| Deregulation in the 70s and 80s was strongly bipartisan,
| Carter signed all of the transportation (air and surface)
| deregulation acts.
| HAL3000 wrote:
| It's funny how this is a top comment while it's completely
| false in this particular case, which you can read about further
| down in the article.
| JohnFen wrote:
| > 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.
| gota wrote:
| Minor point - is first class 2x only?
|
| My recent experience with international flights indicates that
| business class is 5x of the premium economy seats, which are
| 1.5x already
| bootlooped wrote:
| 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.
| balderdash wrote:
| Lay flat business class seats probably take up the
| equivalent of ~4 economy seats...
| SOLAR_FIELDS wrote:
| 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
| thirtyseven wrote:
| 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.
| sokoloff wrote:
| It's also a pretty good subsidy to economy fliers.
| AdrianB1 wrote:
| On international long flights business class is ~ 2x or more,
| first class is a lot more.
| nradov wrote:
| Many of the travelers who end up with those premium tickets
| didn't pay full price. They have corporate discount deals
| or got upgraded based on status.
| fredoliveira wrote:
| 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.
| bombcar wrote:
| First class inside the USA can be cheap, cheaper than paying
| extra baggage allowance, even.
| logifail wrote:
| > 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)
| Tangurena2 wrote:
| 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.
| coldcode wrote:
| 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.
| switch007 wrote:
| Premium economy prices have gone mad.
| rrrrrrrrrrrryan wrote:
| > 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.
| jklinger410 wrote:
| An overwhelming amount of propaganda fueled by private
| profits.
| twoodfin wrote:
| 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.
| jjoonathan wrote:
| The market wants more banks and fewer airlines.
| svachalek wrote:
| 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.
| twoodfin wrote:
| 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.
| jjoonathan wrote:
| 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.
| bluGill wrote:
| 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.
| doublemint2202 wrote:
| if we could somehow structure our incentives to be a net
| positive for humanity overall, we'd be in a much better
| spot
| jjoonathan wrote:
| Yeah, but markets care less about what _people_ want and
| more about what _rich people_ want -- which, by and
| large, is to get paid for being rich.
| bluGill wrote:
| Most of the money belongs to the middle class, not the
| rich. So that is what markets mostly work for.
| PaulDavisThe1st wrote:
| 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.
| bluGill wrote:
| 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.
| PaulDavisThe1st wrote:
| 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.
| mjamesaustin wrote:
| The bottom 50% of the population holds 2.4% of all
| wealth.
|
| The top 10% holds 69%.
|
| https://www.stlouisfed.org/institute-for-economic-
| equity/the...
| twoodfin wrote:
| 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".
| rrrrrrrrrrrryan wrote:
| 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.
| bluGill wrote:
| Most weath in retirement plans. Sure the rich hold them,
| but if you are reading this you probably have 401k
| and.are part of that.
| rrrrrrrrrrrryan wrote:
| > Most of the money belongs to the middle class, not the
| rich.
|
| This is easily and provably false. A single-digit
| percentage of households holds over well over half the
| wealth.
| PaulDavisThe1st wrote:
| We probably need to differentiate between spending and
| wealth ownership.
|
| Not sure how that breaks down.
| brigadier132 wrote:
| 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).
| rrrrrrrrrrrryan wrote:
| > 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.
| nradov wrote:
| 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.
| rrrrrrrrrrrryan wrote:
| > it is nearly impossible to command innovation
|
| Excellent point.
| PaulDavisThe1st wrote:
| 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.
| cryptonector wrote:
| 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.
| wayfinder wrote:
| I wouldn't say airline regulation was a great exercise about
| command economies planning and allocating resources.
|
| The whole point of regulation was to keep prices up so the
| airlines wouldn't implode like rail did. It was _not_ meant to
| keep prices down.
|
| So when we got rid of airline regulation, prices went down.
| Some airlines did implode, but not as badly as rail did.
|
| Thankfully for airlines, it seems flying is a lot more
| indispensable than riding by rail.
| cryptonector wrote:
| > 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.
| jandrese wrote:
| 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.
| dools wrote:
| > 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.
| AtlasBarfed wrote:
| 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.
|
| Here's Robert Reich on airline travel:
|
| https://www.youtube.com/watch?v=eTzaMXXelew
|
| Yes, the liberals favority economist. But I agree with his
| fundamental arguments about modern air travel and the
| oligarchical / cartel nature of virtually all of our markets
| for goods and services.
| cratermoon wrote:
| > 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.
| [deleted]
| ierjtilawj wrote:
| 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.
| adamisom wrote:
| > 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.
| pyrolistical wrote:
| > From first principles, you should always expect that
| regulation increases prices and the burden of proof is to
| argue why it would not
|
| I don't see how that is true.
| labcomputer wrote:
| 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.
| mulmen wrote:
| 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.
| AnthonyMouse wrote:
| 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.
| sdvnwsdf wrote:
| 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.
| PaulDavisThe1st wrote:
| 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.
|
| No increase in expenses.
| julienb_sea wrote:
| 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.
| PaulDavisThe1st wrote:
| 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.
| riatin wrote:
| 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.
| mulmen wrote:
| Let's label the steps.
|
| 1) acquire airplanes
|
| 2) acquire pilots
|
| 3) plan routes
|
| 4) set prices
|
| 5) acquire customers
|
| Seems to me regulations that set prices actually save a
| step.
| owisd wrote:
| 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.
| francisofascii wrote:
| 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.
| metabagel wrote:
| 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.
| AnthonyMouse wrote:
| > 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.
| adrr wrote:
| 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.
| [deleted]
| bluGill wrote:
| 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.
| inquirerGeneral wrote:
| [dead]
| mxkopy wrote:
| > 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.
| dmonitor wrote:
| > 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
| [deleted]
| metabagel wrote:
| No, it's not true. You can add lines of code which use a
| more efficient algorithm.
| _gabe_ wrote:
| > 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?
| michaelmrose wrote:
| 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.
| sahila wrote:
| 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.
| AdrianB1 wrote:
| 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.
| cyberax wrote:
| Look at European budget airlines like Ryan Air. They
| achieve low prices through business model streamlining,
| not through technical advances.
| metabagel wrote:
| Inferior service is usually cheaper.
| hef19898 wrote:
| 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.
| cyberax wrote:
| 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.
| mlindner wrote:
| Yes let's force people who can't quite pay enough to no
| longer be able to fly...
| cyberax wrote:
| Their service is not inferior for its price.
|
| Ryanair allowed me to fly across the Europe for $15 back
| when I was a poor student. It was either this, or not
| flying at all.
| tomrod wrote:
| > Embarrassing that the author is a professor and didn't
| bother making a proper argument.
|
| People are people. Your argument is strong enough without
| the ad hominem.
| timr wrote:
| 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"_
| staunton wrote:
| 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.
| tmpX7dMeXU wrote:
| 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.
| AnthonyMouse wrote:
| > Regulation routinely reduces cost.
|
| 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.
| patmcc wrote:
| >>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.
|
| https://www.nytimes.com/1989/01/02/business/the-media-
| busine...
| AnthonyMouse wrote:
| Making more money doesn't imply that they lowered prices,
| and in general the relationship is the inverse. Also,
| they did not lower prices:
|
| https://fred.stlouisfed.org/series/CUUR0000SEGA
| b59831 wrote:
| > Regulation routinely reduces cost.
|
| This is just plain wrong. Outside of monopolies (very few
| cases) regulations increase cost.
|
| Now, there are things more important than cost but that
| is a different argument
| Brusco_RF wrote:
| >Regulation routinely reduces cost
|
| What? No they don't. Not without considerable adverse
| effects at least. You're not referring to price ceilings,
| are you?
| flangola7 wrote:
| [flagged]
| WalterBright wrote:
| > 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.
| riscy wrote:
| 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.
| LudwigNagasena wrote:
| > 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.
| WalterBright wrote:
| Airplanes crammed full of people are a _lot_ more fuel
| efficient per passenger than one mostly empty.
| WalterBright wrote:
| 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.
| autoexec wrote:
| > 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.
| bluGill wrote:
| 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.
| nradov wrote:
| 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.
|
| https://www.transportation.gov/policy/aviation-
| policy/small-...
| twoodfin wrote:
| Planes stopped being directed where _Congressmen_ wanted
| them to fly.
| autoexec wrote:
| 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.
| WalterBright wrote:
| > the will of the people
|
| is not at all the same thing as having a choice.
| vxNsr wrote:
| Right, because famously, politicians are totally selfless
| and never do anything self-serving.
| autoexec wrote:
| When are aren't doing their job to our liking, we have
| the ability to remove them and replace them. Try doing
| that with the CEO of an airline.
| hiatus wrote:
| An individual has about as much power in either case. How
| many congress people have been removed at your bidding?
| jefftk wrote:
| 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.
| WalterBright wrote:
| > 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.
| autoexec wrote:
| > 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.
| bombcar wrote:
| 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.
| HelloMcFly wrote:
| > 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!
| autoexec wrote:
| > 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.
| WalterBright wrote:
| 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.
| autoexec wrote:
| > 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.
| callalex wrote:
| 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.
| [deleted]
| autoexec wrote:
| 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
| daniel-cussen wrote:
| [dead]
| [deleted]
| SoftTalker wrote:
| Or you can fly United, or American, or...
| autoexec wrote:
| 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.
| PaulDavisThe1st wrote:
| Do they fly out of the airport I normally depart from, or
| any other that is within a 2 hour drive?
| Spooky23 wrote:
| The downside of that development is that it created an
| unsustainable market.
|
| So you have an industry that periodically starts a fare
| war that requires federal bailouts.
| nradov wrote:
| There is no _requirement_ for federal bailouts. Large
| airlines have at times been allowed to go bankrupt, and
| that 's fine.
| Spooky23 wrote:
| They've also been allowed to consolidate to the point
| that they are too big to fail.
| nradov wrote:
| 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.
| JumpCrisscross wrote:
| > _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.
| jabroni_salad wrote:
| 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.
| tech_ken wrote:
| > 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
| lucas_membrane wrote:
| 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.
| bpodgursky wrote:
| > 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.
| tech_ken wrote:
| 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.
| cryptonector wrote:
| > 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.
| cyberax wrote:
| > 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.
| tech_ken wrote:
| >or sectors of economies
|
| 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.
| aradox66 wrote:
| 40 years is a long time, there's not really a viable
| counterfactual here
| debo_ wrote:
| 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."
|
| [0] https://en.wikipedia.org/wiki/Jamie_Zawinski#Zawinski's_Law
| objektif wrote:
| I have to say airline travel is the worst experience out of
| anything I do in my daily life. Something has to change here.
| cvalka wrote:
| The author hasn't heard about southwest.
| bitwize wrote:
| So airline points are basically a CBDC. Neat.
| snarf21 wrote:
| 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.
| some_random wrote:
| >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.
| yborg wrote:
| >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.
| some_random wrote:
| 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.
| aldebran wrote:
| The CC interchange rate is fixed in Europe but not in the US.
| Should they be? ;-)
| some_random wrote:
| I have no idea, but that would be a much more compelling
| article than this
| thmsths wrote:
| 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.
| staringback wrote:
| If a business is willing to offer a discount for paying with an
| alternative method, they are free to do so.
| 6stringmerc wrote:
| 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.
| suckitsam wrote:
| Forget crypto; let's replace The Fed with SkyMiles(tm)!
| motohagiography wrote:
| 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.
| dncornholio wrote:
| This article makes no sense.
|
| > 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.
| AnimalMuppet wrote:
| Perhaps they meant that it shows in how bad the experience of
| actually flying is.
| surfingdino wrote:
| Any sufficiently large commercial organisation is a bank.
| Starbucks, airlines, utilities...
| RajT88 wrote:
| I think Doctorow said something along those lines, no?
|
| "Any sufficiently advanced technology ends up regulated as a
| bank" or similar
| griffinkelly wrote:
| 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.
| ghaff wrote:
| 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.
| sokoloff wrote:
| I'm not as familiar with United's program, but Delta's earning
| of miles redeemable for awards is entirely based on a
| multiplier of money spent.
|
| United's appears that way for typical tickets on United/United
| Express metal as well:
| https://www.united.com/ual/en/us/fly/mileageplus/earn-miles/...
| schainks wrote:
| Relevant video: https://youtu.be/ggUduBmvQ_4
| asah wrote:
| What's lost about dereg, is that dereg inspired waves of
| entrepreneurs and inventors which regulation stifled.
|
| No, I will not produce evidence for this absurdly obvious point.
| feoren wrote:
| 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?
| somethingsidont wrote:
| One of my favorite YouTube videos on this subject:
| https://www.youtube.com/watch?v=ggUduBmvQ_4
|
| 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).
|
| [0] https://en.wikipedia.org/wiki/Impossible_trinity
| rawgabbit wrote:
| 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.
| Throwawayh89 wrote:
| Hasn't this been true for decades at this point?
| next_xibalba wrote:
| 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.
| slavboj wrote:
| 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.
| paulusthe wrote:
| 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?
| kylebenzle wrote:
| 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.
| TheGigaChad wrote:
| [dead]
| rcarr wrote:
| 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.
| adolph wrote:
| > 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.
| NoMoreNicksLeft wrote:
| 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?
| some_random wrote:
| 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.
| lotsofpulp wrote:
| 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.
| some_random wrote:
| 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?
| lotsofpulp wrote:
| For sure, the airline is never the lender on a branded
| credit card, and takes in no credit risk. It will be a
| licensed a bank.
| seanhunter wrote:
| That's not what a bank is or does.
| lxgr wrote:
| Not every large business effectively takes customer deposits of
| that magnitude, though.
|
| Starbucks is another good example of one that does (with gift
| cards instead of points); Amazon might be another.
| purpleflame1257 wrote:
| Starbucks isn't making extra money directly when you load a
| Starbucks card, though. They "make" money when you leave a
| balance on the card.
| lxgr wrote:
| 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:
|
| https://en.wikipedia.org/wiki/Escheat
|
| 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.
| eszed wrote:
| "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.
| lxgr wrote:
| > That some customers also fail to redeem the balance is
| for them a bonus
|
| Starbucks does not get to keep unredeemed balances
| indefinitely in most US states!
| slavboj wrote:
| Any large manufacturer or retailer is in the credit business
| - taking credit from their suppliers and extending credit to
| their customers.
| BiteCode_dev wrote:
| I'm flabbergasted that points are not considered taxable at this
| point.
| dehrmann wrote:
| Not really.
|
| 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.
| killjoywashere wrote:
| 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.
| ant6n wrote:
| 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.
| finfrastrcuture wrote:
| 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.
|
| 1.
| https://subscriber.politicopro.com/article/2023/09/senator-t...
| joshstrange wrote:
| > 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).
| neonate wrote:
| http://web.archive.org/web/20230921191028/https://www.theatl...
|
| https://archive.ph/A8cxk
| jacknews wrote:
| "the blame ultimately lies with Congress."
|
| 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.
| RajT88 wrote:
| 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".
| jdminhbg wrote:
| Cheaper flights didn't cause income inequality.
| refurb wrote:
| How is capitalism the problem?
|
| Go back to the 70's before regulation when the government
| enforced minimum fares.
|
| Air travel has gotten _much cheaper_ and far more accessible to
| lower income people.
|
| That sounds like a win for deregulation.
| throw1234651234 wrote:
| 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.
| bluedays wrote:
| 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
| GuB-42 wrote:
| Frequent flyer programs can be seen as bribery.
|
| 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.
| lysecret wrote:
| Bribery, or tax evasion.
| sokoloff wrote:
| In the US, it's not tax evasion, because the IRS has declared
| it so more than two decades ago: https://www.irs.gov/pub/irs-
| drop/a-02-18.pdf
| lastofthemojito wrote:
| 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_
| sokoloff wrote:
| > 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).
| lastofthemojito wrote:
| > 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.
| TeMPOraL wrote:
| > _Just like you don 't recognize typically recognize
| investment gains until you actually sell and receive
| those gains._
|
| Those miles seem to me to be close enough to securities
| that I'm not sure why the same rules don't apply to them.
| ghaff wrote:
| 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.
| remram wrote:
| This is also how credit card rewards/cashback works, no?
| aidenn0 wrote:
| 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.
| ghaff wrote:
| 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.
| grumple wrote:
| It appears that business travelers are only 12% of passengers
| but they make up most of the profits due to higher rates:
| https://www.investopedia.com/ask/answers/041315/how-much-
| rev...
|
| 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.
| ghaff wrote:
| 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.
| seydor wrote:
| i dont see a problem
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