Congratulations on the fellowship! Also, fascinating overview of the Spirit situation.
I’m also happy to finally see of an EU regulation that seems commonsensical that doesn’t go horribly wrong (I got asked about this recently and could only say “They certainly exist” but couldn’t remember any)
As someone who likes cheap flights and packing light, I see the iron law as a win. For people who want to account for bag fees, third party aggregators like Google flights can fix their price quoting algorithms to have it as a setting though.
As someone who has actually done airline revenue management, you’re describing fare segmentation and ancillary revenue. A cheap displayed fare gets attention. Profitability depends on the total revenue generated across different customers and products. That does not establish that everyone always chooses the cheapest fare. Revenue management exists precisely because different passengers assign different values to schedule, nonstop service, flexibility, loyalty benefits, bags, seats, and reliability.
Legacy carriers have something Spirit never had at the same scale: multiple demand streams and the data to distinguish them. They can sell a few low fares to price sensitive travelers while protecting inventory for corporate, connecting, loyal, premium, and time sensitive passengers. The goal is not to offer the lowest price. It is to maximize the value of every seat across the entire network.
That is also why Amazon’s algorithm is so effective. (I know it intimately because it came from legacy airlines) It does not assume everyone wants the cheapest item. It uses enormous behavioral data and product variety to match different customers with the offers they are most likely to choose.
Spirit’s failure does not confirm the “Iron Law.” It falsifies its original claim. The revised claim, that firms win by serving several price sensitive market segments at once, is basically conventional revenue management.
You're right that "always" is too strong, if taken literally. But it should not be; this piece should be read in conjunction with the original piece from back in February. In that one, I acknowledged a variety of exceptions to the rule, the most obvious being that people pay more for a direct flight rather than one with transfers. "But", I went on, "these groups are a minority, insufficient to shift the equilibrium. The Iron Law describes the centre of mass, not every particle. And the centre of mass is that consumers expect airlines to compete on price, not on other metrics".
I agree with you that the legacies segment their markets, but I disagree that what I'm describing is "basically conventional RM." RM explains how a carrier harvests different willingness to pay once it has your attention. But that's not what I'm trying to account for here; I am instead trying to explain why the default economy product has got steadily worse for 25 years, and why every attempt to compete on a better bundled product has failed, from Eos and Silverjet to Southwest dropping bags-fly-free. My answer is that the first cut happens on the displayed fare, so the entry-level product gets pinned to whatever is cheapest to show, and everything else is sold behind it.
Both pieces are not accurate. Have you ever worked in revenue management at a legacy carrier?
I have and I’m trying to give you actual information on how it works from the inside. My post wasn’t based on opinion.
You think you know because you wrote an article about it. I’ll let you to what you think you know.
Thanks for the reply.
* And for the record I CAN tell you why the default economy product has got steadily worse for 25 years, and why every attempt to compete on a better bundled product has failed, from Eos and Silverjet to Southwest dropping bags-fly-free.
I don't dispute expertise on this subject, and would indeed like to know. I do find your tone off-putting, though. I haven't disrespected you, so why are you responding as if I have?
I’m not trying to be disrespectful. My life revolves around physics now but I spent a lot of years in the industry. I try to get to the point when I post but it’s from a framework of being helpful.
I was expecting you to understand when I identified myself as someone who has actually worked in legacy revenue management. Instead of curiosity I felt a dismissive tone. I just assumed that you’re knowledgeable from an industry perspective, stated that based on my experience your article wasn’t accurate and wished you the best.
I try not to get into arguments on the platform, even though I’m confident in what I know and post.
Congratulations on the fellowship! Also, fascinating overview of the Spirit situation.
I’m also happy to finally see of an EU regulation that seems commonsensical that doesn’t go horribly wrong (I got asked about this recently and could only say “They certainly exist” but couldn’t remember any)
Great to have you Andrew!
As someone who likes cheap flights and packing light, I see the iron law as a win. For people who want to account for bag fees, third party aggregators like Google flights can fix their price quoting algorithms to have it as a setting though.
Nope.
This is a nice and funny read but no.
As someone who has actually done airline revenue management, you’re describing fare segmentation and ancillary revenue. A cheap displayed fare gets attention. Profitability depends on the total revenue generated across different customers and products. That does not establish that everyone always chooses the cheapest fare. Revenue management exists precisely because different passengers assign different values to schedule, nonstop service, flexibility, loyalty benefits, bags, seats, and reliability.
Legacy carriers have something Spirit never had at the same scale: multiple demand streams and the data to distinguish them. They can sell a few low fares to price sensitive travelers while protecting inventory for corporate, connecting, loyal, premium, and time sensitive passengers. The goal is not to offer the lowest price. It is to maximize the value of every seat across the entire network.
That is also why Amazon’s algorithm is so effective. (I know it intimately because it came from legacy airlines) It does not assume everyone wants the cheapest item. It uses enormous behavioral data and product variety to match different customers with the offers they are most likely to choose.
Spirit’s failure does not confirm the “Iron Law.” It falsifies its original claim. The revised claim, that firms win by serving several price sensitive market segments at once, is basically conventional revenue management.
You're right that "always" is too strong, if taken literally. But it should not be; this piece should be read in conjunction with the original piece from back in February. In that one, I acknowledged a variety of exceptions to the rule, the most obvious being that people pay more for a direct flight rather than one with transfers. "But", I went on, "these groups are a minority, insufficient to shift the equilibrium. The Iron Law describes the centre of mass, not every particle. And the centre of mass is that consumers expect airlines to compete on price, not on other metrics".
I agree with you that the legacies segment their markets, but I disagree that what I'm describing is "basically conventional RM." RM explains how a carrier harvests different willingness to pay once it has your attention. But that's not what I'm trying to account for here; I am instead trying to explain why the default economy product has got steadily worse for 25 years, and why every attempt to compete on a better bundled product has failed, from Eos and Silverjet to Southwest dropping bags-fly-free. My answer is that the first cut happens on the displayed fare, so the entry-level product gets pinned to whatever is cheapest to show, and everything else is sold behind it.
Thanks for writing!
No.
Both pieces are not accurate. Have you ever worked in revenue management at a legacy carrier?
I have and I’m trying to give you actual information on how it works from the inside. My post wasn’t based on opinion.
You think you know because you wrote an article about it. I’ll let you to what you think you know.
Thanks for the reply.
* And for the record I CAN tell you why the default economy product has got steadily worse for 25 years, and why every attempt to compete on a better bundled product has failed, from Eos and Silverjet to Southwest dropping bags-fly-free.
You’re missing something very important.
I don't dispute expertise on this subject, and would indeed like to know. I do find your tone off-putting, though. I haven't disrespected you, so why are you responding as if I have?
I’m not trying to be disrespectful. My life revolves around physics now but I spent a lot of years in the industry. I try to get to the point when I post but it’s from a framework of being helpful.
I was expecting you to understand when I identified myself as someone who has actually worked in legacy revenue management. Instead of curiosity I felt a dismissive tone. I just assumed that you’re knowledgeable from an industry perspective, stated that based on my experience your article wasn’t accurate and wished you the best.
I try not to get into arguments on the platform, even though I’m confident in what I know and post.