The Rigged Economics of Airlines
38,141
Published 2024-07-28
The American airline industry is a highly competitive yet heavily regulated battlefield No airline has greater than a 18% market share in the U.S and any M&A deal that would bring that number to 20% or higher is automatically blocked by the Justice Department.
All this made the emergence of low-cost airlines like Southwest, JetBlue, Spirit, Frontier, and Alaska in the 2010s all the more impressive - as they consistently outperformed the old-school legacy carriers in profitability and loyalty with fewer planes and marketing spend. Across universities and the private sector, these low-cost carriers were celebrated as leaders in strategy, innovation, and culture.
But fast forward to the 2020s and this low-cost future has not materialized. The low-cost carriers are all struggling, some on the doorstep of bankruptcy, and the legacy carriers are back on top both in earnings and valuations. Is the airline industry really rigged? How exactly did the legacy carriers reclaim market share in such a short period of time? In this episode, we’ll dive into the American airline industry and the territorial battlegrounds through the lens of 7 different carriers - United, Delta, American, JetBlue, Southwest, Frontier, and Spirit.
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0:00 Stalemate of the Skies
5:07 Sponsor Break (Rollo)
6:28 Legacy Fundamentals
15:00 Low-Cost Model
22:50 Timing & Territo
All Comments (21)
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Lets play this out. Ultra low cost carriers go out of business. Then legacy carriers jack up prices and then after a few years the low cost model makes sense again and you will be back to square one. We are stuck in an endless loop.
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Sometimes it feels like airlines are in a competition to see which one can abuse you the most without committing an outright crime.
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Achiving 100% occupancy isn't the real goal. The goal is maximizing overall income. For example, selling 10 seats at $200 is worth less than 8 seats at $300 with 2 empty ($2000 vs. $2400). Airlines' focus on variable pricing structures tries to figure out what each customer is willing to spend. Having a few empty seats is partly a gamble: What are the odds someone will pay more tomorrow for the same seat? Sometimes you will win, sometimes you will lose.
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Look you know something's gone wrong when Southwest owns parts of the northeast.
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The video title made me think I was going to dislike the airlines industry more than I do but I actually respect what these airlines do to increase profits under heavy regulation that restricts them from having more than 20% share of the entire market. The fortress hubs are a genius "small-scale" strategy for increasing gross margins in specific markets.
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I feel like what should have been mentioned was credit card deals which I feel like is the bulk of the profits.
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Would be very interested to see you take this approach to examining the economics of loyalty programs and the Airline alliances
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One of my favorite channels these days. I feel like understanding these complex business models is important info for consumers to make choices that align with both our finances and our values.
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Few things. 1) what about Allegiant Airlines? Suppose the same. 2) what about some of the Canadian and Mexican airlines in USA. Volaris, Viva, Flair, WestJet, and many more.
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ORD is a hub for american and united not just united. Its one of amercian's largest hubs.
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Would love to hear discussion of why TWA's early attempt at Tiered seat pricing failed whereas it worked later for other Legacy Carriers
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You should make a video on the top 3 aerospace players: boeing, airbus, and embraer
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Seattle isn't a Delta fortress hub and they definitely weren't the first movers there - Alaska was first and have much more marketshare there than Delta.
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Considering that operating systems are more pervasive and critical than planes, it seems a miscarriage of justice that Microsoft is given a monopoly of workstations and servers, and Google and Apple given a duopoly of mobile devices.
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Oligopoly enforced and backed by the government. I was disgusted when airlines got bailouts during COVID while small businesses went under.
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I moved to an American Airlines hub and I’m shocked how much they suck. I nearly got crushed by a falling beam on their jetbridge recently and they didn’t even offer me customer service points. United and Delta offer me points whenever anything goes wrong.
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Really good video. One nitpick, the Delta graphic shows LaGuardia as a Delta fortress. I'm pretty sure that was supposed to be JFK.
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You’re misleading people a little bit. While Delta does have a sizable presence in Boston, it’s not a fortress and it’s not a hub, it’s just a focus city. No one is delta captive in Boston unlike Atlanta. And JFK is not a delta fortress either
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Didn't even talk about the American airplane company that's had the biggest Delta in customer service recently... Boeing! 😅
