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- [00:02]
A
I'm Jon Ostrower, editor in chief of the Air Current.
- [00:04]
B
I'm Brett Snyder, author of Cranky Flyer.
- [00:06]
C
And I'm Brian Summers. I write the Airline Observer. You're listening to the Air show, the podcast where we talk about what goes on in the business of the sky. Guys, this is our last show of the year. And yes, we thought about doing another show on Spirit Death Watch, but we decided it's probably best to let that one play out. Maybe we'll have some more news in 2020. Today we're gonna let Brett run the show. Brett is gonna talk to all of us about his second favorite topic besides network. And no, it is not corny dad jokes. Brett's gonna tell us today about revenue management and he's got a lot to say. Woo hoo.
- [00:51]
B
I just wanna say I love all of my commercial children equally. Revenue Management Network. I love them all. So maybe I will be doing dad jokes today. But if I am not talking about network, it is true rm. There's nothing like a good deep dive, guys. Right? Right? Anyone?
- [01:10]
C
We'll take your word for it. Brett.
- [01:12]
B
Listen, this wasn't just my normal RM dinner table conversation.
- [01:15]
A
I would want to delve into the idea that there is normal dinner conversation that involves revenue management.
- [01:21]
B
Remember, my wife and I both worked in RM at different airlines. So, you know, these conversations may happen around a dinner table. But this topic came out of a recent episode of a podcast. Many of you know Airlines Confidential. As everyone knows here, I started my career in revenue management at America west doing pricing. And I still have a lot of friends from those days. So when I heard that former American CEO Doug Parker was giving a Revenue Management 101 class on airlines Confidential, my reaction was, say what now? Because Doug is not a revenue management guy and to his absolute credit, he is very clear on the podcast to admit that he has never worked on that side of the business. That was always Scott Kirby's domain. So while I'm sure as a longtime airline CEO, Doug has an understanding of RM to some point, although maybe I shouldn't be so sure thinking about some airline CEOs out there today, but he is also not who I would be expecting to give the lesson on it.
- [02:24]
C
So you want to spend today throwing shade at one of the more transformational US airlines CEOs of the past 30 years? And you haven't worked in RM for like 20 years and when you did, you were a junior analyst. Are you sure you want to do this?
- [02:41]
B
It has been more than 20 years, but I was a Manager when I left. Not just a junior analyst, I will have you know. Look, I'm not trying to throw shade at Doug here. It's just like he says, not his main area of expertise. That's why it's funny that he's the one that's giving the lesson. And I listened to it, and other than the fact that it took an hour and a half, it wasn't a bad rundown at all. With some helpful background on how we got here and what's happening, it was definitely simplistic. But this isn't criticism. That was by design. He called this Revenue Management 101 after all. But look, even if the facts were mostly right, I did disagree with some of the conclusions and categorizations here. So that's what I want to talk about.
- [03:24]
A
As a dabbling professor myself. I'm not actually a professor.
- [03:27]
C
You are a professor, John.
- [03:29]
A
I'm an instructor.
- [03:30]
B
You teach college kids.
- [03:32]
A
I don't want to claim credentials I do not have. But I deem you now, Professor Cranky.
- [03:38]
B
Thank you. So if Doug gave RM101, then let's call this RM201. So Doug's basic premise is that after consolidation, Basic Economy is the most transformative event in the airline industry since deregulation. And that I just can't agree with.
- [03:56]
C
I've heard about this product, but I've never actually bought it myself. Maybe there are other listeners like that out there. What is Basic Economy?
- [04:07]
B
Well, it's where all those people in the back of the plane where you.
- [04:11]
C
Don'T go, it just takes too long to get off from back there. I don't have the patience.
- [04:15]
B
No. So Basic Economy is of course that lowest fare category that generally doesn't come with an advanced seat assignment. You board last year, change rules are more restrictive, all that kind of stuff. It's an entry level product, effectively. And that is the idea behind Basic Economy when it first came out was that this is a new low fare starting point for buying a ticket. And the truly price sensitive travelers will pay that fare, but the vast majority of travelers will not. And they will buy up to regular economy because they care about the things that are not included in Basic. So in other words, it's just another fence that airlines have created to better segment travelers, like advanced purchase, minimum stays, all that kind of stuff.
- [05:00]
A
I would also just say here that I have also never purchased a Basic Economy ticket, but that's because the thought of not being able to select a window seat before the flight literally gives me a deep sense of existential dread.
- [05:12]
B
That's the whole point of Basic Economy.
- [05:14]
A
There you go. The price difference is fundamentally, that's a window right there. The difference here is before that, if you're talking about these fences like an advanced purchase requirement, there was no actual difference in the experience. But with Basic Economy there is. So it's easier for people to understand.
- [05:31]
B
Sure, that's definitely true, and Doug said exactly as much, calling it a win win. But I think that also is a stretch. It adds more complexity and confusion to the process for travelers, especially since it's punitive. You can't always change your mind later if you want a regular economy experience. Sometimes you can, sometimes you can't. But I would argue that this is just another tool in trying to segment the traveler and nothing revolutionary.
- [05:57]
C
But I think that we know Doug is a smart man. He did some really great things for this industry. He was like really good at going to Washington, D.C. and begging lawmakers for money. And of course, he built that airline that would never lose money again. But seriously, he does deserve a lot of credit for leading this industry into this new era of consolidation. I take Doug seriously when he says that Basic Economy was a very, very big deal for US Airlines, bigger than almost anything else. Why did Doug think it was so important? Even if you don't?
- [06:34]
B
I did not say I didn't think it was important. I think it is deeply overstated, but I will get to that after a short break.
- [06:43]
A
This is our last break of 2025 and we want to take a minute to thank all of our sponsors this year. Doohop Juliet, Alpha, Pittsburgh International Airport plus Grade rocked SES and TCG Digital.
- [06:55]
C
Without their support, this show doesn't happen. But also, we've worked hard to find sponsors that are relevant to you, all of our listeners. This is not a podcast meant to have a broad reach to millions of listeners. We do this for the airline industry and we know that many of you in senior management listen and you don't need to hear ads about mattresses or supplements or whatever.
- [07:19]
B
Whether work in an airline or your company is in the B2B space, you know you need good partners. So partner with the air show for 2026.
- [07:28]
A
For us to be able to put on a well produced and informative show, we need quality sponsors and we're very glad to have found so many of them. If you'd like to be a sponsor next year, get in touch by going to theairshowpodcast.com if you need proof that.
- [07:41]
C
The airshow reaches the people your company needs to reach Let me just share one anecdote. When one large airlines management team told us that they were now looking into one of our sponsors offerings thanks to hearing about their products on this show, that made us realize that we're on the right track.
- [08:01]
B
And if you're an airline that appreciates what we do, tell your partners that they should partner with us. If their trusted partners are yours, we'd love to have them as a sponsor.
- [08:08]
C
And thanks again to all of our partners who have supported us this year. We're back. Brett, answer my question from before. Why does Doug think basic economy is so important?
- [08:22]
B
I'm not going to comment on every single thing he said or this will end up being incredibly long. But I think the way Doug looks at this is he puts airlines into a box which they can't easily escape. He talks about how there's a natural share that airlines will get based on their capacity in the market. And it is really hard to shift your natural share unless you use price as a weapon, which is probably not the best plan for a company looking to make a profit. If you use product as a weapon and you're successful, then everyone will just match you and you're back at square one again.
- [08:56]
C
Yeah, that sounds like what I'd expect to hear from American Airlines. Why would you do anything if everybody will just match you? And then it's a zero sum game. But also I think that's just wrong. Like haven't Delta and United shown that going up market has shifted share?
- [09:15]
B
Yeah, I think so. Even beyond that though, it's allowed those airlines to get a higher fare on their tickets. You know, a good chunk of people are less likely to move to American for a cheaper fare if they think Delta is that much better, which they apparently do. It takes a bigger gap to move people to a cheaper fare because of that. And we do see that in the data with Delta getting higher fares. So I'm already a skeptic. But let's keep following what Doug believes here since he says it's so hard to shift share and get out of this box. The key is finding a way to better segment travelers so you can rearrange things within the unmovable box to be able to maximize revenue. And that's always the goal of rm. Maximize revenue. We definitely agree on that point. But then, you know, he goes back to the early days of modern RM. So think the 1980s Bob Crandall days, right? And he talks about how you had two classes, you had coach and first, this was really the only physical differentiator on the airplane. And then everything else was segmented by putting these artificial fences on and in first even nobody was paying for that. Anyway, it evolved into this upgrades and a small handful of people willing to pay astronomical fares pretty quickly.
- [10:26]
A
So Brian and no one else, I.
- [10:28]
C
Would like the audience to know that I flew economy a couple of weeks ago from LA to Dallas Fort Worth on a American, no less. And I survived.
- [10:38]
A
But where in the airplane were you sitting?
- [10:40]
C
I was sitting at an exit row window.
- [10:42]
B
Okay, there it is. Thank you.
- [10:45]
A
Carry on.
- [10:47]
B
Listen though, even those first class fairs in the old days, I don't even think Brian would have paid for that. I think. But the whole point back then was basically, hey, we have these airplanes that aren't very full. If we can keep the business travelers who are paying for these expensive tickets doing what they're doing. What if we could fill the rest of those seats that would go empty with people who aren't willing to pay that much but are willing to pay something. It's better than going empty. So they tried to figure out how do you segment it to protect the revenue you have, but then add more.
- [11:17]
C
Yeah. And that pretty quickly evolved into the modern RM system which takes like a million fares on a million routes and determines how many seats to sell at each price point. It is incredibly complex, but it gets the airlines closer to maximizing revenue than a lot of businesses can.
- [11:34]
B
Exactly. But there is contention here, is that this sucked for travelers. And he's not wrong because you could have someone who paid $1,000 sitting in a middle seat while someone who paid $100 could have an aisle right next to that person. So that's obviously not ideal. But where I think he veers off track on this is that he acts like this couldn't be solved until basic economy was introduced.
- [11:57]
C
Yeah, I think that's a good point. Airlines were probably getting there earlier than economy. Delta, we know, was the first to roll out basic economy. That was in 2012. But let's remember that airlines were selling premium seat options well before that. United, we know, had economy plus in 1999. And at that point it held back tickets for people on full fares. As I recall American, more room throughout coach. We know that didn't go so well, at least for some airlines. This idea of product differentiation was there well before basic economy.
- [12:34]
B
Yes, and I should also note in Airlines Confidential, Doug did talk about how more room throughout coach was not a success and got into the details there, so we don't need to focus on that. But United started selling economy plus individually around 2007, 2008, several years before Basic Economy. But they were selling these individual seats. And that's also right around the time when the airlines started charging for the first checked bag on domestic flights. As Doug said in the podcast, technology absolutely held the airlines back from doing exactly what they wanted. But they were already moving in this direction to offer different paid premium experiences within the cabin. Long before Basic Economy existed. Basic Economy was just an evolution of that, not the start of a revolution. And really Basic Economy was just a tactical response to Spirit in the beginning that got legs.
- [13:27]
A
Well, we've seen inordinate amount of data that points to how poorly the ULCCs are doing. Obviously. Yes, none worse than Spirit. So it seems like this strategy really may have worked.
- [13:38]
B
Well, again, I think there's too much credit given to Basic here for that. Yes, before Basic, the legacy airlines were trying to match their all inclusive fares with those that were unbundled at the ULCCs. So you would see them match Spirit, but then they'd maybe add $50 since that's what a carry on would cost. And they included it while Spirit didn't. It was trying to create an apples to apples situation, but in a world where only the fare is shown on shopping sites, that doesn't really work great either.
- [14:08]
C
So with Basic, like, the airlines could have a more bare bones product that they could use to match those low cost carriers. And I kind of think if Parker had said, not that Basic was the most important thing airlines have done in the modern era, but Basic was really important because it essentially helped airlines kill off these spill carrier ULCCs. Maybe that would have made more sense.
- [14:31]
B
It would have made more sense, but it still didn't really kill them off. It was part of something bigger, which I'm going to talk about in a bit here. But what it did is it again allowed this segmentation. It's just that it created an actual physical segmentation. As Doug says, it enabled customer choice here. So then you could have these low fares that would match the ULCCs and, and customers could look at that and say, oh no, I don't want that. And then they could buy up to the regular fare if they wanted to pay more to get more. And that is true. But explaining it as if it was this win win that everybody loves, I don't really see that.
- [15:13]
A
Why is that?
- [15:14]
B
Several reasons. So first of all, people actually hate Basic. I think we can agree if you're a traveler, that's fair. You know, unlike the ULCC is, where they actually created an unbundled fare that you could build on BASIC was more about being pun. It added restrictions and prevented you from doing things. The idea was that some people would buy it and the vast majority would not. And so it ended up becoming a de facto fare increase for a lot of people. So they don't like that. So it's hard to call that a win win. But even worse, every airline implemented BASIC differently, so people were just confused and mad about it. You had different airlines doing it differently. That's so hard for people to get their heads around. And yes, the subset that was fine with BASIC would rather fly a legacy with the frequent flyer program than a ULCC with a poor reputation and bad operation, which is historically the default type of ULCC in the US but it wasn't exactly beloved by all here.
- [16:15]
C
I don't know, Brett, when I hear you describing Basic Economy, it does sound like it was a pretty big deal for the airline industry.
- [16:23]
B
Are you sure here, again, it is not nothing Is that a terrible way to put it? But it is not by itself a huge deal because it required a lot of other changes here. You can introduce BASIC all you want, but you have to be able to take travelers at those fairs or you'll still keep spilling to the ULCCs. But the legacies didn't really have enough seats to go around back in the day. You think about United flying. This was Scott Kirby's favorite one to talk about. At United. They had all these regional jets flying on Chicago to Dallas. You don't have room to take these basic economy fares. So it doesn't matter if they exist or not if you only have 76 seats.
- [17:05]
C
Wait, I just thought that United added larger jets from Dallas to Chicago so Scott Kirby could get back to the home office every now and then.
- [17:12]
B
I think you're right, but he still likes to use that as an example.
- [17:16]
C
All right, well, I think I see what you're getting at here, Brett. That Basic economy wasn't just a revenue management strategy.
- [17:23]
B
Right. It was broader than that. It was part of a bigger strategy where you had to add capacity. That was key. And that happened through more flights, you know, aircraft orders, all that. But in my opinion, more importantly, it was through up gauging because now you have an A321 with 200 seats and you can take your business traffic, but you can also take ULCC traffic as well, because at this point, the marginal cost is so low that you win even with these low fares. Filling those empty seats in the back and it helps keep your unit Costs down. So the airlines are all happy. But meanwhile on the ULCC side, they're also up gauging to try and keep their unit costs down, but they don't have as many passengers to take anymore because all of those passengers are now flying on the back of the legacy aircraft that have been up gauged. So the ULCCs have airplanes that are too big and it's just bad news for them all over.
- [18:16]
A
I think you are making a phenomenal point here. And look, this is why regional jets in the United States are dwindling. It's not just because there isn't a replacement. A 50 seat CRJ is not competitive not only on its operating cost, it really is about the number of seats and the composition of those seats against the feed going into these hubs. This is huge. But you're not arguing here that it's worthless to the airlines. I mean, I think you're really getting at the fact it is just being.
- [18:47]
B
Overstated in many ways. Yeah, yeah, yeah, exactly. BASIC is a good pricing tool. It's another way to segment the traveler, be able to isolate a traveler's willingness to pay. And that's great. It helps to maximize revenue. But the way Doug talked about it is that the invention of BASIC kind of replaced all those old fences and created this better way to differentiate the fare and got rid of all these things that people hated. But all those other fences still exist. They're all still in place. Sure, there may not be as many fairs as Saturday night stay requirements anymore, especially domestically, but there are plenty of other fences. So I went in to take a look at some fares here. I took a random date in January, see what fares were filed for. The longest domestic route that popped into my brain, which was San Diego to Bangor, Maine on American. Do you know John, how many regular economy price points are filed?
- [19:44]
A
17.
- [19:44]
B
91. 91 fares are filed.
- [19:47]
A
Arbitrary guess.
- [19:48]
B
But that doesn't include basic economy and it doesn't include refundable fares. Those are in different fair brand categories here. So of those 91, these six lowest require a round trip ticket. They require a 21 day advance purchase. There are restrictions on day of week, seasonality, all of those things that are filed. And of those 91, there are only 12 which are one way fares with no advance purchase requirement. That's it. So let's be clear that BASIC does not replace anything. It's just more segmenting that they can add in here. And this is just the tip of the iceberg because airlines are doubling down on these things. They're introducing potentially infinite number of price points. United calls it continuous pricing that they can present to a traveler as the systems get more and more sophisticated. So, you know, this is one way to skin the cat. But BASIC hasn't replaced the old way. It's just enhancing it.
- [20:42]
A
And we wonder why people hate the airlines.
- [20:46]
B
Well, that's. I mean, look, they're. The RM guys are doing their jobs. They're maximizing their revenue, and. And here we are. And yes, people don't really love it. Now, I want to clear something up, because I think there's something that's being incorrectly conflated here. There's a suggestion that BASIC is the key that unlocked the ability to sell premium products. And I don't get that.
- [21:13]
A
Didn't you just say that they were already selling Economy plus before this?
- [21:17]
B
Yes, and they were, and bag fees and all that kind of stuff. So this is just more product segmentation. Delta and United saw that people wanted more premium, and they responded. Especially since the pandemic, it's something that has accelerated. People were all of a sudden they're interested and willing to pay more for a better experience, and that's what they've been doing. And so some airlines have pivoted more in that direction to try and make that happen. But again, that just gets us another segmentation tool like BASIC at the bottom end, we have premium at the top. And then it's all part of the same effort that the airlines have been working on for years. And technology is finally catching up to that point.
- [21:56]
C
All right, Brett, let me ask you this then. I think a lot of people in the industry agree, and you probably do, too, that consolidation has probably been the biggest game changer in recent years. But Doug is essentially saying that BASIC is the second big game change. What do you think is number two?
- [22:14]
B
Oh, that's easy. For me, it's the loyalty game. This has turned into such a powerhouse for the big airlines. It gives them a huge revenue boost while also creating a completely uneven playing field versus the smaller guys, that they can never close that gap. It's created this incredible fortress that has completely altered the entire industry. And that, to me, dwarfs the impact of Basic economy.
- [22:42]
C
That reminds me, Brett, I should probably go out there and apply for another credit card.
- [22:45]
B
You should probably.
- [22:46]
A
Can I throw a wild card in there?
- [22:48]
B
Yeah.
- [22:48]
A
There's been a lot of reporting lately about Delta using AI in quotes for its own revenue management. How does that play in for the future?
- [22:57]
B
What I think they've been doing, and they've been a little coy talking about it. But what they're trying to do is figure out what are the right price points to have at the right times when they're selling seats. And it, it's more, more informed and can in theory provide a more accurate price point to get what they want and make changes on a more frequent basis than what they get through traditional yield analysts, RM analysts. It is not, at least not so far, what people have suggested that this is about, you know, creating a different price for every person that exists and what's going to happen when the robots can just tell us what we want to do better than we can tell ourselves what we want to do. I guess. But this really falls into that bucket of what I talked about with United before with continuous pricing. It's an evolution of pricing. It adds more price points, it makes it more complex. It's still all about maximizing revenue. This is just another tool that airlines can try and use and the wheel.
- [24:03]
A
Spins on and on.
- [24:04]
C
I know that this is a bit of a self serving answer, but I've heard it from a lot of people in the industry and they tell me that this fetcher product that Delta and other airlines are using is just as likely to go low as to go high. Right.
- [24:20]
B
The point is you're just trying to leverage the data and the technology you have to create better price points that match willingness to pay. That's always been the name of the game. Nothing has changed since deregulation. As soon as the airlines were able to start charging people whatever they wanted for fares, they just went straight to getting it as complex as they possibly could to try and match those things up. And this is just another tool that gets there. Like with everything in AI, it is probably the worst it will ever be today. These systems will continue to learn and they will do better and they will provide more valuable information as they evolve. But this is separate from Basic Economy. Of course, Basic Economy does have that product segmentation piece to it, but they're all angling toward the same eventual goal of maximizing revenue.
- [25:15]
C
You've been listening to the Air Show. If you have suggestions or questions for us, or if you're interested in sponsoring the podcast, go to our website, theairshowpodcast.com to get in touch.
- [25:27]
B
The Air Show Podcast is produced and edited by Sarah Fay. Our theme music is by Joshua Mosher. Thanks for listening, Happy holidays and we'll be back soon.