I wonder if the difference was that airlines took "thinking on the margin" to an extreme? They all know that the cost of filling one more seat is practically z

I wonder if the difference was that airlines took "thinking on the margin" to an extreme? They all know that the cost of filling one more seat is practically zero, so even if that flyer is only paying $50, it's a win. This leads to variable pricing which leads to price shopping which leads to price competition, which has absolutely slaughtered airlines, especially with price aggregators. For what a profitable airline business looks like, look at Southwest and what they do. They have variable pricing, but its predictable based on only a few factors, and they don't allow listing in aggregators. Filling seats is important, but they keep an eye on the big picture. Cereal, on the other hand, has some non-zero incremental cost that, while small, can't be ignored. You can still think on the margin, but cannot ignore the overall economics.