4 ms·

The problem is that travel is a bit more complicated than sandwiches -- flight prices end up being set more by competition rather than cost of production. Let's

by jowiar 12y ago

The problem is that travel is a bit more complicated than sandwiches -- flight prices end up being set more by competition rather than cost of production. Let's say, per your model, you offering flights from SFO to PDX for $200, LAX to SFO for $100, and sell the LAX->PDX route for $250 (with a stopover in SFO). I decide to start an airline which doesn't fly to SFO, but offers direct flights from LAX->PDX for $190. You don't want to lose the business of people flying from LAX->PDX, but also don't want to alter your routes. Any thoughts?

colordrops 12y ago
You are right that air travel is more complicated than sandwiches, but does it matter? What law or contract has skiplagged broken? Bad business models are not fundamental rights.
- jowiar 12y ago
  When you buy a ticket, you're entering into a contract with the airline. See pg. 11 here for the relevant bits: http://www.united.com/web/format/pdf/Contract_of_Carriage.pdf http://www.united.com/web/format/pdf/Contract_of_Carriage.pd...
  - colordrops 12y ago
    Once again, what law or contract has skiplagged broken? They do not purchase tickets, and they do not enter contracts with airlines.
    - jowiar 12y ago
      IANAL, but I would imagine that they're in a similar situation to ThePirateBay -- "We aren't doing anything wrong - we're just giving information to other people how they can". I'm curious how the case is going to shake out.
      - colordrops 12y ago
        ThePirateBay is a terrible precedent. Pointing at criminals should never be a crime.
    - justinsb 12y ago
      My concern is that a passenger might buy a ticket through skiplagged, and not understand that they risk getting banned from the airline. If you live near a one-airline airport, that's a pretty serious risk.
      - jowiar 12y ago
        I think "getting banned" is far less of a risk-by-way-of-misunderstanding than "the airline isn't compelled to deliver you where you want to go". When I've bought ticket A->B->C, my actual travel has included routes such as: A->C, A->D->C, A->D->E->C, A->D-(train)-C, A-(Cab)-A'->C.
    - pdabbadabba 12y ago
      I haven't looked into the actual legal details of this case, but in most jurisdictions it is a tort (i.e.l illegal) to interfere with others' business contracts. It's a notoriously tricky area of law though, and the source of a lot of borderline frivolous lawsuits. There are also numerous exceptions. http://en.wikipedia.org/wiki/Tortious_interference http://en.wikipedia.org/wiki/Tortious_interference
rhizome 12y ago
You don't want to lose the business of people flying from LAX->PDX, but also don't want to alter your routes. Any thoughts? Yes: something's gotta give. Consumers are not required to satisfy a business' desires.
cynix 12y ago
I should just reduce the price of LAX-SFO and SFO-PDX accordingly, so that the cost of LAX-SFO-PDX is the sum of LAX-SFO and SFO-PDX. If I can afford to carry the passenger through LAX-SFO-PDX for $190, then I can afford to carry her LAX-SFO for $x and SFO-PDX for $(190-x).
- jowiar 12y ago
  But you have a near-full plane of passengers perfectly willing to pay $200 to fly from LAX to SFO - you're throwing away profit from all of them if you cut their fare because I'm competing for a different set of customers.
  - pas 12y ago
    But, obviously, you have some customers who are not that willing, because they use these little hidden-city hacks. So what's the problem? You try to maintain your profits as everyone else, but before customers/passengers/clients smartened up it was easy, now you have to sue and lobby but eventually you have to directly fight against the rights of your passengers (the FAA exit fee someone proposed). Since airlines are a high barrier to entry market regulatory capture is both likely and a real concern, just as collusion (or an emergent cartel, after all this is a general problem of the business model). So here to answer the question of what's reasonable you'd have to know more about the operating costs and other dynamics of the market. But I wouldn't be surprised if it turns out that simply forgoing that extra profit leads to a healthier market (cheaper fares, more passengers, bigger market altogether) - which is very likely, after all it is already profitable to do the A->B->C route for whatever they offer it, and if they offer it below costs, then that's basically dumping which we know long term likely hurts the market because leads to fewer participants.
    - jowiar 12y ago
      Airline economics are a bit complicated. What exactly constitutes "below costs"? Let's say I have a plane flying from A->B that is typically 90% full, and a plane flying from B->C that is typically 90% full. You want to get from A to C. The cost on my end for doing this is already a sunk cost - I can carry you for a very small marginal cost. If someone else is willing to do it for $200, I'll do it for $190 (Hell - I'm willing to go very cheap - maybe even $50), because getting something for those seats is better than getting nothing. What I don't want to do is to let someone else's fare on route A->C cause me to lower the price for people who want to fly from A->B (whose alternative is to pay $250).
rev_bird 12y ago
I've been all worked up about this story since I first read it, but yours is the first comment to make me actually understand a potential, non-bullshit argument from the airline side of things. Thank you. That said, I think I'm still grumpy at the airlines for doing it. The basic issue they're trying to resolve is that they want the LAX-SFO-PDX flight to compete only with the other airlines' LAX-PDX direct flights, which justifies their weird pricing. In reality, though, their LAX-SFO-PDX flight is also competing with their own LAX-SFO flights, because, unless they're locking people in the planes, they're equivalent products for anybody trying to get to SFO. You're saying "You don't want to lose the business of people flying from LAX->PDX, but also don't want to alter your routes," which makes sense as a business. But as a consumer, it seems pretty screwed up that "I don't want to change my routes" is enough of a reason for businesses to sue people and businesses who take advantage of your refusal to fly where they want to go. It's using litigation instead of just flying to PDX.
- jowiar 12y ago
  Two issues: LAX->SFO->PDX isn't an equivalent product if you're going to SFO -- the airline can rebook you on any of a number of options (in case of weather, capacity, mechanical difficulties or whatnot) that may or may not go through SFO. Adjusting routing is nontrivial. Planes are expensive. Gate rental is expensive. Pilots are expensive. Getting pilots and planes to where people are with routes planned to haul them to where they want to be is complicated. As an example of how complicated (and fragile) this is, watch the United departure board when there's a decent storm brewing in Chicago -- It's not just the flights going into and out of ORD that get screwed up -- it's pretty much every flight in the country.
SilasX 12y ago
Great explanation, thanks! Still not convinced though. In a sane world, you don't violate the generalized triangle inequality. In this case, the first airline should see an equal drop in demand for the two legs and cut prices to fill the gap (draw the marginal traveler for either or for both legs). Having a special "both legs only" deal, in the face of higher actual costs for both than for only one, should immediately reveal itself as stupid, though an airline may (foolishly) be trying to kill its competitor. Yet another analogy: the first business makes a template for cutting cookie shape A and a second for shape B. The second business sees demand for people who need an equal amount of both cookies, and makes a special template that "stamps out" an A and B stuck together. The one template is cheaper than two. Now it can sell the A/B bundle cheaper than the first business. Some people like having separate cookies, some don't, and some only want one of them. Some like having both and don't mind breaking the fused one. The second business sells the fused one cheaper. How should the first react? What if it tried to steal the "A/B bundle market" by trying to offer a major discount for people who buy A and B together, but only if they really like both?

by jowiar 12y ago

colordrops 12y ago

You are right that air travel is more complicated than sandwiches, but does it matter? What law or contract has skiplagged broken? Bad business models are not fundamental rights.

jowiar 12y ago
When you buy a ticket, you're entering into a contract with the airline. See pg. 11 here for the relevant bits: http://www.united.com/web/format/pdf/Contract_of_Carriage.pdf http://www.united.com/web/format/pdf/Contract_of_Carriage.pd...
- colordrops 12y ago
  Once again, what law or contract has skiplagged broken? They do not purchase tickets, and they do not enter contracts with airlines.
  - jowiar 12y ago
    IANAL, but I would imagine that they're in a similar situation to ThePirateBay -- "We aren't doing anything wrong - we're just giving information to other people how they can". I'm curious how the case is going to shake out.
    - colordrops 12y ago
      ThePirateBay is a terrible precedent. Pointing at criminals should never be a crime.
  - justinsb 12y ago
    My concern is that a passenger might buy a ticket through skiplagged, and not understand that they risk getting banned from the airline. If you live near a one-airline airport, that's a pretty serious risk.
    - jowiar 12y ago
      I think "getting banned" is far less of a risk-by-way-of-misunderstanding than "the airline isn't compelled to deliver you where you want to go". When I've bought ticket A->B->C, my actual travel has included routes such as: A->C, A->D->C, A->D->E->C, A->D-(train)-C, A-(Cab)-A'->C.
  - pdabbadabba 12y ago
    I haven't looked into the actual legal details of this case, but in most jurisdictions it is a tort (i.e.l illegal) to interfere with others' business contracts. It's a notoriously tricky area of law though, and the source of a lot of borderline frivolous lawsuits. There are also numerous exceptions. http://en.wikipedia.org/wiki/Tortious_interference http://en.wikipedia.org/wiki/Tortious_interference

rhizome 12y ago

You don't want to lose the business of people flying from LAX->PDX, but also don't want to alter your routes. Any thoughts? Yes: something's gotta give. Consumers are not required to satisfy a business' desires.

cynix 12y ago

I should just reduce the price of LAX-SFO and SFO-PDX accordingly, so that the cost of LAX-SFO-PDX is the sum of LAX-SFO and SFO-PDX. If I can afford to carry the passenger through LAX-SFO-PDX for $190, then I can afford to carry her LAX-SFO for $x and SFO-PDX for $(190-x).

jowiar 12y ago
But you have a near-full plane of passengers perfectly willing to pay $200 to fly from LAX to SFO - you're throwing away profit from all of them if you cut their fare because I'm competing for a different set of customers.
- pas 12y ago
  But, obviously, you have some customers who are not that willing, because they use these little hidden-city hacks. So what's the problem? You try to maintain your profits as everyone else, but before customers/passengers/clients smartened up it was easy, now you have to sue and lobby but eventually you have to directly fight against the rights of your passengers (the FAA exit fee someone proposed). Since airlines are a high barrier to entry market regulatory capture is both likely and a real concern, just as collusion (or an emergent cartel, after all this is a general problem of the business model). So here to answer the question of what's reasonable you'd have to know more about the operating costs and other dynamics of the market. But I wouldn't be surprised if it turns out that simply forgoing that extra profit leads to a healthier market (cheaper fares, more passengers, bigger market altogether) - which is very likely, after all it is already profitable to do the A->B->C route for whatever they offer it, and if they offer it below costs, then that's basically dumping which we know long term likely hurts the market because leads to fewer participants.
  - jowiar 12y ago
    Airline economics are a bit complicated. What exactly constitutes "below costs"? Let's say I have a plane flying from A->B that is typically 90% full, and a plane flying from B->C that is typically 90% full. You want to get from A to C. The cost on my end for doing this is already a sunk cost - I can carry you for a very small marginal cost. If someone else is willing to do it for $200, I'll do it for $190 (Hell - I'm willing to go very cheap - maybe even $50), because getting something for those seats is better than getting nothing. What I don't want to do is to let someone else's fare on route A->C cause me to lower the price for people who want to fly from A->B (whose alternative is to pay $250).

rev_bird 12y ago

I've been all worked up about this story since I first read it, but yours is the first comment to make me actually understand a potential, non-bullshit argument from the airline side of things. Thank you. That said, I think I'm still grumpy at the airlines for doing it. The basic issue they're trying to resolve is that they want the LAX-SFO-PDX flight to compete only with the other airlines' LAX-PDX direct flights, which justifies their weird pricing. In reality, though, their LAX-SFO-PDX flight is also competing with their own LAX-SFO flights, because, unless they're locking people in the planes, they're equivalent products for anybody trying to get to SFO. You're saying "You don't want to lose the business of people flying from LAX->PDX, but also don't want to alter your routes," which makes sense as a business. But as a consumer, it seems pretty screwed up that "I don't want to change my routes" is enough of a reason for businesses to sue people and businesses who take advantage of your refusal to fly where they want to go. It's using litigation instead of just flying to PDX.

jowiar 12y ago
Two issues: LAX->SFO->PDX isn't an equivalent product if you're going to SFO -- the airline can rebook you on any of a number of options (in case of weather, capacity, mechanical difficulties or whatnot) that may or may not go through SFO. Adjusting routing is nontrivial. Planes are expensive. Gate rental is expensive. Pilots are expensive. Getting pilots and planes to where people are with routes planned to haul them to where they want to be is complicated. As an example of how complicated (and fragile) this is, watch the United departure board when there's a decent storm brewing in Chicago -- It's not just the flights going into and out of ORD that get screwed up -- it's pretty much every flight in the country.

SilasX 12y ago

Great explanation, thanks! Still not convinced though. In a sane world, you don't violate the generalized triangle inequality. In this case, the first airline should see an equal drop in demand for the two legs and cut prices to fill the gap (draw the marginal traveler for either or for both legs). Having a special "both legs only" deal, in the face of higher actual costs for both than for only one, should immediately reveal itself as stupid, though an airline may (foolishly) be trying to kill its competitor. Yet another analogy: the first business makes a template for cutting cookie shape A and a second for shape B. The second business sees demand for people who need an equal amount of both cookies, and makes a special template that "stamps out" an A and B stuck together. The one template is cheaper than two. Now it can sell the A/B bundle cheaper than the first business. Some people like having separate cookies, some don't, and some only want one of them. Some like having both and don't mind breaking the fused one. The second business sells the fused one cheaper. How should the first react? What if it tried to steal the "A/B bundle market" by trying to offer a major discount for people who buy A and B together, but only if they really like both?