Economic Redistribution in the Air

Economists like to talk about helicopter drops of cash as a way to avoid deflation. Passenger airlines can also teach an economic lesson, this one about redistribution:

But aside from the engineering, the most beautiful thing about a long-haul airliner is the economic wizardry which keeps it flying. On board are a variety of seats from the sybaritic to the spartan for which people have paid wildly varying amounts of money, even though each seat will reach the same destination in the same length of time. You may find this class division offensive. However, if you were to try to make aircraft egalitarian, the system would collapse. Without the people in the front paying handsomely to sit in splendour, many of the people in the back could not afford to travel at all. An airliner is in some ways slightly socialist — it redistributes wealth through voluntary means.

This redistribution works in both directions. You can operate business-class-only flights. Indeed, if you can fill them, these are highly profitable. But there is a problem here. Business travellers prefer airlines which offer frequent flights to their destination, since they value flexibility and wish to avoid needless hours or days spent away from home. Without economy class passengers, you cannot operate sufficiently frequent flights to suit business schedules. Hence almost all long-haul airliners are symbiotically configured for mixed classes.

That’s from Rory Sutherland of The Spectator and there’s more here including speculation about how bus systems could use this mechanism and how to improve in-air wifi.

This week and last I have been on several flights, but mostly on Southwest where the variance in ticket prices is somewhat lower than full-service airlines. I’m still waiting for a paper on in-group and out-group dynamics that quickly form during the Southwest boarding process, despite the semi-random ordering of boarding numbers. Everyone who checks-in exactly 24 hours before their flight has some probability of being in the A group, whereas everyone who checks in later has a lower chance. Earlier this year Southwest introduced the option to pay $10 and be automatically checked in at the earliest possible moment. This feature is well worth it, in my opinion–a bargain even if I am subsidizing the beverage service for others.