Originally Posted by 5khours

There is no equilibrium in a competitive market, where the carriers get high yields in the premium cabins at full fares. At current pricing, the margin ratios are much higher in the premium seats so if you have high yields, competitors will increase premium seating capacity and drive yields down. The only way airlines can keep these seats full is by reducing standard premium fares or by price discrimination where they use their FF programs to effectively offer discounts. They make more money through price discrimination so that's why the FF program will stay and be reasonably attractive regardless of what the competition does.

It doesn't take that much of a change in flying to dramatically impact the carriers' bottom lines. Most people aren't so price sensitive that they will reduce their flying by 75%, but even one less trip a year on average will kill a carrier, and this impact is amplified when you are talking about FFs where because of W fares, etc, the margins are higher than average.

The airlines used to be exclusively focused on maximizing revenue/margin per flight. They now realize that this changes customers behavior and hurts them over the long run so they need to focus more on maximizing revenue per customer.