Post like these fascinate me. Don't get me wrong, the C-suite team has probably a lot better insights as compared to us and our shower thoughts, but you make a few very good points.

To your first point about the sift in prices and experiences:
The first one is the industry in general--what was a luxury services industry has evolved into a transportation industry. Granted, I was less than 4 foot tall for most of the 90s, but I distinctly remember my parents having enough status get free upgrades with just a couple of long-haul international flights a year and maybe one or two domestic flights for family vacation/work. Wide-bodies pulled out of the gate with entire rows empty (I distinctly remember on flights when we didn't get upgraded, they would announce that the doors are closed and a whole bunch of people would get up and move to the back of the plane so they'd have a row to lay down on). I glean from this that the profit margins were higher back then. Annual rate of inflation between 1965 through 2023 was 3.983%. (https://www.usinflationcalculator.co...flation-rates/). In that same time airfare inflation was 4.507% (BLS data starts in the year 1965 which is why I chose it, to compare apples to apples, https://www.usinflationcalculator.co...are-inflation/). However, if you look at the last 20 years, overall inflation is 2.56% while for airfare, it is only 0.87% (Same source). I suspect margins are down, and while an extra olive on a salad 30 years ago wouldn't matter much, it now is, as a percentage, saving the company that much more money (or in the case, getting rid of meals altogether).

This article seems to corroborate what I'm saying with the BLS data, but with a more anecdotal evidence that might be easier to conceptualize.

Now, with our country as large as it is, it has become a necessity for some to travel, and I understand the race to get prices to the bottom. But the problem is you have one metal tube going through the air with two classes of people on it--once who are using it as a bus and don't care how comfortable it is to get from point A to B as long as it means it's not a whole day (or more) in the car, and one class of people who do view it as a luxury and want an elevated experience. Over time, those in the back might want to move towards the front, but not all can afford to buy their way up. Since we have extra capacity, we can give it away! But as margins grow thinner, maybe we can find a way to monetize the upgrade (say, an in-app targeted offer to bump to J for $100 which we previously gave away for free. That's a free $100 we didn't have to do anything for!). Truly frequent fliers, who were initially only competing against the other frequent fliers, are now competing against the guys in the back who view the plane as a bus who can spare an extra $100. Long term, people may vote with their feet, but if all of the companies are doing this, moving won't change anything. There are of course still empty seats they can't sell upgrades for, and I'm sure there's a point where the C-Suite has determined there's more long term value to give it to an EXP than to sell it (or else we would see empty seats in J being sold for $10 at 121 minutes before departure), but the majority of seats in the front cabin are now paid for, whether it be through at the time of purchase or a targeted offer. (I suspect the free MCE is similar--at that price point, someone has determined it's of better value to give it away for free to someone with status than to try and squeeze each seat for the $30)

If you look at Asian airlines, they are still often a luxury experience. With a few exceptions, for most countries in Asia, flying is not a necessity and as such, they don't have to cater to those who are willing to fly cattle class. There are also budget airlines over there that are subsidiaries of the larger ones, and I suspect this segregation of class of travel helps with protecting the premium brand from dilution from those who are using it just as transportation and don't care about level of service. These low cost brand don't have fancy seats to walk past on their way to the back.

I agree with your second point that the current demand is multi-factorial and likely unsustainable long term. Post-Pandemic, more people value experiences, whether that be luxury travel aimed at the destination itself, or just traveling more often to visit friends and family. Everyone wants to experience the best service they can, but while most people wouldn't turn down a first class seat, the reality of the matter is most of the flying public cannot afford it. So the airlines devise schemes to sell the seats they can and get as much value out of the ones they cannot. As time goes on, we may experience a paradigm shift where we stay at these high levels of travel demand or we may return to pre-pandemic travel demand, but I agree we will hit another recession and it's unclear what the industry's next move will be to increase revenue or profit margins.

Do you have a source for this? I hear this a lot, but have a hard time believe the planes that cost them 9 figures that they fly around make them less revenue than their CC's where I'm guessing the <2% swipe fee they are having to share with the issuing bank are somehow making them more money. Especially factoring in the lost revenue (my $99 AA card gives me free checked bags so after just two round trips, they are already behind on revenue).

I don't know that it's untenable. The frequency of free upgrades and access to luxury travel has decreased (full lounges, etc.), and they are definitely not as luxurious as before. But there's only so much of the pie to go around. As they try to share the pie more ways, each person's value gets diluted, but as long as every other airline is doing the same, I don't think it will be untenable. The only reason I even remember the luxury of 30 years ago was that I had parents that had family internationally and earned status by flying (not even sure if credit cards were a thing when I was a kid, since I remember them having to do currency exchanges and traveler's cheques). I earned Platinum status about 6 months ago, and have only been upgraded on one flight. (Interestingly, even though I don't live at a hub, the one flight I was upgraded on was between 2 hubs, though it was also early o'clock in the morning). The meal they served on this 4 hour flight was reminiscent of what we got in coach when they still served those meals. More often than not when I've tried to access a priority pass lounge, there's a line, assuming they are even letting anyone get in (the digital) line. I've not flown international, but I haven't set foot in an AC since I was a kid. But once again, for someone just now getting status, they don't know what they are missing from previous decades.

What we are currently seeing is the push to unbundle and ala carte even more services in the airline industry to maximize profit, what was once included in a ticket (ie. luggage). The next step is to do a reoccurring subscription fee, and this is what we are seeing with credit cards for the not so frequent fliers.....

Unbundling of business class tickets is coming to us soon for the big US3.......

Hypothetically, not far out of reach before Airlines charge a yearly/monthly fee to hold elite status itself (ie....Amazon Prime/Netflix) subscriptions.....that is where I am seeing airlines going next to increase profits without expending much....

... true, but domestic F seats aren't going out non-empty (before upgrades) for the most part just because demand is up. A huge factor that wasn't always the case is things like TOD cash upgrades. It used to be that the majority of F seats would go to elite upgrades, with the understanding that there always was the possibility that there would be fewer or no upgrades on a particular flight if there happened to be high demand for people paying full boat for an F ticket.

There's been speculation on FT for 20+ years that this was "just around the corner" - that we were almost at a tipping point - but it never seems to happen. I think one of the issues is that the majority opinion around here looks nothing like large segments of the traveling public, including those that have airline loyalty credit cards.

Those two things alone are good justification to pay for a $99/year credit card, even if you travel only once a year. Consider that the most common leisure traveler is probably a couple of some kind. One checked bag each on a domestic round trip costs more than the credit card. For those that don't check bags, priority boarding is a big benefit. Even as the ranks have swelled of those that have priority boarding, and even in situations where the base credit card non-elite traveler might be several groups behind Group 1, and even if they're at the very end of their boarding group, it's still going to be early enough to have room for their carry-ons without having to gate check them.

Those reasons alone are enough to justify an airline credit card for even a once-a-year traveler. And, assuming they're not heavily into "the game" as many of us are here, paying for one affinity credit card may be all they do. And, once they have that one, why not use it for many/most/all of their purchases? That might be enough for a pair of domestic RT tickets once a year. Consider the award pricing and availability situation for such travelers: tickets are widely available. I just checked award flights from my home airport to Las Vegas and Orlando for a random Tuesday a few weeks out, and there were plenty of options for 21K round trip. That's the same or cheaper than what it was 20 years ago. The gross award travel inflation that many around here complain about is certainly the case for international premium travel awards, but those are not relevant to the vast majority of travelers on a US-based airline.

I'm certain that McKinsey and BCG have done extensive crunching of the numbers and know what they're doing when they advise the airlines on such issues. What we don't know is in aggregate, how much airline revenue from credit card spend comes from the totality of the travelers/cardholders I describe above, vs the more typical FT user?

There's only one major problem with a world where everyone just pays for the service they want and gets nothing extra for free. Airlines haven't figured out how to make flying planes profitable.

Alaska Airlines is making big changes to its loyalty program. Here’s what travelers should know

FTA: "It’s hard to overstate how important the Mileage Plan is to Alaska Airlines and its financial health.In the second quarter of 2024, Bank of America paid Alaska Airlines $430 million. This is due to the partnership between the airline and the bank regarding the Alaska Airlines Visa card. By comparison, Alaska Air reported a profit of $220 million in the same period."

Revenue is revenue. It's crazy to think any company would want to monetize a product or service.

Total revenue was $2.9 billion. So no, it was not the "majority" of their revenue. Also, don't know where that $430 million is coming from (10Q lists $174 million in Mileage Plan revenue for 2Q). The bulk of revenue was passenger revenue at $2.65 billion. My guess is that the payment is being accounted for over several quarters. Further, these CC company payments are not actually pure profit (there is a substantial mileage liability that goes with them). Are they profitable for the airlines? Sure. Are they the "only" reason airlines are profitable? That's a big stretch. Without the ability to actually use and redeem miles, there would be no revenue from the CC companies in the first place.

Well, somebody asked for proof and that is the best I have seen. I do not recall Alaska Group sending me any internal financial statements...

A breakdown of the costs associated with the MP would indeed be interesting to see, ie. how much did AS pay BA for that F reward flight from LIS-LHR-ORD-SEA?

My cost was 105k + $616

At this point, I am not particularly loyal to any airline. I have not seen much difference to being an elite over just buying F. For international I can usually find a business class saver award on some airline if I am flexible, and just direct the points from my CCs accordingly. Every time one airline’s saver awards seem to be drying up (e.g., UA, DL), another’s (BA, LH, AF) seems to be loosening. So the loyalty programs are definitely evolving, and upgrades almost gone, but accumulating points can still be a bargain way to fly.

Well, yes, sort of. But with respect to the FFP evolution, perhaps a bit of history will be good for the "younger than me" crowd.

When the upgrades started as a perk, F was not generally going out full, and the perk wasn't unlimited upgrades. The status flyers received upgrade coupons (i.e., for UA it was 500 mile certificates) which you could combine for your domestic (only) trips. You could also buy more if you ran out. Top tier rarely ran out, lower tiers had to decide whether it was worth the extra dough to purchase more certificates. F travel could be exponentially more expensive than the cheapest Y, and the Y experience wasn't half bad back then. F / J didn't have a panoply of fares, from full to highly restricted. It was full or nothing. So, the business model at the time was giving away seats that would otherwise go empty as a perk, even if the perk could cost you $ from time to time.

Then one by one, the airlines started with the "unlimited domestic upgrades," which is silly because it provides for the illusion of a benefit that only the rarefied few will ever benefit. Standby lists of 50 to 100+ aren't uncommon. F / J fares came down (not the unrestricted ones, but ones with refund/change restrictions). More people started buying the seats. Less UG availability. Then airlines introduced upselling - more people paying at least something more for the seats.

As an early 90's UA 2P, my domestic UG % was around 50%. As an early 90's UA 1P my % was about 75%. As a mid-90s onward to early 2000s UA 1K, my rate was probably 95% - and this is SFO-based.

The underlying business model of the upgrade programs don't even vaguely resemble their initial configurations, and I think that would be the case even if we still had a few more major players that weren't acquired in the meantime.

I remember back in the 1990s prior to everything going on line USAir would mail me 4 domestic upgrade certificates for every 10K miles flown that you had to call in the day before (I wake up at 12:01AM on the day before to call) to use. Most of the time I get confirmed on spot. When you went to the airport to check in you had to present the certificate/coupon. The check in agent would staple it to your BP showing the GA you had been confirmed for the upgraded seat. I would say that at least half the time First was not completely full.