 Hi, I'm James. And I'm Anthony. And this is Words and Numbers. So this week, I suspect, given that it's summer and our travel schedules have relaxed, and we probably are not terribly angry with the airlines, it's probably time to talk about the airlines. Yeah, I ran across an article the other day arguing about how, you know, when you have the economy in first class, how, you know, there's an inequality here, and somehow the people in the economy are getting the fuzzy end of the sucker. Well, you know, if I may, I have flown in economy, and I have flown once or twice in first class, and there is a discrepancy, there's a huge difference between economy and first class. Oh, yeah, it's ungodly the difference. You know, in first class, you get all the space and the nice meals and all this business. You know, your treat is a person as opposed to a piece of baggage, which is what you get in the economy. I think that's what people look at, and they see this and they say, you know, well, why is this guy better than me? I should have this nice thing as well. And what people are completely missing is the fact that the first class passengers are actually subsidizing the economy class. The airlines charge them enough money that they can actually drop the price a bit on the economy. Yeah, to the extent that anybody actually pays to be in first class, right, the airlines hold these seats back quite a lot to give them as upgrades to, you know, habitual customers and things like this. But to the extent that people do pay more to sit in first class, and I could see why they would. I mean, I wouldn't, but I could see why they would. Yeah, they're absolutely subsidizing the people back in steerage. Yeah, and I think even even so, the people who the people who are in first class because they have the frequent flyer miles, they're even even though they're not paying the first class ticket, in some sense, they paid for it already by flying the the airline many, many times. So so rather than subsidizing economy class as a one shot deal, they've subsidized it in little increments over a long period. Yeah, but I mean, this brings up a larger point. It's a good larger point to bring up, right? People complain endlessly. And I count myself among them, those of you who follow me on Facebook and Twitter are probably well aware of you complain about stuff, James, my frequent travel issues. But be that as it may be that as it may. The simple fact of the matter is, is that almost any one of us could step inside a, you know, for the lack of a better term, a magical metal tube. And sprint around the world for almost nothing. I mean, it's very inexpensive at this point. And we seem to forget just how expensive air travel was just a generation ago, 20, 30 years back. This was unbelievably expensive. Yeah, there's a there's a video that's worth watching. We'll include it in the links in the in this video. They talk about airline travel when planes were a new invention. And they talk about first class, there was no first class in economy originally, because the mere act of being on the plane was first class. There was no economy there at all. You didn't get all the amenities you get today. What you got was you're sitting in the tube in the sky. That was the first class experience. And it was a pretty big deal as these things went. And, you know, the the figure that I've seen recently, because I have looked into this recently, I've watched the video you're referring to. I think it's fantastic, actually. Since 1974, in real dollars, the price has dropped by by about half, if memory serves, on a coast to coast flight. Yeah. And I looked up the numbers. Airlines in this country were deregulated in 1978. So I don't have prior to that. But I've got starting 1979. So immediately after deregulation, adjusting for inflation and including the extras, the additional fees and baggage charges and all of that. A domestic airline ticket cost on average roundtrip in the U.S. $617 in 1979, adjusted for inflation. Today, it's 366. That's a 40 percent drop. You know, that's that's actually quite impressive when you think about it. And when you think about what that's unlocked for regular people, right, what regular people can now actually afford to do that they couldn't afford to do just 30 years ago, give or take, it's really quite astonishing. Yeah, it is. And you get interesting things now. There's an airline that said that it was thinking about and I don't think this is an American airline talking about having seats that were kind of standing up. So basically you wouldn't be sitting on the plane. You'd be kind of standing. The idea that is that you can cram more people in. And of course, you read the comments on the article and people are complaining about the airline saying, well, these guys are just trying to make more money and stuffing more people into the plane, completely missing the point here that they're making airline travel even more accessible to lower income people. Yeah, I don't doubt that the airlines are trying to make more money. That's what companies do, airlines are companies. Therefore, right, it's pretty easy to figure it out. And I don't begrudge any company the ability to go out and earn a positive cash flow. I don't think I would be interested in purchasing an airline ticket that would have me standing. I honestly don't. But that's exactly the point, isn't it? Yeah, the joy of the thing is if you don't want to, you don't have to. You can pay a little bit more on the airline in which you sit down. And if you want even better, you can pay for the business or the first class and have an even better seat. But what we've got now with with these different price classifications and maybe standing is different qualities of service at different prices. So if you if you really can't afford, you know, the business class, you can get on board for the economy and go where you need to go, which makes airlines about the same as every other kind of industry in the world. Yeah, I think that's right. This thing that has a technical name, it's called price discrimination when you charge some people more and some people less for basically the same thing. Right. And one of the nice things about it is that it enables these people who have less ability to pay to get on board by having the people who are paying more partially subsidize them. So if you're a big wig and you're going to fly fly first class, I'll charge you five times what they're going to charge me. But then they'll reduce my ticket price a bit as well to help entice me to get on. So what do you think of the actual problem here is because there seems to be one, right? And I think you capture it inadvertently when when you give the economists term price discrimination, right? Any form of discrimination is terrible. Right. And I think, you know, this is always the nonsense we come up against. But discrimination is kind of an easy fact of life. We all do it at every moment of the day. And, you know, it doesn't always carry with it the baggage that that that racial discrimination does price discrimination is actually quite a simple thing. And you experience it literally every minute of your economic life. Yeah, that's that's correct. And I think it's it's worth underlining here that the airline is not looking to do us a service, right? It's it's employing price discrimination for the purpose of getting more profit. But one of the nice things that comes out the back end is that it also ends up reducing the ticket price for people in economy class. Yeah. So what is it about airlines and airfare, I guess, maybe that has all of us complaining the way we do? Because really, when you sit back and think about it, it's a it's a miracle what we can accomplish. I imagine that part of the problem is is an observation bias. When you get on the plane, you can see that you're crammed into a small space. You got people on either side and, you know, you don't have any armrests. And meanwhile, there's this other guy who's got tremendous space and they're bringing him free drinks. You can see that difference. And so it irks you in fairness. You can only see it as you walk through first class to get the steerage. Well, that's true, because then then they put the they put the little blind up so you can't look in upon your betters. Yeah. But what you aren't seeing is the ticket price that that guy paid. He paid, you know, on average, five times what you paid. And here's the kicker. If you really want all that stuff that he's got, you can pay the price, too. You pay five times as much as you can sit up there. Yeah. But I guess in the end, what I really want is to sit in first class. But to pay even less than I pay to sit in economy. That's what I really want. And that's interesting. And here we have another observation bias of people. People will say, well, the airlines are making all these profits. They should they should give us all first class seats at economy prices. And the fact is, airlines aren't making tremendous profits. You know, we just talked about the the prices. Prices are down 40 percent after adjusting for inflation since since the late 1970s, despite the fact that tremendously larger numbers of people are flying, right? So the airlines, yes, they make profit when they can. But this is not a big this is not a huge profit business. You know, they've gone from more of a boutique model to a mass consumption model. Right. And, you know, as is the case with things like grocery stores, right? The margins are actually pretty thin. They're not they're not raking it in hand over fist. The costs are quite excessive when it comes right down to it. And yet we're still always dissatisfied. Yeah. And I think there's another observation bias here, which is the people see, you know, you can sit on the plane, count up the number of people there, multiply it by how much you paid for your ticket and say, oh, my God, the airline is is making, you know, whatever, $100,000, $200,000 on this flight when you add up all the tickets. Yeah. But that's the revenue. You're missing the cost of, you know, paying for the plane and the fuel and the parking space, the airport and all of that stuff. And similarly with grocery stores, you're missing the cost. You see the money that people shout out to register, but you miss what the grocery store pays to get the food in front of you. Yeah, no. And this is kind of a strange aspect of human nature that we bump into all the time. Right. We typically see this when we talk about gas prices. Right. You know, people don't realize that on average, the oil companies are making about five cents a gallon at the pump. Your average when added together, state and federal taxes tend to be about 10 times that. Oh, yeah. So. So who's making the money here? And when you look at the airlines, you start to see the same picture emerge. Right. When you add up all the costs and when the margins are thin, it's kind of a wonder that they can deliver a service at all, let alone the service that they actually deliver. Yeah. And not just deliver it. We complain about delayed flights and lost baggage and so forth. But when you add up the tremendous number of people that are flying every day, the fact that virtually everybody is getting where they need to be on time, not everyone, but most of them, the vast majority, it's astounding. The whole system works. Yeah, it really is. And, you know, maybe I need to be at home the way academics are during the summer to really appreciate this, the way these things go, right? Because I'm here to tell you around about October, November, about the eighth flight in to the next batch of places. I'm probably not going to be this charitable. Right. So I would encourage our listeners to watch you on Facebook because honestly, every time James flies, it's just a complete joy to read the horrible things that's going on with him. For example, you're the only person I know who was on a plane at the at the gate and a truck ran into the plane requiring that all of you get off. As I think back on it, it was the first time I ever sat in first class. I didn't fly in first class that day, of course. But I sat in it for about four minutes until the truck barreled into the plane. I guess it's funny, as long as there's never an actual crash. Right. Right. So, and we'll throw it to you for the last word. You got any words of wisdom for us when it comes to thinking about markets and airfare? Well, I think one of the interesting things to think about is be careful when you look around and you see other people who are getting what appears to be more than you are. Remember that these people are, you know, at least in the case of airlines, they're paying more than you did and you have the ability to pay more as well. But they're also in part paying your share. So there is there is really an inequity there. The inequity is that the people in economy class are actually getting away with a cheaper ticket than than they should be otherwise. And that's all we have time for this week on Words and Numbers. Be sure to come back next Wednesday about noon eastern time for another episode, which we're going to record in the next three minutes, I do believe. Until then, check out the good content at fee dot org and at fee online on social media until next week. See you later. Take it easy. See you next week, James.