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Business and financeGulliver

Carriers in America are doubling down on budget airfares

GLEN HAUENSTEIN, the president of Delta, is optimistic about the future of basic economy. On a conference call this week, he boasted that the stripped-down airfares actually act as an incentive for passengers to upgrade to the more expensive standard economy tickets. Despite Mr Hauenstein describing it as a product that “people don’t really want”, the airline says it will expand the revenue-boosting basic-fares system in 2018.

Delta was the first carrier to roll out basic economy fares—sometimes called “last class”—in America in 2012. Since then the model has caught on. Both American and United quickly introduced similar services on some domestic routes. By taking away a perk here and adding another there, each airline has created a unique version of the same miserable experience.

The new fare system is not without its critics. Many have Continue reading

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Business and financeGulliver

Airlines are trying to cram ever-more seats onto planes

AIRLINES use all sorts of clever tricks to make more money from passengers. They charge extra for bags, for food and for selecting where you sit. Now they are embracing another strategy: packing more seats onto each plane. Last month American Airlines announced that it will insert 12 more seats, or two rows, into its economy class on its Boeing 737-800 fleet and an extra nine seats into its Airbus A321s. Similarly, JetBlue recently said it will cram 12 additional seats into its A320s.

But flyers do not like being packed ever-more tightly into the sardine tins that planes have become. This summer American Airlines announced that it would reduce the distance between rows—known as seat pitch—from 30 to 29 inches on some of its new planes. The public outcry was so heated that the carrier scrapped its plans, as Gulliver has previously reported. This February a member of Congress Continue reading

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ApprovedBusiness and financeFinance and economics

Richard Thaler wins the Nobel prize for economic sciences

THE credit-card bill arrives. You have enough money in a savings account to pay it off—the sensible thing to do, arithmetically speaking, since the interest rate on the credit-card balance far exceeds that earned on the savings. Yet you leave the savings untouched, and pay only as much of the bill as your current-account balance allows. What looks a daft choice to most economists made perfect sense to Richard Thaler, who on October 9th was awarded the Nobel prize for economics for his work in behavioural economics. Mr Thaler helped demonstrate how human reasoning diverges from that of the perfectly rational homo economicus used in most economic modelling. The world, and the field of economics, is better for his contributions.

Economists mostly recognise that normal people—their friends and family—fall short of omniscience and perfect rationality in making day-to-day decisions. Economic modelling requires simplification, however, and economists generally suppose that…Continue reading

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Business and financeGulliver

All-you-can-fly membership models are slowly catching on

LONDON’s Luton airport is not renowned for its quick boarding. But now it is possible to show up there and in 15 minutes be on a plane bound for Zurich. That is thanks to the recent expansion of Surf Air, a small carrier. Though its name may be unfamiliar, its business model is, in fits and starts, catching on.

Surf Air claims to be the world’s first all-you-can-fly airline. For a monthly fee, members can travel for free on as many flights as they want among the airline’s growing list of destinations. The airline was founded in 2013 in California, where it serves 12 cities. This summer it launched a service in Europe, where it flies from London, Cannes, Ibiza and Zurich. Milan, Munich, and Luxembourg are scheduled to join the roster later this year.

This flexibility comes with a hefty price tag, however. A membership for the airline’s American network starts at $1,950 a month for a limited plan, rising to $2,950 for the highest tier, which allows unlimited flying in the network and includes periodic free hotel…Continue reading

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Business and financeFree exchange

The Nobel in economics rewards a pioneer of “nudges”

NOT long ago, the starting assumption of any economic theory was that humans are rational actors who maximise their utility. Economists summarily dismissed anyone insisting otherwise. But over the past few decades, behavioural economists like Richard Thaler have progressively chipped away at this notion. They combine economics with insights from psychology to show how heavily economic decisions are influenced by cognitive biases. On September 9th Mr Thaler’s work was recognised at the highest level when the Nobel Committee awarded him this year’s prize in economics. Mr Thaler thus becomes one of very few behavioural economists to win the prize.

Mr Thaler’s has been a prolific career, spanning over four decades, the last two of them at the University of Chicago’s Booth School of Business. His research has touched on subjects as varied as asset prices, personal savings and property crime. For example, Mr Thaler developed a theory of mental accounting, which explains how people making financial decisions look only at the narrow…Continue reading

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Business and financeGulliver

Flyers rarely complain even when they have cause to

BUSINESS travellers are hardy souls. It goes with the territory. Theirs is a life of jet lag, cramped seating and reheated meals, all washed down with a weak cup of coffee. Small wonder, then, that a recent study by Clarabridge, a technology firm, suggests that few travellers ever actually lodge a complaint about their flights. It surveyed almost 2,500 passengers in Britain and America and found that about two-thirds of respondents have never aired a grievance, even when they had good reason to. This is despite the fact that complaints are on the rise overall, as Gulliver has previously reported.

Why are so many reluctant to complain? One concerning reason is that passengers think airlines will ignore them. This explanation was given by about a third of those who have never complained, according to Clarabridge’s study.

This should worry…Continue reading

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Business and financeButtonwood's notebook

Can you afford to retire?

HOW much money do you need to retire? Depending on your age, it is a question you think about a lot (if retirement is imminent) or barely at all. For younger people, the subject is a combination of too far away, too complex and too boring, and too depressing. When you consider that you might live for 20, 25 or even 30 years after you stop working, it is a pretty important issue.

Say you want to retire on £20,000 a year (not a fortune) and you are 65. The best annuity rate at the moment in the UK is just under 5.2% which means you would need a pot of £385,000 to afford this. But hold on a minute. That is a flat £20,000 which does not account for inflation; if prices rise at 3% a year, the value of that pension will halve by your 90th birthday. To get an income of £20,000 that is guaranteed to rise in line with prices, you would need a pot of £619,000. (For American readers, the dollar amounts won’t be exactly the same, but they will be in the ballpark). 

These are very big sums and explain why private sector…Continue reading

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ApprovedBusinessBusiness and finance

The bosses of two famous French firms struggle to keep customers

You see her after the third glass

ALEXANDRE RICARD wants to talk boxing. He runs Pernod Ricard, a firm that sells Chivas whisky and Absolut vodka, among other drinks. Formed by his grandfather in 1975, with roots in a Pernod distiller set up in 1805, it is the world’s second-largest seller of wine and spirits, with a market capitalisation of €32bn ($37bn). He brags that Floyd Mayweather, an American pugilist with 19m Instagram followers, recently endorsed one of the company’s tequila brands. Such a “key influencer” on a digital channel “gives us speed and scale”, says Mr Ricard.

Celebrity endorsements are an old ploy: French singers, actors and racing drivers used to push Pernod Ricard’s liquor. But with 90% of sales in markets outside of France, punchier efforts are needed. Two years ago the firm commissioned a global study of boozing habits, which totted up all “moments of consumption” for drinkers, identifying 20 important ones in…Continue reading

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