Ganesh Sitaraman
speaker
57 appearances
1 recordings
1 series
first heard Apr 2025
last heard Apr 2025
Ganesh Sitaraman’s voice in public audio — every appearance, attributed to the second.
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Appearances
In the pre-deregulation period, in the era of regulation, you would not have been allowed to become a monopoly because what the regulators did was they prevented any airline from becoming too powerful at any big airport. And that's what made the system work in a reasonable way.
Exactly. And so what you ended up with was a system where even in the 70s, the biggest airlines didn't really have a huge percentage of any of the major airports. You know, they might be in the 25, 30 percent range, but not like we're seeing today where it's twice that or more in some cases.
One of the really fun things about doing the research for the book was digging into what happened in airline deregulation and afterwards. And there's a real cast of characters of...
the heads of these airline companies in the 80s who are really ferociously fighting for market share and engaged in all kinds of what we would now say are anti-competitive business practices, but also creative and innovative business practices to try to win in what they knew was going to be a really difficult competitive environment.
The one character that I found really interesting was a guy named Robert Crandall. And Crandall ran American Airlines. for a long time, really legendary head of American. In the 1970s, when deregulation was being debated, he, like really almost all the major airline executives, were against deregulation. And that might be surprising. Usually industry is for deregulating.
But he and others said, you know, this is not a good thing because our industry works because of the system of regulation. Otherwise, you're going to end up with a lot of things that we've seen, really cutthroat competition, airlines going bankrupt, the need for public subsidies, loss of service.
I mean, all of these kinds of things he and others understood were likely to be a problem if you didn't have a system of regulation. And he's there at Congress and there are these hearings going on. And afterwards, he says to one of the people in the hearing, you academic, and there's an expletive, are going to ruin this industry. You don't understand it.
But then when deregulation happens and he becomes head of American, I would say he is one of the most aggressive players in navigating through that environment, trying to win that Hunger Games. He was going to play by the rules of the game and was a cutthroat shark like everyone else.
Yeah, so it actually comes out of deregulation. After deregulation, when there's this need to compete really ferociously with all these other airlines... the airlines start thinking about what they can do to keep people with them as opposed to going to some competitor.
So Crandall and American come up with this idea of the frequent flyer program to give their frequent flyers additional benefits so that they'll stay with American and not go to others. Now, obviously, the purpose of this is to keep the travelers with your airline. And people at the time in the 80s thought of frequent flyer programs as anti-competitive. That itself is kind of interesting.
But then they've changed so much over time. And I think the changes are pretty interesting, too. So early on, the programs were pretty simple. I mean, you can think of them almost like the punch card at your airport. favorite coffee shop or something where, you know, buy 10, get the 11th one free kind of thing. The first big change, I think at least, was really American again.
And they partnered with Citibank to offer a credit card that would be branded and, you know, the points would be redeemable for flights on the airline. The second big change is really diffuse, occurs across all the airlines. But in the 90s, what the airlines did was they really proliferated the number of fare classes.
Now, that's just a complicated way of saying they're charging different prices for tickets. And so once you recognize that you're not just charging the same price for every ticket, but you can charge more or less to different people in different times, different seats, and you have different types of tickets, that makes the whole fare system way more complicated.
And then the third change I really think about as one that Virgin America did in the 2000s, and that was recognizing that once you have these complicated fare structures, What's really important to the airline is not that you flew on the airline five times, but how much money you spent. So what really might matter is just... the spend, not the number of flights.
And so Virgin created a points system, a loyalty program that rewarded money spent rather than the amount of miles you flew or the number of flights you took. And so these three shifts, I think, really fundamentally transformed the points loyalty reward system into the kind of thing that it is today in which airlines are increasingly moving to spend money
criteria rather than mileage or number of flights criteria. And that's a really big shift from how these programs started. In some ways, they're not really frequent flyer programs at all. They're big spender programs.
It's a bit complicated, but here's a simplified version. The airlines create points really out of nothing, and then they sell them for real money to banks that have co-branded credit cards. And so the banks pay the airlines for these points. And then the banks award points to cardholders for spending money on the card.
The cardholders can redeem those points with the airline for flights using these kind of web portals that we've all used. And The banks and credit card companies make money off of the swipe fees that the cardholders use every time they pay for something. So the result is that airlines in some ways are kind of like banks or quasi-banks almost.
If you think about the Federal Reserve, airlines issue currency, the points, and they get to decide how much that currency is worth and what it can be spent on. That is a very different system than figuring out how to fly planes.
for customers and for the country, it's not so obvious that this is a great deal because it might feel like a free bonus when you're paying for a flight or something with points. But the challenge is that every time you swipe that credit card, it, in a way increases prices across the economy. And the reason is because a credit card company takes a cut of every one of these sales.
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