You could afford to make less, so why not make less?

One of my favorite movies of the last decade is The Big Short. The film, which documents the 2008 financial crisis in the most relatable and understandable way possible, touches upon a myriad of issues and questions, almost all of which are far too logical. One question stood out to me, in relation to the legacy airline industry. Steve Carrel’s character asks a ratings agency why they corrupted their rating system, just to make extra money, when they were already profitable,  with the question “you could afford to make less, so why not make less”? The question got me wondering, have airlines unwittingly played directly into the hand of Norwegian, through greed?

Price First – But…

Whether they like it or not, airlines have been forced to adapt to a “price first” model, where most consumers like their search results sorted by lowest price, and often book the lowest reasonable option. During almost any international flight search, Norwegian Airlines is right there at the top, offering the lowest prices, and therefore forcing other airlines to match. Five years ago, given the same price, there’s no question who you’d choose.

Blurred Lines

Let’s make one very important point crystal clear, before getting into the mumbo jumbo: airlines have never been more profitable or made more money than they do right now – ever. It’s not as if the airline industry is in some sort of survival mode right now, in fact they’re flourishing. Planes are full and so are airline coffers. This leads to the most significant point, and hypothesis: two years ago, Norwegian being offered at the same price as American Airlines, Air France, Lufthansa or any other major airline was a no brainer. Pick the non Norwegian airline, you get bags, meals, miles, drinks and maybe even an upgrade. Pick Norwegian: you’ll likely end up paying a lot more if you need any of the above.

Make Less

There’s no doubt that Norwegian Airlines is heavily funded, and planned to fight a “long haul” battle against the status quo from the very start. But one can’t help but think that if legacy airlines in this time of flourishing profit “made less” by continuing to offer an incomparably more refined customer experience, while matching on price, that they could’ve killed the Norwegian Airlines “dream” dead in the water. Sure, it may have taken quite a bit of time, but given the choice of a checked bag,  meals, miles and reliable service with multiple daily flights, not a whole lot of traction could really have been gained by the upstart. Yet, this weekend, even as a top tier customer for a major airline, I found myself on a ticket where my traditional bag entitlement did not apply, and I found myself in a middle seat, in the middle of the plane. I could’ve payed a lot less, or at least the same for Norwegian, and it made me think – maybe I should’ve.

Into The Hand

There’s the point. If legacy airlines could afford to lower prices, while temporarily pausing the cash grab for bags, seats, drinks and everything else, they could’ve starved the beast before it became one. Now – they’re locked in a price war which will never end. Norwegian started off offering very little, and continues to, while major airlines started off offering a lot, and no longer does. Who do you think is playing into who’s hand?

What’s your take on this?

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