WSJ What’s News - Airlines Bet You’ll Pay More for Premium Travel Options

Episode Date: November 29, 2024

Nov. 29 Edition. WSJ’s Alison Sider explains how this week’s air-travel crush is likely to cement the shift toward an upselling model that has helped United and Delta dominate industry profits. Plus, Canada’s antitrust watchdog sues Google, saying it acted unlawfully in growing its market share in the online-advertising marketplace. And Australia passes a landmark social-media ban for children under the age of 16. Luke Vargas hosts. Programming note: The next episode of What's News will be released Monday morning. Sign up for the WSJ’s free What’s News newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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brokerage services provided by FREC Securities LLC, member FINRA SIPC and advisory services provided by affiliate, Frac Advisors LLC, and SEC Registered Investment Advisor. Another antitrust headache for Google, as Canada sues the tech giant over its online ad practices. Plus Australia passes a social media ban for children under 16. And Delta and United dominate industry profits as their bet on premium air travel demand

pays off. The conventional wisdom is people really book their flights based only on schedule and price, and it's kind of a race to the bottom to offer the cheapest flights. But the people who are wanting to travel are willing to spend a little bit more, and the airlines are racing to have something to offer them. It's Friday, November 29th. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today.

Canada's antitrust watchdog has filed suit against Google, alleging it acted unlawfully in building market share in the online ad business. The country's competition bureau wants Google to sell two crucial pieces of advertising market software, its ad exchange, known as AdEx, and an ad server known as DFP, as well as pay a fine of as much as 3% of global revenue. In a written statement, much as 3% of global revenue. In a written statement, Google's Vice President of Global Advertising Dan Taylor said the company's ad tech tools help websites and apps fund their content and businesses to reach new customers, adding that the company looks forward to making its case in court.

The lawsuit is just the latest headache for Google and its ads business, after a U.S. federal judge ruled last August and engaged in illegal practices to preserve its search engine monopoly. Australia is set to become the first country to ban social media for kids under 16. That's after its Senate passed a measure that we discussed here earlier this month that will shift responsibility to technology companies for preventing children from holding accounts. The ban, which advocates say will help parents keep kids off social media until they're more mature, will take at least a year to come into effect. But an industry group representing the likes of Snap, TikTok and Meta Platforms says that's

too fast. Sunita Bose is the managing director of the digital industry group. The priority should be consultation. When you have a law that's released and passed within a week with only 24 hours for people to provide submissions, you don't get the opportunity to get the details right. A spokesman for Metta raised questions about the legislation and said more research was needed into the effects of social media on mental health. A spokeswoman for Snap said they had questions about how the new law would work, but that the company would fully engage with the Australian government on its implementation, and TikTok

owner ByteDance didn't respond to requests for comment. Sweden has formally asked China to cooperate with an international investigation into whether a Chinese-flagged ship deliberately severed two data cables by dragging its anchor along the Baltic Sea bed last week. The ship in question has been surrounded by European warships after a cable linking Finland and Germany and another from Lithuania Sweden, were both damaged in Swedish waters. The investigation now centers on whether the captain of the ship was induced by Russian intelligence to carry out the sabotage when it was docked at a Russian Baltic port. According to our reporting, several Western law enforcement and intelligence officials

suspect Russian intelligence agencies were behind the sabotage, but didn't think the Chinese government was involved. The Kremlin press office called those suggestions absurd and unsubstantiated. People close to the matter say the ship's Chinese owner is cooperating with the investigation, though the company declined to comment, while a Chinese foreign ministry spokesperson voiced Beijing's support for maintaining the security of undersea cables. The Russian ruble has fallen to its lowest level since the start of the Ukraine War, prompted by a U.S. decision last week to place sanctions on the last major unsanctioned bank

that Moscow uses to pay soldiers and process trade transactions. That's led President Vladimir Putin to try and assure the Russian public there's no need to panic. But journal reporter Chelsea Delaney told me that the export-boosting benefits of the plunging currency are likely outweighed by inflationary downsides. The Russian economy has been surprisingly resilient over the past two and a half years, even as the West has cut off Russia's access to the dollar-based financial system,

even as it's lost some of its biggest customers, it's really been able to adapt, it's been able to ship more oil and gas to China and India. But the latest effort by the US to sanction Gas Palm Bank does ratchet up the tension on Russia's economy. Gas Palm Bank was a really key conduit for getting some of those remaining customers to pay for things like natural gas exports that Russia has been sending. And so this is just another sign that

the walls are closing in on Russia in terms of its international trade and this economy is very fragile despite its outward appearance. While official data shows Russian consumer inflation running at close to 9 percent, an alternate measure finds everyday goods and services cost close to 30 percent more than they did a year ago. Coming up, the journal's Alice Insider on how this week's air travel crush is likely to underscore the new winning model for the aviation industry, in which nearly every aspect of the flying experience comes with a price tag.

We've got that story after the break. This podcast is brought to you by CME Group, the world's leading derivatives marketplace, offering the widest range of global benchmark products across all major asset classes. CME Group, where risk meets opportunity. This Thanksgiving holiday is shaping up to be one of the busiest travel periods ever in the U.S., with the TSA forecasting that more than 18 million people will pass through airport security checkpoints. And with 2024 coming to a close, journal air travel guru Alice Insider reports that the industry is increasingly split into two camps, one in which Delta and United are seeing their

profits soar, and the other that includes everyone else. Ali, you say in your recent reporting that Delta and United have accounted for almost 85 percent of the US airline industry's profits through the first nine months of this year. That's pretty incredible. What is their formula for success? The formula for success for Delta and United, it's really been premium demand, segmenting their cabin into these narrower niches and offering people an upsell, and then really huge demand for international travel destination and these really powerful credit card programs. But this premium demand wave, they've been the best

position to take advantage of it. A bit of a surprise given the travel trends we'd kind of seen forming out of the pandemic, right? Yeah, well coming out of the pandemic, people are really eager to travel. And at least initially, they had money to burn and people were very interested in spending more on a more comfortable flight experience. And a lot of airline executives, a lot of the airline industry have expected that to cool off.

Traditionally, the conventional wisdom is people really book their flights based only on schedule and price and it's kind of a race to the bottom to offer the cheapest flights, but it hasn't cooled off. The people who are wanting to travel are still willing to spend a little bit more and the airlines are racing to have something to offer

them. Right. So it sounds like Delta and United were ahead of where air travel demand was going while another segment of the industry that was doing well is now having its whole model called into question. Yeah. I would say for Delta, this goes back 15 years. This is something they've been betting on that if they could be the best, you know, run the most reliably, offer nicer experience that they could charge more. I mean, that air travel wasn't just a commodity. So they've been kind of gearing up for this for ages. And United CEO Scott Kirby has said Delta success made him realize that this was possible. In general, like the biggest airlines and that one include United,

but also American, they're the best set up for this. And then some of the budget carriers who had been more oriented towards offering bargain fares have been having to pivot. Part of the reason is that even as they're offering these more premium, more lux experiences, airlines like United, Delta American, Unilaska, they are also competing at the budget end. They have some seats that they're charging really low fares for and there's still a lot of price competition and budget fares and at the high end of the market, a couple of airlines are taking advantage of that. Soterios Johnson With all of these airlines now shifting to

cater to people willing to pay for a better experience. Might we see some airlines struggle to replicate that model? How successful the airlines will be in chasing this premium demand is still a big question. I mean, you've got Spirit Airlines, for example, they're chapter 11 bankruptcy right now. And Spirit has historically been, at least for almost two decades,

that ultra low cost carrier model, really chasing the bargain hunting customer, value minded customer. And their whole pitch has been, really chasing the bargain hunting customer, value minded customer. And their whole pitch has been, we offer the cheapest fare and anything else you want, you're gonna pay extra for. So I don't think people think of Spirit as a high end experience.

It's really about getting from A to B cheaply. Even if that means you're paying for a carry on or you're paying for a glass of water, you're paying the print to boarding pass, that nickel and diming just doesn't feel very premium. So for them, it's a huge shift and they've already started. They're offering some new ticket packages that include, they've always had sort of a big front seat upgrade, which is actually a great deal, but now it's going

to come with free alcohol, free snacks, free wifi. So they're offering these things. I do think it's going to be a question if they can change people's minds about how the airline is perceived. And finally, Allison, I'm sure there are people listening to this rolling their eyes, thinking about the airline industry, finding yet more ways to charge people more for various things. Could things eventually, though, swing back the other way? Yeah, the airline industry is very cyclical. These things come in waves. I would say this swing back the other way? it in your ticket. Delta has talked about even unbundling the business class cabin,

which has been until now pretty all inclusive. And we don't quite know what that'll look like yet. But some of its international partners already do this. They'll have a basic business or business light product that doesn't include lounge access. Some customers might like that if it helps them buy up to a nicer seat that they wouldn't ordinarily be able to afford. But if you're already paying for business class, it might be frustrating if things aren't part of the package anymore. I will say some lawmakers find this incredibly irritating. Just this week, Senator Rich Blumenthal, the Senate Subcommittee on Investigations, released a report tallying how much money the airlines have been making from various

fees and add-ons. There'll be a subcommittee hearing next week where several airline executives will be testifying on their fee practices. Nat. All right. You heard it here. Frustration with air travel, a bipartisan issue in a contentious political environment. I've been speaking to Wall Street Journal air travel reporter Alison Seider. Ali, thanks so much. Ali Thanks for having me. Nat. And that's what's news for this week. We're taking a break for the rest of the weekend and we'll be back with our regular show on Monday morning.

Today's show was produced by Kate Bullifant and our supervising producer was Daniel Bach. Michael Laval wrote our theme music. Aisha Al-Muslim is our development producer. Scott Salloway and Chris Sinsley are our deputy editors. And Falana Patterson is the Wall Street Journal's head of news audio. I'm Luke Farguss, have a great weekend, and thanks for listening.