The K-Shaped Economy

I think I’d heard the term “k-shaped economy” somewhere before but didn’t really know what it meant until I watched this video:

American Airlines is changing the layout of some of their aircraft to add 31 first class and premium seats while cutting out 73 economy seats. This is the hot new trend in air travel: pulling out all the stops to cater to the wealthy.

Airlines are adding suites with more bed space, privacy doors, an extra ottoman for guests. They’re offering caviar, free PJs, luxury skin care products, and multi-course meals with wine pairings made by gourmet chefs. They’re also building more airport lounges. Meanwhile, economy is getting more cramped and low-cost carriers are going bankrupt. It’s because wealthy passengers are where the money’s at.

For years, airlines have made more money from their credit cards than from actually flying passengers around. And these days, premium seating is bringing in more revenue than the economy cabin. It’s a perfect example of the K-shaped economy.

Here’s an AP article about the K-shaped economy from late last year.

Corporate executives are paying attention and in some cases explicitly adjusting their businesses to account for it. They are seeking ways to sell more high-priced items to the wealthy while also reducing package sizes and taking other steps to target struggling consumers.

• business
• economics
• USA
• video