The "basic business" economy

Good morning,

“Topolino” is what they call Mickey Mouse in Italy, and that’s exactly what the new $14,000 Fiat Topolino EV evokes. The estimated top speed is 25 mph, aligned with the max pace of la dolce vita.

In today’s letter:

• New Ramp data shows how tight the enterprise AI race is
• Delta’s “Basic Business” class offering is a K-shaped signal
• Nobody knows how much they’re spending on AI
• Wall Street’s biggest week of the summer is here

Business class gets the basic economy treatment

The snarkiest question in business travel could soon be: “are you flying business, or basic business?” You’d think the next step up from premium economy would be business, but now there’s a new in-between: meet “Basic Business.”

Delta announced the new fare option, this time targeting the front of the plane. Basic Business offers the same onboard experience as Delta One (e.g. lie-flat seats, hot towels, Missoni-bagged toiletries), minus perks like lounge access, seat selection, and extra bag allowance.

• Cabin fare segmentation has been ramping up for over a decade,ever since U.S. airlines introduced basic economy to compete with no-frills carriers like Spirit (RIP).
• Business as not usual: The slicing-up of premium cabins is fairly recent,and Delta isn’t the only one doing it. United made a similar move in April with “Base” Polaris fares.

Call it “segmentflation.” Unbundling can help companies avoid sticker-price increases or lower entry costs, but critics say it can raise the effective price by stripping away previously-included benefits. In basic economy, you may score a “cheap” fare and end up spending a lot more for add-ons like luggage and an aisle seat. Now, we’re starting to see that playbook at the front of the plane.

Premium seats are a lot more profitable than economy (the longer the legroom, the fatter the margin) and now they’re pulling ahead sales-wise, too: Delta just reported record revenue for its June quarter as premium ticket revenue slightly exceeded main cabin revenue, a change from a year earlier and something of a rarity. Segmentation could help monetize even more premium demand.

The airline industry isn’t the only one launching new pricing tiers to capture more customers. Open up Uber or Lyft and you’ll see up to a dozen different fares for the same route, from carpools to priority pickups and black cars. Netflix, which once said it would never do ads, now has pricing tiers like ad-supported, ad-free, and ad-free premium.

The bottom line:

The premium-economy economy is K-shaped… Consumer demand is strong, but it’s stratifying. Offerings like premium economy and basic business reflect a K-shaped consumer trading up or down based on which arm of the K they’re on. Businesses are launching offerings to capture both ends at once.

OpenAI launches new models as the enterprise AI race gets tight

If Claude vs. ChatGPT were a World Cup match, everyone would be holding their breath.

The race for enterprise AI users is a nail-biter, and in this new category with low switching costs, things change fast. The latest from the Ramp AI Index:

• In June, U.S. business adoption of Anthropic rose by 1.4 percentage points to 42.4% while OpenAI stayed essentially flat at 39.5%.
• It’s the third-straight month that Anthropic has held its edge over OpenAI after surpassing it in April.

Anthropic has been swiftly gaining share, but the advantage can flip fast as new launches change the competitive playing field. Speaking of:

• OpenAI just launched ChatGPT Work, an app that combines ChatGPT with its AI coding tool Codex. It’s a direct competitor to Anthropic's Claude Cowork.
• It also shipped GPT‑5.6, its new family of models. OpenAI said its GPT-5.6 frontier model, Sol, “sets a new standard for both intelligence and efficiency.”

AI labs have been racing to ship upgrades to win over lucrative enterprise customers. But having the most powerful model is no longer enough.

As token spend surges and companies shift their focus to boosting ROI, “efficiency” and “cost” are becoming some of the most-cited words in AI lab press releases.

After the swift death of tokenmaxxing, “valuemaxxing” is next.

Nobody knows how much they’re spending on AI

Ramp data shows that businesses' average monthly token spend 13x’d year-over-year, while the average AI contract hit $1M this year.

This elusive new spend category is shaking up corporate budgets and shocking finance teams, and many still have little or no visibility into it.

Companies have blown through their AI budgets faster than expected, and now several are starting to implement token spend restrictions.

Meanwhile, the ROI math is far from clear. Why is this happening, and what’s the logical next step?

Dive into the rise and fall of “tokenmaxxing” and the future of corporate AI spend, and drop your thoughts and questions in the comments.

Inflation prints and bank earnings in the spotlight

It’s a headline week for markets: big banks kick off earnings season, and today’s CPI and tomorrow’s PPI will inform the Fed’s rate decision on July 29.

Traders are pricing in at least one hike this year, with ~40% odds of a bump this month. If this week’s inflation prints come in hot, those odds could go even higher.

Signals Shortlist

• Big banks are poised to report booming revenue propelled by SpaceX IPO, Iran volatility (CNBC)
• Volkswagen may need to cut 50K more jobs as Chinese competition revs up (The Wall Street Journal)
• PepsiCo warns of higher commodity costs amid faltering North American food sales (Reuters)
• U.S. IPO market poised to break records as dealmaking booms (Axios)
• World Cup final and semi-finals ticket prices plunge (AP)
  
  

🤝 Like what you read? Share Leading Indicators with a friend.