On July 3rd I shared that American was poised to relax the most draconian restriction on their lowest-price Basic Economy fares, once again allowing customers on these lowest fares to bring both a personal item and a full sized carry on bag onto the plane. American refused to comment.
However this change has now been announced in this morning’s earnings release.
To make Basic Economy more competitive, American is removing the carry-on bag restriction that is currently part of its domestic and short-haul international Basic Economy fare rules. This change will be effective September 5, for tickets purchased or flown that day. Until then, current Basic Economy fare rules will continue to apply, including the allowance for only one personal item.
“Basic Economy is working well in the markets where we offer it, and we continue to see more than 60 percent of customers buy up to Main Cabin when offered a choice,” said President Robert Isom. “Removing the bag restriction will make Basic Economy more competitive, allowing us to offer this low-fare product to more customers.”
When Scott Kirby was President of American Airlines they developed a ‘basic economy’ product — an attempt to make flying unpleasant enough that customers would spend more to avoid it — by taking Delta’s basic economy restrictions (no ticket changes, no upgrades, no advance seat assignments) a step further: no full-sized carry on bags.
Customers would have to check their bags, and of course American charges for that too. Elites and co-brand credit card customers would be exempt from this new restriction.
United was prepared to roll out their own Basic Economy product but delayed once Scott Kirby came on board as their President — adding the carry on bag restriction to their own Basic Economy product.
United Boarding in San Francisco
In fact United rolled out their Basic Economy first. They promoted new lower fares but the truth was these were just restrictions on their lowest fares. Although basic economy was once promoted as a billion dollar idea, United lost about $100 million on the roll out of basic economy because customers were just choosing to fly other airlines instead.
United stuck with their plan, figuring that once American introduced their basic economy fares customers would have nowhere else to run. Nevermind that Southwest is actually the largest domestic airine, Southwest doesn’t even charge for (2) checked bags and doesn’t have change fees on their tickets. American’s CEO calls Southwest a cattle car but flying American’s basic coach product is worse.
Southwest Airlines Cabin
I’ve contended from the beginning that you don’t make money over time by making your product worse. Delta’s President says United and American are losing business because of their harsh basic economy. Delta’s product is better (less draconian) and people choose Delta, and are willing to pay more to fly Delta.
A successful business usually works to deliver more value at lower prices. However the bet here was,
- Airlines could get business travelers to pay more. Their employers are footing the bill and they won’t book basic economy.
- This would function as a targeted price increase, allowing them to raise fares on people who care about their travel experience while still competing for the business of leisure travelers who might be siphoned off by Spirit Airlines and Frontier.
American Airlines Economy
Increasingly there’s little difference between Spirit, Frontier, United, and American at the lowest fare. In fact Spirit Airlines is adding internet, and American Airlines is taking away seat back entertainment and reducing the distance between seats.
In eliminating the biggest restriction in American’s basic economy fares, they underscore how they’ve gone too far in degrading their product. At the same time basic economy customers with carry on bags at the gate delays departures and nothing is more important at American than ‘D0’ it often seems as if American would be happy if they could eliminate customers from the equation and just run their operation they’d be happy.
Once full sized carry on bags return to American’s basic economy fares September 5th there’s really not too much difference between regular economy and Basic Economy to the non-elite frequent flyer. Most customers have to pay for decent seat assignments in coach, American’s Basic Economy fares mean you wait until 48 hours prior to departure to have access to paid seats. Of course close to departure, as upgrades clear for elite frequent flyers, can be the time the best seats open up in back.
American certainly isn’t going to admit their approach to Basic Economy is a failure. However if it was a success they wouldn’t be making it less draconian. Nonetheless they should be applauded for learning from their mistakes even if they won’t publicly admit it it was a mistake.
Awful news. Make those cheap, clueless kettles check those bags. They’re the least experienced and take the longest to stow bags on board after they’ve banged into half the cabin schlepping down the aisle. .
American’s CEO calls Southwest a cattle car but flying American’s basic coach product is worse.
Southwest is not only better than American’s basic economy, it’s better than regular economy. Back when you netted 5K potentially valuable AAdvantage miles for a cross country round trip it might have made sense to suck it up and fly American but these days my preference is always Southwest or Jet Blue. I do have a flight on American coming up, but only because they had to price their flight lower than Southwest to sell the seats.
My god that was some post. Perhaps link to your previous work so that you can get to the point faster?
I think your basic premise is a bit naive and just wrong. It can sometimes be a good business idea to “punish” your customers — aka, charge them more. A bar, for example, can often increase profits by charging more for beer. An airline can make more money charging for bags that used to be free.
The problem is when these additional charges make you less competitive. If a bar across the street has lower drink prices, you bar might suffer a bit. If competing airlines still allow a free carry-on with their cheapest fares, some customers may fly those airlines instead. Here, AA has decided that prohibiting a free carry-on bag for its cheapest fares made it less competitive. It might have kept that rule if Delta had the same policy.
@chopsticks – competition is always a factor and it’s what I have explained from the start. American has consistently said that people buy up from Basic Economy, but the reason they are making this change is because people are BOOKING AWAY from American because of these fares. Doug Parker explained on the earnings call that Delta is cheaper for customers wanting to bring a carry on onboard, so people buy Delta. The same is true for Southwest, the largest domestic carrier.
The point here is that customers aren’t as dumb as airline management and some observers sometimes suggest. You don’t earn business by offering a worse value proposition than your competitors.
And in the long run you don’t earn more money offering a worse product. That’s different than raising prices on your existing product, sometimes prices can be too low or demand can grow for a scarce resource. But making a product worse to make more money? The only scenario where that can (potentially) work is a durable monopoly, and that only exists with government protection. As long as there is a semblance of a competitive environment, it’s not a long run winning strategy.
@Mark maybe just link to your prior comments as well?
So, really, the only differences between economy and basic economy now are:
1.) For non-elites and those who don’t hold a credit card, the ability to board first.
2.) No changes, upgrades, or ability to choose a seat for free.
3.) Earning half the number of EQMs and EQSs as normal.
Seems to me like anyone who isn’t going for elite status or is ok with not being able to book their seat should just book basic economy.
@mark: I destest long rambling posts that don’t get to the point but this was not one of them
I have never understood the point of any of these stupid bag restrictions and fees. Some MBA from some worthless online school must have dreamed up these “segmentation fees”, but failed to look at the impact on the big picture.
Make 2 checked bags free and charge $20 to stow a bag in the overhead bin. Bags under the seat are still free.
You then have absolutely no problem with D0, and people don’t feel like they’re being ripped off.
“And in the long run you don’t earn more money offering a worse product.”
But you can. When the airlines started charging for checked bags, they made their product worse. But they also made billions in extra profits by doing so!
So it kind of depends. A lot on consumer reaction, and a lot on competition. If Delta didn’t include the carry-on bag in basic economy, AA would almost certainly not be making this move today. Just like when US Airways once decided to charge for soda. When its competitors didn’t go along, they had to revert to free soda to stay competitive.
What is most interesting here, as @Hunter alludes to, is what’s the downside to booking Basic Economy now? Not much for most folks. So logic would suggest fewer upsells. This makes the competition with the ULCCs trickier for both parties. Now, there’s again a HUGE incentive for most customers to avoid a ULCC when a legacy carrier gets anywhere near their price-point (I’m a light packer, and even I hate losing my rollerboard). On the other hand, it becomes harder for the legacies to price-match the lowball ULCC fares because they’ll bring in less ancillary revenue. We’ll have to see how this plays out. I still think the legacies have the upper hand, if for no other reason than that the ULCC’s are selling a product that most folks would prefer to avoid.
I’m one of those people who book away from American and United. All future flights are currently booked on Southwest or Delta. Glad the customer is having an effect.
Isn’t the B737-400 the ‘Classic’? The B737-800 would be the ‘NG’.
Oops. Wrong post.
“…nothing is more important at American than ‘D0’ it often seems as if American would be happy if they could eliminate customers from the equation and just run their operation they’d be happy.”
Gary…. proofread, man. This happens WAY much in your posts. I know you type fast and are busy but this is easy to prevent with just a few minutes effort.
They should stop punishing customers with very slow boarding and the stress of the battle for overhead bins. Time is valuable — make customers pay for carry-ons, not for bags in the hold. Grandma on an annual vacation does not need to be forced to bring her stuff onboard to avoid being punished for having it carried where it belongs, in the hold.
James says:
July 26, 2018 at 6:33 am
Awful news. Make those cheap, clueless kettles check those bags. They’re the least experienced and take the longest to stow bags on board after they’ve banged into half the cabin schlepping down the aisle. .
So, tell me, James, how does your ego fit going down the aisle>
Will this take effect before my one forced BE flight next week to get into the midwest where they’ve fixed flight prices on Big3 at $350-500 to fly essentially anywhere from there. RT will bring a small price break. Suddenly they started selling BE at $199 but only from Dallas. I was ready to pack only my laptop bag which fits Spirit and AA BE but not UA which requires smaller.
I really, really hate these sadistic monsters and regret I’d give them another dime after 40 years of collecting real miles before they devalued them, flying and human life.
The only thing dumber and more contemptible is the Trumpanzee, which is why after 30 years teaching in their schools the ruin these hick ignoramuses brought the US, all other countries knew exactly who to blame with retaliatory tariffs. Yeehaw, Buford! How’s all that winning going?
You literally could not pay me to fly AA or UA–management at those two airlines are clearly invested in their race to the bottom. I don’t care how much more Delta costs (or how much more valuable UA/AA miles are … which I’d argue is currently 0% but has been much higher in the past), I’m not going to fly AA/UA. I’m also happy to fly Southwest if it’s point to point (no thanks for connecting flight) or JetBlue.
With these regular fiasco messages (we’re changing our minds again), I’m starting to wonder if anybody at American really knows how to run an airline? Other than the fresh guacamole in the Admiral’s Clubs…
With these almost daily fiasco messages (we’re changing our minds again!), I’m starting to wonder (no, I’ve long wondered) if anybody at American has any idea of how to run an airline…other than offering the fresh guacamole in the Admirals Clubs…
Just made the switch from AA. Many years as Ex-Platinum,and now lifetime-Platinum………No real benefits here. Two months ago I did a stupid thing,and purchased 200,000 miles on American. Wanted to take my son to Greece. No business class mile saver awards available. Only way to fly American without paying those extremely awful taxes (Connecting on British Airways) was to use 100,000 miles each way per passenger. Taxes on AA are much cheaper if you don’t have to partner with B.A.
Long story short the miles are worthless for European travel. No business Mile-saver seats available. These are only good for domestic and even then using the mile-save business of 25,000 miles you have sometimes a 6 hour layover,or you are making multiple connections……or you have to fly to some god forsaken place on the East coast to get to your destination which could be Phoenix,or someplace.
Never again.Waste of money. American just seem to want to make the customer suffer. I cannot see any customer service investment .Such a travesty, that upper management F#@#- up the whole program. Get eventually fired and then receive some kind of golden parachute for services rendered.
Delta has it’s problems however…. it does appear that they care a little bit about customer loyalty and service. Will give em a try for 12 months.Can’t be any worse than A.A.