United discovered with Basic Economy that when you offer an inferior product at the same price, customers will choose your competitors. They lost about $100 million thanks to an own goal that was so thoroughly predictable that I predicted it here.
Ultimately you make money by offering consumers a better product at a lower price, not by trying to offer a worse product that’s so bad that consumers will pay more to avoid it.
United is still pursuing basic economy aggressively but has rolled it back from initially offering it as an option on all fares (a walkup $800 customer would still be asked for an extra $20 for a seat assignment) and in all domestic markets.
United Boarding, San Francisco
Originally United’s plan wasn’t as draconian as no full-sized carry on bags on basic economy fares. That’s what American is doing, but it isn’t what Delta has done for the last several years. Contra United President Scott Kirby Delta knows Basic Economy isn’t a billion dollar idea.
When United hired American’s President as its President, Kirby put the breaks on United’s Basic Economy plan and retooled it to be harsher along the lines he had planned for American Airlines. That’s why the offerings from both United and American are so similar.
A new piece from the Chicago Business Journal claims the real reason United is rolling back basic economy is because it sucks, not because United was losing money. What the piece misses is that it isn’t either-or, United was losing money because the product sucks and their competitors have been offering customers a better deal at the same price.
Nonetheless, the piece shares dissatisfaction within the airline over basic economy.
Sources say customer service agents sometimes have had trouble communicating with Basic Economy passengers who don’t speak English.
Some Basic Economy passengers also arrive at the gate with more than the one piece of luggage they are permitted, but without sufficient funds to pay to gate-check the bags or to cover the penalty fee for getting to the gate with more than the allowed one small carry-on.
…Couples and families with small children flying Basic Economy are another big problem. They have not always responded well to the news they may not be able to be seated together, depending on what seats are left after passengers with less restrictive fares are checked-in and boarded.
Flight attendants also have been left with the unenviable task of sometimes asking passengers already seated if they would move to a possibly less desirable seat to accommodate couples or families flying Basic Economy who think they need to be seated together.
“It’s become a circus,” said one source.
…Insiders at United say the airline’s president, Scott Kirby, was the one pushing hardest for the introduction of Basic Economy at the Chicago-based airline. And he is the executive they blame most for the problems of the past several months tied to the Basic Economy rollout.
“He’s (Kirby) bringing us down to the level of Spirit Airlines with these fares,” noted one flight attendant.
United Boarding, Denver
What remains to be seen is whether United’s bet — that once American again played the greater fool and gave up its product advantage by rolling out basic economy broadly — their basic economy gambit would work and turn profitable, or whether competition from Southwest (the largest domestic airline), JetBlue, and Alaska would keep basic economy a loser.
(HT: Points Fitness)