Delta President: United and American are Losing Business Because of Harsh Basic Economy

Delta was the first US airline to launch a ‘basic economy’ fare. Originally designed to be more restrictive on routes where they competed directly against low cost carriers like Spirit Airlines, these fares meant no upgrades for elites, no changes, no advance seat assignments and last to board.

These fares have spread to other markets generally. The thinking is that some passengers, like business travelers spending their employers’ money, will pay more to avoid these restrictions. We now see basic economy on transatlantic flights even.

United and American copied Delta’s basic economy idea, but they both took the idea a step further. They added a restriction (for non-elite frequent flyers who don’t have the airline’s co-brand credit card) that basic economy passengers can bring a personal item on the plane only but no full sized carry on bag.

American Airlines Economy

When United introduced this they admitted they lost $100 million. They assured they’d make money doing it once American Airlines followed suit, but in the meantime customers had a choice — they could fly United basic economy or for the same price get a better (non-basic economy) product from American. Nevermind that Southwest Airlines carries more domestic passengers than any other airline and doesn’t have basic economy restrictions. They don’t charge change fees. They don’t charge for the first two checked bags even.

American followed United implementing draconian basic economy. Reportedly they’re looking to bring back carry on bags on basic economy fares some time this summer.

Now Delta’s President says the stricter basic economy rules that United and American have, which means that those airlines offer customers a worse product at the same price as flying Delta, is costing those airlines business.

During yesterday’s second quarter earnings call, Duane Pfennigwerth of Evercore ISI asked whether the way “the rest of the industry has implemented basic economy so far… the more punitive implementations of it, no carry-on” has led to “positive share gain” (people choosing to fly Delta instead of United and American).

Glen Hauenstein concluded that yes, it’s “certainly a contributing factor” to Delta’s (better) ” relative revenue performance” over American and United. While he acknowledges it’s hard to isolate which areas of offering a better overall product than their competitors are causing customers to choose Delta instead of other airlines, and as a result give them stronger revenue, having a better product even for basic economy is part of it.

CEO Ed Bastian then added that “customers of all classes are preferring Delta in increasing numbers” and that includes basic economy passengers, as reflected in improvements in the airline’s net promoter scores.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. United’s approach to pricing their Basic Economy just seems insane. I’ve generally seen it where they use their BE fare to price match, say, Southwest. Why on earth would I choose United then when WN will give me free checked bags, free carry-on, and I can be sure of a window/aisle seat if I just check-in 24 hours before the flight? I could see BE maybe working out for UA if they priced it like $25 less than any competitor, but all it’s done so far is gotten me to book away from UA.

  2. This strategy is backfiring. Fuel costs are going way up and with IMO 2020 (sulfur regulations), jet fuel will spike even higher. The airlines should try to upgrade the offerings and ask people to pay for it instead of racing to the bottom. I’ve switched almost entirely to LUV even for business travel (where there is a direct flight).

  3. “CEO Ed Bastian then added that “customers of all classes are preferring Delta in increasing numbers” and that includes basic economy passengers, as reflected in improvements in the airline’s net promoter scores.”

    these must be the same worthless “net promoter scores” that only people with junk degrees in marketing actually believe in. i certainly don’t make airline purchase decisions cuz some hillbilly in idaho or west virginia tells me so.

  4. @UA-NYC : and waiting for UA-NYC the worthless troll banned from Flyertalk’s UA forum to come and talk nonsense

  5. I know you WANT this to be true — hey, who wouldn’t prefer the return to free carry-on bags all all major airline fares — but in your heart-of-hearts even you know that Delta is really benefiting from UA and AA’s stinginess. First of all, how many times in life is there a real apples-to-apples choice between a basic economy fare on Dl and one on UA or AA? Maybe it happens once in a blue moon for folks connecting, but I’ve never seen it. Do you REALLY think that there are enough customers out there who know enough about the rules to discern the difference? If there were, I would submit that Frontier and Spirit would likely be bankrupt. I would also note that UA — despite spiking domestic capacity and aggressively adopting a stingy basic economy fare structure — seems to have just had a great quarter.

  6. @henry LAX – as someone who has a degree from a top 20 business school, I assure you that it’s not just “people with junk degrees” that “believe in” Net Promoter Score.

  7. These Airline CEOs are typical trumpian authoritarians who think that they will force you to take it As though you don’t have any choice. it works because at least a third of the country are so stupid they will follow the strong leader even if it means giving up their Healthcare or being strapped to a bodyboard in a plane. Remember the woman interviewed on TV who said in her redneck accent that maybe she needed to give up her health care because Obama shouldn’t have given it to her in the first place. People like this are too ignorant to survive And if unchecked will bring us all down to their level of imbecility.

    Another third are so disengaged they don’t pay attention or follow any of the Vital Information that is required to make good consumer choices, or defend a democracy from authoritarian right-wing take over.

    And so it’s left to about a third of us who have the smarts, will and dedication to fight for consumer rights and even the survival of our democracy. Many of us have fought for this country before and will gladly do so again against the fat slob Trump bullies who never lifted a finger to do anything except stuff their fat faces. they think that since they have all the guns they will win, but what they forget is the Multicultural Army and National Guard who will gladly put them down just like we did in the previous Civil War To the traitors.

  8. Solution, one free bag and a Decent Hot meal and I would go back to flying AA & UA!!!

    Otherwise, SouthWest sounds like a plan!!!

  9. This is way more nuanced than Gary’s discussion. BE customers obviously don’t give a hoot about what carrier they fly or what is included in the fare, as evidenced by the strong profits and expansion of LCCs. Rather the punch to the gut (for UA, AA and to a lesser extent DL) is the shoddy treatment of their best customers, the millions of elites. The BE strategy forces elites to pay a higher fare if they want to keep their perks. Obviously elites who are price sensitive will choose the carrier that provides the best product for the lowest price. Which at this point is probably WN if they have the lowest price (which they often don’t anymore).

  10. @Boraxo while there may be complex stories to tell here I don’t think it’s all that complicated. Delta is offering a better product at the same price and people are choosing it as a result. It’s more reliable and it’s less draconian, which naturally attracts business.

  11. No elite qualifying credits on UA basic economy is a complete disaster. Scott Kirby should be fired for that alone, not that there isn’t a long list of crap Kirby should be fired for.

  12. As a primarily United flyer, I absolutely have shifted some business over to Delta and bought their BE fares when the price is right. Have never, and will never buy a United or AA BE fare due to their insane restrictions.

  13. It breaks my heart to see AA fares and stock price coming down. I’m a glutton for punishment and love flying American

  14. henryLAX is the fly18725 of VFTW – UA good, all other airlines bad & stupid. Gotta wonder what’s the motivation…

  15. I bet I pay more taxes than you earn in salary, drooling right wing tRumplicker Employed. How disgustingly right wing are you: 300, 500 or 700 pounds? Keep your stink off my flights.

  16. Alaska’s whole mileage and more attuned customer service beats all.

    Southwest’s free bags, internet, and workable seat choice maneuvering makes them a strong contender.

    But then there’s Jet Blue’s extra legroom, free internet, endless snacks which brings them up to major contention with the others, full mileage winning out for this legacy flyer who walked on AA and UA after 40 years when they delighted like Trumpanzees with playing Torquemada.

  17. @Aaron – NPS is a great “in a nutshell” evaluation of a brand. We all know how United’s has performed since the CO takeover. I found a site that showed the 2017 NPS for Delta at 38 and for UA at 10…yikes. B6 and WN in the 60s.

    (BTW it is beyond hilarious that henryLAX posted literally at the same time as me, 11:07am, rushing in and defending United and bashing Delta, just as predicted)

  18. I used to think Greg was a Neanderthral or perhaps the lost link. Then I realized he was stupider that that. He listens to CNN and takes it as gospel. Neanderthrals are independent thinkers and are able to buy Geico insurance. Greg is more like a parrot. Parrot listens to CNN. Parrot repeats CNN. No brain power at all.

    Greg said: “Multicultural Army and National Guard who will gladly put them down”. Seriously, you anti-American parrots disgust me.

  19. @ greg – It’s weird and creepy the way you keep bring President Trump into every subject.

  20. I don’t understand all the uproar about BE. If you don’t like it don’t use it. Personally I never even look at BE fare as I would never book it as too restrictive I also never look at Spirit or Frontier but obviously some people do and that called freedom of choice. I am american gold for life which has been so devalued that where my first choice used to be AA now its1) jetblue, 2) SW. SW primarily because of cancellation policy snd i just pay my $15 for early checkin.

  21. I think “Other Just saying” just repeated what half of Americans say about Fox news!

  22. United and American need to abandon this cramming people in to indecent levels of contact with strangers by reducing legroom and reducing seat width and jamming more people together. This ridiculous new small bathroom that they are using is also immoral. I’m actually looking for airlines that don’t do this just to get away from these types of draconian, ridiculous measures by American and United. They’re losing my business.

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