The elimination of airline change fees is a good thing for consumers who are faced with greater uncertainty than ever in making travel plans. But the move is much more than that. What I tried to make clear immediately from United’s announcement that was quickly copied elsewhere (and in some cases improved upon) is that this is really about entrenching basic economy as the key differentiator between business and leisure fares.
At United the gap between Basic Economy (which won’t be changable at all) and other fares (no longer a fee) has grown. At American Airlines at first glance the reverse is true because travelers on Basic Economy tickets will be eligible for their elite benefits. You’ll be able to buy a Basic Economy ticket and get assigned an extra legroom coach seat and add yourself to the upgrade list.
Yet it’s American’s move that may do more to cement a whole new way of thinking about airline fares.
- Basic economy fares won’t earn credit towards elite status. Elite status honors the customer, not the fare, which is a huge leap forward in its own right.
- That will make elite status much harder to earn, for anyone working for a price sensitive business or traveling for leisure. Instead of earning status on a mix of tickets it’s only the higher-priced tickets that will help.
And Basic Economy has come a long way since being ‘just another $20 each way for full benefits’. Basic economy is the fare they want to offer price-sensitive customers who might choose another airline that’s discounting, and they use Basic Economy that way in order to still sell higher-priced tickets to business travelers.
In some ways, this is back to the future. In 2002 Ben Baldanza was a Vice President at US Airways when the airline declared that only full fare tickets would earn elite qualifying miles. Baldanza explained that the people who bought discount tickets weren’t offering the kind of loyalty that the airline was looking for. The decision was quickly reversed, and the airline soon found itself in bankruptcy.
The next year Delta Air Lines announced a change – that they backed off of – awarding only half an eliet qualifying mile per mile flown on the cheapest fares. They had already made the least expensive “L, U, and T” fares non-upgradable on domestic flights.
The largest U.S. airlines have since moved away from distance flown as a measure of loyalty, either with minimum spending requirements for elite status or like United offering to sell status outright based on spend and a minimum of four flights a year, regardless of time in the air.
Airlines have been working to use their loyalty programs to shift customers to higher fares, and to make status a benefit for only those flying on those high fares. Eliminating change fees on the one hand, while doubling down on using Basic Economy as the tool to segment customers, is the latest attempt at doing this.