Tag Archives for basic economy.
United announced an end to change fees on most domestic tickets. American matched in less than a day, including more destinations. They’re extending change fee waivers on international, basic economy, and award tickets to the end of the year. And they’re letting Basic Economy customers have elite benefits again, too.
At the end of May things were looking really good for summer travel, and American tried to place limits on its change fee waivers. Since the beginning of the pandemic airlines have allowed a change fee waiver on ticket purchases, so that customers faced with uncertainty would have greater comfort buying travel.
As forward bookings have softened, though, and competitors haven’t followed American’s lead in restoring the ‘no changes’ rule to Basic Economy fares American too has backed off.
I do not see any real reason to stay way from Basic Economy fares at this point, unless the buy up to regular economy is very small. It largely is a buy up for the possibility of an upgrade and more credit towards re-earning elite status, which has been less likely and less valuable in recent years. And that means, effectively, the end of basic economy as a pricing strategy.
Southwest though has a long history of profits and margins that have eluded much of the industry, and they haven’t gone down the same fees and restrictions rabbit hole. They are the largest domestic airline in the country. They do not have change fees or checked bag fees (for up to 2 bags per passenger). They don’t have seat fees, without assigned seats, but they do charge to be at the front of the boarding queue which means earlier dibs at seat selection.
American is testing what happens when they eliminate the biggest remaining restriction on Basic Economy fares, the inability to select seats at time of booking.
If American does this they’ll pick up more seat selection revenue, fewer customers will be chased away, but much of the encouragement to buy a more expensive coach fare will be lost. Presumably this test allows American to see which factors are greatest – to see whether Basic Economy is really costing them money as currently conceived.
Executive Vice President and Chief Financial Officer Gerry Laderman and Executive Vice President and Chief Commercial Officer Andrew Nocella answered questions from Helane Becker at the Cowen and Company 12th Annual Global Transportation Conference.
During the discussion there were four things that stood out to me as being interesting, even if some were relatively tangential for analysts covering the stock.
American already eliminated their rule that basic economy passengers couldn’t bring on a full sized carry on bag. Now they’re making it easier for passengers on basic economy fares to get advance seat assignments – allowing paid seats 7 days prior to travel. And with bigger overhead bins, boarding last isn’t even a big deal anymore either.
American Airlines used to believe that ‘basic economy’ would be worth a billion dollars to the airline.
We keep hearing that basic economy is a success. American now concedes that despite those proclamations that it has ‘underperformed’.
Everyone believes basic economy works because airline executives keep repeating that it’s true. It was supposed to be a billion dollar idea and yet once implemented the revenue benefits don’t clearly materialize in the financials.
We keep hearing things like 50% of customers buy up to a higher fare, which strikes me as like “73.6% of all statistics are made up.”
Airlines have taken that knowledge, that business travel booking engines will filter out basic economy options, and used it as ‘the new Saturday night stay’ — the means to differentiate pricing for leisure travelers and business travelers.
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 InsideFlyer.com, 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 »
