Delta introduced ‘basic economy’ fares to compete against Spirit Airlines where Spirit is offering super low fares on non-stop routes Delta is flying. They introduced fares that stripped out things like advance seat assignments and used those fares when matching Spirit’s prices. Customers could spend more to get more, or spend less and get something akin to Spirit but still with better legroom and free carry on bags.
United and American will follow suit this year while Delta spreads use of the fares beyond routes where they compete with ultra low cost carriers and into international markets even.
The airlines will tell you these Basic Economy fares – no advance seat assignments, no changes, no upgrades – are about bringing people lower fares. They’re not. They’re about giving consumers less at the same fare they pay now and generating incremental revenue in the form of:
- Unused tickets, minus change fee. These tickets do not allow changes of any kind, so if unused the value is completely lost. So they can count revenue from passengers who bought a ticket and then didn’t travel as incremental, whereas in the past they’d have captured only a $200 change fee. [But then these fares are usually on the very inexpensive side anyway, so the incremental revenue here will be small.]
- Upsell revenue from passengers choosing to buy more expensive tickets that allow seat assignments and elite upgrades. This is the biggest area of incremental revenue, getting the same customers to pay more. Although lost revenue has to be accounted for as well from passengers who no longer choose the airline because its value proposition has less of a spread compared to ultra low cost carriers than before. It’s not enough to simply add up the upsells.
The Economist calls this “a class below economy and tries to tie it into issues of class divide. But there’s a ton of misinformation out there about these fares.
Coach, they have discovered, can itself be subdivided, and then subdivided again. First there was the creation of premium economy, which charges passengers extra for what used to be a standard amount of legroom, and for the exit-row seats that were previously the dominion of in-the-know flyers. Now there is a new class, a cut below standard economy. Please welcome “basic economy”, known to some as “last class”.
In fact basic economy does not mean less legroom.
The Economist pointed to an older Time story calling it “Worse Than Any Low-Fare Carrier Option”. And that’s just wrong.
At the same price point, where United, Delta or American match the fares of Spirit or Allegiant — which newly stripped down benefits — the legacy carriers offer a better product. Here are 6 ways that the legacies still offer more:
- Delta, United, and American all offer in-flight internet throughout the bulk of their fleets. Customers can buy access on the same terms whether they’ve paid for basic economy or first class. Ultra low cost carriers don’t offer this.
- Delta, United, and American all offer more legroom than the ultra low cost carriers. So while you may not get the best seat assignments in the economy cabin, you get the same standard economy legroom that’s been in place on commercial aircraft for more than two decades — which is a couple more inches than many of the deep discounters provide.
- Delta, United, and American all offer eligible travelers access to TSA PreCheck, something that must be integrated with TSA at the airline level. Allegiant offers PreCheck while Frontier and Spirit do not.
- The major US airlines have a more extensive route network, with greater frequencies and more hubs, than the ultra low cost carriers. This means that there are more flight options with routings that can avoid weather to get where you’re going in the event of irregular operations. While flight alternatives can still be tough in an era of full flights, you’ve got a better chance to get where you’re going with redundant route networks — precisely the things the ultra low cost carriers avoid in staying ultra low cost.
- Basic economy fares at Delta – and as speculated at American and United – do not encompass the same degree of fees you find on ultra low cost carriers. There’s no fee for printing your boarding pass at the airport, and there’s no fee for a carry on bag.
- While elite benefits are limited with Basic Economy, the major airlines have still offered mileage-earning (granted at Delta and United based on ticket price, and going that way this fall with American). MileagePlus, SkyMiles, and AAdvantage all have miles worth more than Free Spirit points or Frontier’s Early Returns currency.
This doesn’t mean it cannot make sense to fly Spirit. They may offer a non-stop route that their competitors don’t or they may still be cheaper for a given trip. I recently considered flying Frontier Austin – Las Vegas but ultimately took American one direction and Southwest the other.
But I’m still willing to pay a premium for access to TSA PreCheck, a redundant route network so I’m more likely to get where I’m going close to on-time, and inflight internet so I can be productive during the trip.
It’s perfectly reasonable for airlines to offer unbundled fares as long as they are clear on the value proposition. Ironically Delta got a ton of unfair grief for being too clear and the difference between Basic Economy and traditional fares.
And no one is actually being charged to use the bathroom, though people have complained that seemed to the direction airlines are headed for the past 30 years:
It’s also reasonable for Spirit and others to offer their product, it makes travel accessible to people who might otherwise drive or not go at all (and air travel remains safer than automobile travel, too).
Similarly it’s also reasonable for customers to let their own voices be heard about what they think of products being offered — elite customers especially who should shout from the rooftops, “I am not my fare.” I am a valued customer, or I am not, and how welcome I’m made to feel should not change between Tuesday on a full fare and Thursday on a discount one when I’m buying a ticket pretty much every week.
Basic Economy is all about taking away benefits, especially from less price sensitive elite members, in the hopes that customers will spend more on tickets to avoid takeaways.
However when you ask people to pay for exactly the product they want they’re going to buy exactly the product they want from whomever is offering to sell it the cheapest — instead of being willing to pay more to buy a seat from one airline over another because you believe you’ll get a better deal over the course of the year.
The legacy carriers remain a better deal that the ultra-low cost ones even when purchasing Basic Economy fares. But they’re destroying the product differentiation among them for the customers who spend the most.
Basic economy is about price discrimination, not giving someone value at a lower price point than they’re willing to pay. It runs the risk though of cannibalizing revenue from customers who consistently pay more for a product than they can otherwise get their travel for.