On United’s first quarter earnings call this morning (presentation here) they re-iterated a plan to roll out basic economy fares in the second half of 2016.
The basic economy plan is factored into United’s projections to increase rather than reduce revenue per available seat mile. United was uniquely forthcoming about these fares.
- This isn’t about offering you lower fares. United already matches the low fares in the market.
- Basic economy is a way of moving some passengers who buy those fares today to buy more expensive fares instead.
The entire point is to charge you more money than they do today to give you the same things. There’s nothing wrong with a business trying to do that (although most successful businesses try to drive increasing value at the same price). But make no mistake, since it’s often confused in reporting: basic economy isn’t about lowering fares.
Given that framework, it becomes imperative to take away elite benefits on these fares. Ultimately the strategy is to provide less value to the airline’s best customers. This is the strategy that Delta pioneered and it’s the direction that American plans to go too.
The problem here is that telling your most valuable customers that they are only valuable on certain days when buying certain fares — rather than every time they step onto one of your planes — undercuts the very notion of loyalty.
United may be right that these passengers might be willing to pay more if they didn’t get elite benefits like upgrades on the lowest fares. Of course they might be willing to pay more to another airline, or would at least consider the other airline. Especially when the ‘buy ups’ to first class are sold so aggressively and inexpensively.
Airlines have succeeded in turning commodity products into differentiated products, into instill a brand preference into the customers who spend the most and most frequently. They’ve succeeded in making lucrative customers relatively price insensitive. Customers choose United now regardless of price. They’ll lose some of those customers when they make price the most important factor in their buying decision again.
I’d be curious to know what was said about which benefits would be removed and from whom, because that’s not contained in the PPT? I’m a business traveller, not a hobbyist, so my main concern is mileage earnings and to some degree upgrades. I’ve not seen any impact for high status fliers on Delta, where I’m Platinum and upgraded about 90% of the time. Naturally as 1K on United I’m interested to know if there’s something I’m missing…
I’m actually surprised United hasn’t followed Deltas lead and stopped all elites reserving Economy Plus until 24 hrs before check-in. They are definitely leaving cash on the table in this regard, many elites work for companies that have travel policies that allow for paying for Economy Plus. United has realized they don’t need to give out upgrades like they used to and now they need to realize that they can similarly monetize other aspects of their business.
@Ariel they still haven’t specified the benefits that will be lost. Presumably upgrades, managing by doing what Delta does.
They’re simply telling FFers they value your business flights paid with OPM or expensive leisure fares bought by folks willing to pay high priced. They would prefer to sell ultra cheap leisure fares to infrequent flyers instead of elites.
FF is no longer for people who fly frequently on cheap $119 transcons b/c they get upgrades, lounge access and free bags.
It’s all about businesd travel and ancillary revenue from kettles.
Does loyalty even matter to the carriers anymore? Planes are packed. Do the few remaining seats require the airline to care about the people that use their product most often?
Maybe I’m being cynical, but I don’t see the upside to reward loyalty anymore. When there was excess capacity and seats going empty, it made sense.
Shareholders demand greater returns. When you’ve sold almost everything you have to sell (full seats) the next step is finding ways to increase revenue elsewhere. Raise prices, charge new fees, or reduce benefits. Or all three. Raising prices is tough. The last 2 are relatively easy. Lots of yelling and screaming, but in the long run those policies are set in stone.
Here’s the problem – yes, United may lose some customers to delta but delta may lose some customers to United. With industry consolidation, there are fewer choices. They’ll all lose and gain from each other as long as they all do the same thing…which you said they were doing.
It’s more about spend at the corporate level than the individual. Most companies allow the purchase of an economy fare that includes seat selection. You now just increased the spend from all your corporate clients. And if the other 2 do the same, you don’t have the risk of companies booking elsewhere.
For some reason this seems novel to people, but AC’s been doing it for a decade with a result being a very high RASM. Simply put, I’d invest in an airline doing this before I’d invest in one trying to grow through their loyalty program.
They won’t lose customers on the upgrades as even 1ks are shut out at hubs. But they will lose big time if they takes away E+ or charge for advance seat Rez and early boarding. Those are the most critical perks
While they can certainly not upgrade elites on basic fares, there is no practical way to take away things like priority checkin and boarding. Many business travelers may not even know when they are or are not flying on a basic economy fare, given that they don’t book their own travel. Turning them away at boarding time would be a disaster.
can you blame the airlines? Spirit makes record profits despite having the worst product ever, Ryanair makes loads of money in Europe. The legacy carriers right now are only profitable because of low oil prices; they are trying to protect themselves from another 2000s bankruptcy crisis in the future when fuel inevitably goes back up.
Most leisure travelers only fly once a year, make up the majority of passengers on a plane, and pick the cheapest fare.
Will they take away benefits from Star Alliance Gold members as well?
I’m not a United Elite but I’m a Star Alliance Gold — I imagine that even if I fly Basic I’ll still get priority check-in, lounge access, free luggage etc, since those benefits are defined by Star Alliance, not by the individual airline?
I think this is an extension of what they have been doing for some time, which is to try to make money more on selling upgrades and first/business outright than to try to make loyal customers through its FF program and going for repeat business. It works with me – at this point, I really don’t see much benefit from being UA gold over paid business/first and a club credit card. Consequently, I make a decision based on price of business/first and desirability of flying a particular route/quality of the airline. I’m not loyal, but UA often has the direct routes I need, so I do tend to fly a lot with them, but they are low in terms of quality. In fact, I think they believe that the only thing they really need to succeed is to have the best routes, and they may be right. But it also means that where they have competition, they will have a hard time beating them without being the cheaper option because their product quality is generally lower. They can’t rely much on loyalty to fill those seats.