The 3 Biggest US Airlines Plan to Offer You Even Less This Year, Unless You Pay More

Delta, United, and American have been called “legacy” airlines (since they pre-date airline deregulation) and also “full service” airlines even though they charge most passengers now for things like checked bags and change fees in my professional lifetime have gone up eight-fold. But even as they’re finding themselves more profitable than ever, they’re working to shift their business model to provide less value to the customer at the same price point.

The airline industry is such a strange beast. In most businesses, competition forces companies to deliver more and more value to the customer.

I actually see the domestic airline industry as competitive — in addition to Delta, American and United you’ve got Southwest as a major player. Alaska Airlines has the greatest operating margins. And clearly the ultra low cost carriers are dictating terms.

While there are barriers to entry in the form of regulatory approvals, there’s no shortage of planes and pilots can be hired away from low paying regionals. Some airports have limited slots and gates, but most do not.

If you want to see greater competition in this industry, there’s really only one way to do it. Whining about past mergers, what you wish the government didn’t approve, doesn’t get you anywhere. Allowing foreign ownership of US airlines does. Let Singapore Airlines, Ryanair, and Etihad invest in and majority control US carriers.

Delta Led the Way With Less

Delta introduced ‘basic economy’ fares to compete against Spirit Airlines where Spirit is offering super low fares on non-stop routes Delta is flying. The idea was that Delta offered more legroom, complimentary beverages, and other things that Spirit either didn’t offer or sold for a fee. So 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.

Elites don’t get upgrades on these fares. With Delta there’s a minimum revenue requirement on an individual trip for elite benefits, not just minimum revenue across the year to earn status. Delta has minimum revenue requirements for elite status, so presumably customers fly on these fares are doing so only occasionally. Delta sees the customers as profitable enough to reward — just not all the time.

Delta’s elite frequent flyers need to 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. For the rest of customers though Delta is (for the most part) probably doing what they ought to do. It’s totally fair to sell airfares this way, as long as customers know what they’re getting. It only becomes a problem with systems that default to the lowest fare, don’t flag extra restrictions, and especially with systems that business travelers are forced by their employers to use, that make it harder to buy up.

Although these fares are spreading and are no longer limited to markets where Delta competes with Spirit or other ultra low cost carriers — and they’re talking about expanding the use of these fares to international routes, too. So Delta plans to give you less on more routes going forward.

United Promises to Copy By the End of the Year

United re-iterated that they’ll introduce similar fares in the second half of 2016.

Not to be left behind, United Chief Revenue Officer Jim Compton said this week that the Chicago-based carrier will introduce an “entry-level fare” that will be directed at “price-sensitive customers.” The new fare category will be available in the second half of this year.

American Told Us They’re Doing It, But Has Been Quiet on How

In American’s third quarter earnings call, they said they planned to follow suit with their own version of basic economy fares.

And American clearly suggested frequent flyers will need to ‘buy up’ to get at least some of their benefits. Airline President Scott Kirby said “we are going to go to a product that is different” sometime in 2016; that “it will allow us to compete with the ultra low cost carriers” and it will allow “our customers who want a better product and better seats on the airplane” to have the choice not to purchase that product.

So whether it’s having to buy something other than the cheapest fare to be eligible for upgrades or premium seats, we should find out during 2016 what’s going to be taken away.

The process to get there is a challenging one. American needs to assign certain fare classes to basic economy to manage the inventory for these fares. At the same time they’re assigning new fare classes to the premium economy product they’re introducing. And they’re actually out of letters (in the 26 letter alphabet). “B” fares are no longer cheaper full fare products, they appear to be reserved now for premium economy. They’ll need at least 2 premium economy fare buckets for sale, maybe three. And what about awards and upgrades?

(Cranky Flier thinks that the removal of B fares is for Basic Economy, my guess is it’s for premium economy but all part of the same project nonetheless.)

American could just call Q or S fares (deep discount economy) Basic Economy, but they may not want to pull the trigger until they’ve got the realignment plan in place for all of their class codes.

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 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 »

More articles by Gary Leff »

Comments

  1. @Gary sez, with a straight face: “I actually see the domestic airline industry as competitive”

    Are you f’ing kidding me???!!! The reason UA, DL and AA are planning on continuing to sock it to the consumer, even when fuel is dirt cheap and they are making record profits, is precisely because the recent mega-mergers have turned the US airline industry into a “collusive oligopoly” in which there is no longer any competition whatsoever. The US Big Three are colluding into doing exactly the same things (copying each other, with DL usually leading the way) so that they no longer need to compete against each other. To call Southwest (or Alaska) a “major player” in the US airline industry is simply ludicrous, oh dear “Thought Leader in Travel.” Why do you think the US Big Three have been so aggressive in trying to keep the ME Big Three out of the US skies? It is because it is sure to lead to a competitive environment that would threaten the collusive oligopoly!

    When firms no longer make any effort to attract and retain consumers, it means that the playing field has tilted dangerously in their favor.

    Look up “collusive oligopoly”; it fits the current US airline industry to a “T”. A “cartel” would be another apt description…

  2. I have to agree with DCS. With the three mega mergers, this is no longer a competitive industry and hence the Big 3 are able to pass on less and less benefits. Plain and simple.

  3. “To call Southwest (or Alaska) a “major player” in the US airline industry is simply ludicrous, oh dear “Thought Leader in Travel.”

    Southwest carries more domestic passengers in the United States than Delta, United, or American. How is that not a major player?

  4. > Allowing foreign ownership of US airlines does.

    Halleluja! It’s about time for another bit of citizen-hurting protectionism to fall.

  5. I heard American was going to go revenue based in the second half of the year. Do we have exact dates?

  6. Where are the scum liberal senators? Why aren’t they making noises about high ticket prices given the oil prices are crashing.

  7. @eponymous coward: “Southwest carries more domestic passengers in the United States than Delta, United, or American. How is that not a major player?”

    Correct about the volume of business that Southwest does domestically, but the airline industry is now global, and with just 90 destinations vs. more than 300 (each) for AA, DL, and UA, Southwest is NOT a “major player” in larger scheme of things — it is an asterisk, an afterthought. In fact, I believe that the most interesting point in this post is that the ““entry-level fare” that will be directed at “price-sensitive customers””, which DL initiated and UA and AA are sure to copy is a frontal assault by the Big 3 US collusive oligopolists [cartel] designed to sideline Southwest even more by poaching the latter’s generally “price-sensitive customers”….

  8. There are two issues here, both of which are noted: transparency and elite treatment.

    On the first, the use of fees by LCCs appears to be a deliberate (and largely successful) means to defeat meaningful fare comparison of products. This is something that could be addressed through proper regulation (I think the technology is there as we see with car rentals) and where consumer comments to Congress and regulators can make a difference.

    On the second, I think it pointless to shout “I am not my fare” from the treetops and expect airline execs to listen. Rather the correct approach is to avoid patronizing airlines that do not provide satisfactory elite treatment – vote with your money. This assumes that the fares and fees are equal. One reason many people (myself included) fly legacy carriers and WN is that they prefer a bundled product rather than being nickel and dimed for even basic things like carry on luggage. To the extent DL starts to follow this approach, particularly with elites, they will see the results in the market. The smart airline execs (is that an oxymoron?) would ensure that elite benefits cover these nuisance fees – UA is starting to go this route by providing top elites with meals and drinks regardless of class.

    While elites have generally suffered with takeaways the past few years, I would bet that status will become more valuable than ever in the coming years and that DL’s approach will fail. But only time will tell.

  9. @DCS if your frame of reference is global then you can no longer discuss just the major US airlines but also have to add international airlines to the equation.

    Four major players competing for domestic business with additional minor players is by any theoretical measure competitive.

    They compete to give people what they want which is low prices (driven by the ultra low cost carriers). And in capital intensive highly regulated businesses there’s only limited opportunity for product differentiation at this level of scale. So they maintain a relatively low service equilibrium.

    The ‘good old days’ of air travel were highly regulated, with fixed (high) prices. So airlines competed for those high fares with service. Now airfares are competitive and so airlines drive down costs to meet what consumers want (buy with their wallets) rather than say they want.

  10. @Gary: “if your frame of reference is global then you can no longer discuss just the major US airlines but also have to add international airlines to the equation.”

    Sure, I can, only to prove that consolidation of US airlines into just a three big players has diminished even international competition. What do you believe the big flap about the Big 3 ME carriers is about?

    I would have prefer to have CO, NW, US, UA, AA, DL and SW and smaller low-cost carriers competing against each other domestically and internationally than to just have DL, AA, and UA colluding to avoid competition, while controlling better than 80% of the US air travel.

  11. @DCS this isn’t a question of ‘preference’. And once you talk international destinations you’ve got all of the European carriers, the Asian ones, etc. Your argument falls apart.

    If there’s an argument about lack of competition it’s in the domestic market, where the government shields airlines from foreign competition (hence my suggestion of allowing foreign ownership of airlines operating in the US). And if it’s in the domestic market you have to grant Southwest equal footing with Delta and American and United.

  12. @Gary — Actually it is not a matter of preference. While you, Gary, know about alternate ways to travel to international destinations, the wide majority of US travelers out there are not as savvy and are held captive to the US Big Three when they travel abroad. Therefore, while someone like you may see that there is competition for international travel, it is not so for the wide majority of US travelers who do not read travel blogs. Some 80 percent of air travel in the US is now controlled by just 3 airlines…

    Do you believe that there is a correlation between the mega-mergers and the drastic decrease in FF benefits that seems to have accelerated within the past 4-5 years? Well, I do. The lack of competition due to mega-mergers affects US travelers at large across the board on both intl and domestic routes. This should be somewhat intuitive, I think, otherwise how do you explain the airlines getting away with multiplying ancillary fees and cutting FF benefits? The competitive forces that would make them pay for these practices are lacking!!!

    G’day.

  13. @DCS people aren’t held captive ‘to the big 3’ when traveling abroad because they don’t know better, foreign carriers come up on online travel sites and those display the cheapest options first generally. And if that were true the solution would be advertising.

    I’m not saying “there’s as much competition as there used to be” I am saying that in a meaningful economic sense it’s a contested market and not a monopoly or oligopoly. Those words have meaning, and US domestic airlines don’t qualify.

  14. @Gary — Words do have meaning. Look up “collusive oligopoly” and then consider what we have seen in recent years. DL would institute changes that do not benefit the consumer and, first, UA would copy them mindlessly. Then when some of us held hope that AA would save us by resisting those consumer unfriendly changes, they disappoint by jumping on the DL bandwagon as soon as they finish dealing with yet another mega-merger of their own.

    To doubt that the mega-mergers have turned the US airline industry into a collusive oligopoly in which the competitive forces that can protect the consumer are lacking is to have had blinders on over the past 4-5 years. To repeat, this should be somewhat intuitive; otherwise how do you explain the airlines getting away with multiplying ancillary fees and cutting FF benefits? The competitive forces that would make them pay for these practices are lacking!!!

Leave a Reply

Your email address will not be published. Required fields are marked *