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.