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.
How is it destroying differentiation? Versus a ULCC like F9, G4, NK pax still get a carry-on bag, superior customer service, on-time performance and overall better IRROPS recovery (since AA/DL/UA have larger networks, operate at lower systemwide load factors, and have ticketing agreements OALs which can be used when all other accommodation options on carriers metal are exhausted). How is that not compelling and a major differentiator?
@ Josh G:
“still get a carry-on bag”
For now.
“have ticketing agreements OALs which can be used when all other accommodation options on carriers metal are exhausted”
DL and AA no longer interline. Might not be the last interline relationship to dissolve, either.
And if interline was a major, difference making differentiator, WN would still be flying a single plane between three cities in Texas. They never had interline with the majors.
I flew NK BWI-ORD back in October. there were a few less inches of legroom, absurd charges (50$) for a second carry on and no drinks and there was an ABSURD delay on the ground at ORD (plane parked on the tarmac for 45 minutes before we could get a gate. But, it wasn’t too terrible and we got to cut the insane check in line at ORD. not so great but, not too terrible
Whatever you say Gary,
$50 rt fare without anything does benefit the people never check a bag. There are a lot of incremental $$ to be made. Just looks at how many day trippers are on NK.
Msp-ord is usually packed in Saturday because people go in for a afternoon cubs game.
I see it as the legacy airlines taking away what they once gave to valued frequent flyers. They created a tiered system based on miles flown and now that there isn’t as much competition they are going to reduce what they gave us to charge a la carts options for.
So instead of automatic first class upgrades as an EXP, I will have to buy a higher fare class to be eligible for that upgrade and also to accrue mileage.
We don’t know yet what premium economy’s impact will be. Is MCE for AA going to be premium economy? If so what’s the price difference between basic economy and premium?
Unfortunately these questions don’t have answers right this second. Makes me question my allegiance as an EXP AA flyer.
If I don’t like what I see I will truly become a free agent and just select the lowest fare and best route possible. Today I select the best route/fare through AA because I value the perks they provide as an EXP flyer.
They take those away, let’s see what happens.
Frankly, I think that the reason the legacy carriers, to include Southwest, will always remain in business is that the alternatives- the ULLC’s – are simply awful in terms of quality. I flew Frontier both before and after they became a ULLC; and after two flights with them under their ULLC model, I will not fly them again. While the basic product remained the same- getting you from Point A to Point B- their customer service devolved into awful with a capital “A”. I think people are willing to pay more money for the same product, as long as you give them good customer service.
Basic Economy has as a core proposition that you don’t get to pick where you sit. That means
a) If you’re traveling alone, you will definitely have to accept a middle seat unless about 25% of the plane is flying Basic Economy, at which case you’re still more likely to have to do so, and
b) If you are traveling with somebody else, you don’t get to sit next to them. Which will be fun if your “somebody else” is a 4 year old.
For me, the first part of that is a non-starter. I’d only buy Basic Economy on a ERJ-175 or ERJ-190 flight.
The question is going to be if American will just make O or O/S classes Basic Economy, or if they will do what they’ve done with many of their “instant upgrade” fares and put a /WNUP type designation on the base fare code to indicate non-Basic economy, with a constant $$ amount. The difference is that in the latter model, every non-Basic economy seat is surcharged.
To me it will be interesting to see how this impacts corporate travel agency “victims” err…I mean travelers.
It would seem to me that the good news for Concur folks might be to have a more level playing field choice between carriers instead of being forced into the cheapest fare on Spirit, etc. You might get to choose your carrier of choice (assuming that’s not Spirit for most, although I like Spirit).
The bad news might be the inability to upgrade (even with status) from basic economy because your corporate policy makes you take the lowest fare, of course.
@Robert Barron — I agree with you that the “legacy carriers” (plus Southwest) are lucky to have such bad competitors as Spirit and Frontier. Most frequent flyers will, rightfully, avoid Spirit and Frontier whenever they can. I’ve always thought that an airline like Jetblue posed more of a threat because their product is pretty good for the average passenger.
If you’ve travelled around Europe, you’re familiar with Easyjet, and that would likely be a successful product in the USA. It’s simple, cheap, reliable and not awful. Great for short haul flying for regular passengers.
This can potentially be great news: that nk f9 are joining tsapre: http://mommypoints.boardingarea.com/2016/05/22/two-budget-airlines-to-offer-tsa-precheck-in-2016/
For the record (in BWI at least) DL never matches NK. Spirit will offer BWI-MSP for $54 bare fare, and DL will be $200 for Main Cabin and $190 for Basic Economy. Or often worse. They’re never $54. They never come close to matching Spirit
For those without status this will make Southwest even more appealing. Just pay $15 for instant checking and you are usually secured to be at least A30 when boarding. No food options but that doesn’t really matter on flights less than 3 hours long.
I am 100% certain I will never fly Spirit, and 90% certain I will never fly Frontier or Allegiant. The value of my elite benefits on UA is just too high, and the value I receive on AS and WN is worth more than the hassle of paying garbage fees for printing boarding passes, carryon luggage, etc.
I am not too worried about the basic fares, it doesn’t really bother me to pay for luggage. The current price for choice seat assignments is a bit too high so I’m happy to roll the dice on airlines where I don’t have elite status as something nice almost always opens up when the upgrades start clearing. Also happy to buy up to F when the price is right (these days often in the $50-100 range depending on flight) and the real cost is often even less if I would otherwise be paying for E+ or checked bags.
The idea that anyone is still loyal is figment of your imagination – I buy my tix based on price and value. Yes, I have UA elite status, so I generally get more value on UA. But sometimes the price is better on VX or AS, which outweighs my elite perks. They all provide useful miles. Every flight should be treated as a business decision.
Some people will buy the ticket that is one dollar cheaper than the others, without regard to quality (though I think those are the same people who complain when it turns out to be a bad experience). I suspect the legacy carriers are simply doing this to compete for those people. For people who travel for business or who travel enough to know that they do not want a bad experience, they will pay more for it. Not that price is irrelevant, but they will spend to buy-up, upgrade, get lounge access or the like when they think the amount is reasonable for them. And the legacies can still keep those people – not through loyalty programs, which I find illusory, but value for the price. To me, the point about getting a more reasonable re-routing on a legacy carrier in the event of IRROPS has been a big plus.
Don’t forget you want to use a specific airline’s lounge if you were flying on that day and have membership either by paying, affiliated credit card, or in my case Copa and Air Berlin status match, which is the case for most carriers (and soon to be the case with United in September). Fortunately I don’t see a lot of Spirit passengers in the Centurion lounges that I frequent.