When Delta started testing ‘Basic Economy’ fares in 2012 the idea was to compete with the ultra low cost carriers — they already had to match price, so they wanted to be able to offer a product that was closer to the limited service Spirit provided, in hopes that customers would buy up to more expensive fares for more services like pre-assigned seats.
Basic Economy fares are no longer just about competing with the ultra low cost carriers like Spirit, Allegiant, and Frontier though. At its recent investor day event we learned that Delta’s Basic Economy fares have spread to 38% of its markets — and growing.
When United announced its own Basic Economy fares that go on sale this month — and take the concept even farther, because United will keep customers who buy these tickets and do not have elite status or their co-brand credit card from bringing on a full size carry on — I made it clear that these offerings would not mean lower prices.
Airlines think customers will pay more for things that they get as part of their fare today. So this isn’t a win for customers.
- This isn’t about offering you lower fares. The major carriers have already largely been matching the lowest fares in the market.
- Basic economy is a way of moving some passengers who buy those fares today to buy more expensive fares instead.
Rather than being a way to offer lower fares, Basic Economy fares are meant to increase the revenue airlines earn from each seat. Today the major airlines match the lowest fares offered by Spirit and others, but in the case of United and American they’ve still offered pre-assigned seats and in the case of Delta and American there’s not yet any announcement about charging for or banning full sized carry ons.
Think I’m wrong? We’ve got a natural experiment as Basic Economy fares enter new markets. porori reports new Delta Basic Economy fares in the market they buy tickets for the most. Prices didn’t go down.
I usually paid $350 RT (econ fare X)
However, this past week, it seems like delta just added basic economy to my route, which is fine.
You’d think that they would place the price tag somewhere south of $350 for those basic economy seats but no! instead, they are charging $350(what used to be the cheapest regular economy fare) for it and if you wanted to get regular economy seat, you better pay $30 more now($380)(econ fare X).
United, Delta, and American are still better deals than Spirit at the lowest (Basic Economy) price because there’s more legroom and complimentary soft drinks and sometimes (very) modest snacks. Plus their miles are worth more, devaluations notwithstanding.
But if they can come closer to matching the product offered by Spirit when matching price, they don’t have to ‘give away’ things like seat assignments or in United’s case carry on space.
United says they expect to generate an additional $150 million a year from segmenting out Basic Economy fares by 2018.
While I think that Delta’s reporting methodology overstates their results, they claim $80 million a year in increased revenue from these fares already and growing — not lower revenue — a few dollars at a time.
A Detroit – Los Angeles roundtrip may cost $60 more to avoid Basic Economy fares.
An Atlanta – Orlando roundtrip may cost $15 more to avoid Basic Economy fares.
Soon enough we’ll learn what American Airlines has in store for Basic Economy. So far though customers traveling on Basic Economy fares will not be charged to use the lavatory, though people have complained that seemed to the direction airlines are headed for the past 30 years: