Basic Economy Not as Cheap as You Think and Cuts to BA Premium Cabins

News and notes from around the interweb:

    “To be 100 percent clear, the airlines are not offering lower fares than they were offering before basic economy was introduced,” says Gary Leff, who writes the View from the Wing travel blog. He says the airlines may have initially offered basic economy to compete with the growing ultra-low cost carries such as Spirit and Frontier.

    “They decided that they wanted to give you less — something approximating what those low-cost carriers were providing at that price point — in hopes that you would pay more to get the kinds of services that you were used to from those airlines,” Leff says.

    He says the big three airlines are banking on convincing travelers to pay more for services that seem kind of basic: choosing your seat, making sure your family is seated together, and putting a carry-on bag in the overhead bin.

    “It’s a strategy to raise the revenue that they’re earning off of every seat,” he says.

  • Basic video on the economics of airlines. This was broadly shared last week but I didn’t get around to posting until prompted by Jan V.. There’s a lot here that’s either wrong (share of premium cabin revenue) or oversimplified, and much is left out (e.g. corporate travel). Still I think it’s worth sharing as a basic introduction.

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. So how does basic economy compete with the LCCs? Matching their level of service but charging much more? It does appear to be just a shameful mask for a general price increase.

  2. Anyone who thought that “basic economy” was a price break for travelers knew nothing about the airline industry. Because many leisure travelers only book on price, the ultra-low-cost-carriers developed a model where you got a “come on” price (like without luggage) and then they could sell you ancillary services to try to make a profit. Due to this price sensitivity, the major airlines decided they had to match the ULCC fares — but the majors didn’t have a framework to collect the ancillary revenue on those fares. So they were pure money losers (but offered to discourage ULCC from setting up in their hubs). “Basic economy” is just an effort to even the score. The majors don’t really want to sell you these fares; if you click on them, they’re going to try to upsell you (which, according to DL, has been quite successful). And if you do buy them, you’re going to getinferior Spirit-like service. No more gaming the major carriers on this.

    It all seems like a very smart business strategy to me but, obviously, isn’t helpful to travelers who want to get more than they paid for.

  3. While there may be flaws in that youtube video, it does show how flawed the business model is for Norwegian and other low cost transatlantic carriers. As the video (correctly) shows, the majors tend to make their money in the premium transatlantic cabin; coach travelers don’t bring much profit (which is why you see crazy competition to improve the biz class product, but coach class is truly modern-day steerage). So building a transatlantic business model that requires the coach cabin to make you money is problematic to start with. But now you have the majors sticking it to Norwegian by starting their own transatlantic low cost airlines (like Level) and discounting coach seats on their existing flights. Who do you think is going to win this fight? Which side is going to outlast the other? Seems to me that Norwegian is doomed. We’ll see.

  4. I don’t know if your juxtaposition of British Air’s “business class” with the video’s “death of first class” was intentional, but British Air’s substandard premium cabins may be ahead of its time.

  5. IAHPHX, you’ve made a great point. Unless the likes of Norwegian can boost their profits by carrying cargo (do they? if so, how much and what is the percentage of net profit?) I don’t know how they can do it for the long term.

  6. Maybe it’s because of the USA’s British heritage or because of James Bond movies, but among all European national flag carriers, the one I used to regard most highly was British Airways. Unfortunately, with Alex Cruz at the helm, British Airways’ brand is sinking faster than the Titanic (and almost as tragically).

Leave a Reply

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