American Airlines started selling ‘basic economy’ fares two months ago.
These fares try to make the travel experience difficult enough that you’ll spend more for less restrictive tickets.
- Last group to board, no full sized carry on allowed (“personal item only”).
- No residual ticket value for changes, no same day changes or standby, use it or lose it.
- Seat assignments at check-in or for an extra charge 48 hours before travel.
- No upgrades.
- 100% of redeemable miles and elite qualifying dollars (which are earned based on fare), but only 50% elite qualifying miles and 50% elite qualifying segments.
- No re-accommodation on other airlines if your flight goes mechanical, and bottom of the list for automatic re-accommodation on other American flights.
These fares were launched in 10 markets:
And now the airline has data on how the fares are doing.
During American’s earnings call airline President Robert Isom suggested 50 percent of customers who are presented with a choice for Basic Economy end up choosing a more expensive ticket. At least that’s how it’s been reported, but that’s not exactly what he said.
In the 10 launch markets, half of the eligible Basic Economy passengers have bought up to the main cabin, which is right in line with our forecast.
Here he’s only talking about people who actually bought tickets on these flights and not customers who searched for flights, saw all the restrictions on American’s lowest fares and abandoned their bookings or simply booked another airline.
Isom is really saying that 50% of people being offered Basic Economy and who still buy an American Airlines flight choose to avoid Basic Economy because it’s so miserable. Those customers spend more money.
The claim does not actually demonstrate success for the Basic Economy initiative. Some passengers will pay more than they otherwise would have. Some passengers will book Basic Economy. And some passengers who would have bought tickets from American Airlines will decide not to be their customer.
Of course Delta’s basic economy isn’t as punitive, you can still bring on a full sized carry on bag. Southwest, Alaska, jetBlue and Virgin America don’t impose restrictions like no carry on bags on any fares, in fact at this time Southwest doesn’t charge for checked bags or charge flight change fees.
In other words, at the same price point most of American’s competitors are offering more value. The question of how many customers figure that out and do what’s in their best interests is an empirical one.
Travel is complex and confusing, there are transaction costs in understanding what you’re buying and making comparisons, so you can assume not everyone will sort this out on their own. But if enough people do Basic Economy won’t be a profitable strategy, let alone part of the $1 billion a year American thinks they’ll generate from Basic and Premium economy ‘customer segmentation’ projects.
I expect American to announce continued success regardless of results.