The Associated Press‘s David Koenig asks American Airlines President Robert Isom about Basic Economy.
Q: How is Basic Economy doing?
A: We’ve had Basic Economy out since the beginning of the year but really only since the end of the summer in full force. We’ve seen about 50 percent of the customers that are presented with the Basic opportunity fare are choosing to buy up. That’s really good news for us. That is all improved revenue for us.
Now first of you should should be skeptical of the 50% number with respect to how many customers buy up to avoid Basic Economy.
- United and American report the same number
- It’s a round number
- And they keep repeating it, the number never changes
So either they’re not measuring this carefully and often or they’re playing loose with the data. The third option — that both United and American have been consistently seeing the same exact performance, unwavering over time, seems by far the least likely.
It’s also unclear what “customers that are presented with Basic” means and how much work that’s doing in getting to the 50% figure. Customers are ‘presented’ with Basic Economy on online travel agency sites, but the restrictions are far less prominent. Are those counted? It wouldn’t be safe to generalize that 50% of all passengers (at least on flights where Basic Economy is an option for sale) buy up.
What about cases where the choice is made for the passenger, such as when booking through Concur or a similar tool set not to display Basic Economy at all? That’s extra revenue to the airline (netting out corporate discounts or rebates) but unclear if we draw the same conclusion about behavior.
Finally, Isom’s claim that “that is all improved revenue for us” — that offering basic economy and having 50% of people spend more to avoid their restrictions — is all net gain is demonstrably false.
As we know from United’s early stumble losing about $100 million on the roll out of their basic economy fares customers can and do book away from major airlines offering such a restrictive and inferior product. For isntance, Southwest Airlines is the largest carrier of domestic passengers in the country and their fares do not limit the ability to bring a carry on bag onboard (they don’t even charge for checked bags).
At the same price point Southwest, Alaska, and JetBlue offer a better product (and Delta, too, since their version of Basic Economy doesn’t have the carry on restriction). So customers choose to buy from one of those airlines instead.
That’s revenue loss not ‘all improved revenue’ though how it nets out is an empirical question — one that, given the rounded 50% number we keep hearing from both American and United, one wonders if they’re primed to honestly measure or if they’re simply going to pre-suppose the answer the want to see.