United Airlines President Scott Kirby says people only care about price and that is why the airline offers such a bad product. Customers say they want a better product but whenever given the choice they choose the cheaper price.
Southwest Airlines of course offers more legroom and lower fees and has an outsized stock valuation. So maybe the key to building a valuable company isn’t nickel and diming passengers but delivering them the fair value they’re looking for.
But the entire point of Delta, American, and United introducing Basic Economy fares — and in particular Kirby’s innovation first as President of American Airlines and then as President of United to deny passengers on those fares bringing a rollaboard bag onboard (and in United’s case even denying online check-in to Basic Economy passengers not checking a bag) — is to make the product so unpleasant that customers won’t buy it, and hopefully spend more with the airline, rather than with a different airline like Southwest or Jetblue, instead.
- In other words the Basic Economy strategy is to get customers to choose their airline product on something other than the basis of price.
- And both United and American have claimed that about 50% of passengers do buy up — choosing product over price. (Leave aside for a moment those who are booking away entirely and choosing another airline without Basic Economy restrictions.)
- Which means — contrary to conventional wisdom — that they do not care only about price.
For a long time I suggested that, along the lines of Kirby, it made sense to match the lowest fares offered by ultra-low cost carriers. After all those fares are generally still higher than marginal cost, so if the airline is doing their job properly in revenue management (and only selling seats at these fares that would have gone empty otherwise) they make money.
However I’m increasingly of the mind that it’s a mistake for the big legacy carriers to be pricing themselves like Spirit Airlines in the first place, followed by offering the same inferior inflight product. They’re never going to have the low cost structure that Spirit has. In order to make money they need to earn a revenue premium, and they can only do that with a product customers actually want to buy.
United and American should be promoting a better product, rather than reinforcing a brand that says they do not have a better product to offer.