Mergers create a brief window where customers are largely protected from devaluations. Airlines are distracted by merger integration, and don’t want to make customers feel like the merger will be bad for them right away. Once American Airlines moved to a single reservation system in October 2015 we learned about a gutting of AAdvantage the next month both for elite status qualification and benefits and for their redemption chart, and then the rollout of basic economy the next year.
Alaska Airlines right now has by far the most lucrative US airline frequent flyer program. Their award chart is far more attractive than that of their competitors. And they’re a better airline to fly. That may change.
When United Airlines first rolled out Basic Economy they lost about $100 million in a span of a few months. They were confident once other airlines went along they would stop losing money. In the meantime customers could get a better deal at the same price booking a different airline. American Airlines dutifully goes along with whatever is in the best interests of their competitors.
In the U.S. today Southwest Airlines, jetBlue, and Alaska don’t offer Basic Economy fares. They offer customers better value at their lowest prices.
However Alaska Airlines told investors that as they push forward integrating Virgin America, they’ll be looking at Basic Economy too. Here’s Andrew Harrison, Alaska’s Executive Vice President and Chief Commercial Officer,
[W]ith a single reservation system, we will be able to address up sell and segmentation opportunities which the legacy carriers are executing on today and that we have not been able to participate in. There are a number of ways for us to participate. Basic economy is just one of those, fare families and ancillary bundles are others.
Alaska thinks that right now they’re leaving $100 million on the table. It’s going to take some time, and they say they don’t know what their version of basic economy is going to be like. It may not be identical to what United and American are doing (denying full sized carry on bags for instance or in United’s case refusing online check-in for basic economy passengers who aren’t checking bags).
However Shane Tackett, Alaska’s Senior Vice President, Revenue and E-commerce is ‘looking forward to’ telling investors what /basic economy at Alaska will look like.
I think that Andrew mentioned segmentation, obviously, basic of sort of where everybody else has gone. We have modeled the impact. Andrew just mentioned, we think it’s north of $100 million once it’s fully out and running and sort of optimized, which that would take some time. I would just say, other airlines, I think, it took a year or more to get to market and sort of fully roll it out to every, their network. I think some of them are still expanding it now into international.
And I think we’ll go faster than that. We certainly are going to be motivated to be faster than that, but it’s not something that’s going to hit like Q2, as an example. And I’ll just say we haven’t decided on what this would look like for us. And it could be something that’s like basic, we tend We tend to not do me-toos of sort of the network carriers. Our business is little bit different. It usually doesn’t need the same product set. So we’re looking forward to being able to talk with you guys in the future call about what this might look like for us.