American Wants Employees to Understand Why They’re Offering a Worse Product to Many Customers

Kerry Philipovitch, American’s Senior Vice President of Customer Experience defends the idea of Basic Economy fares in the latest “Tell Me Why” podcast aimed at the airline’s employees.

She says that without Basic Economy “we’re going to see our most price sensitive travelers leave us” — as though stripped down fares are necessary to offer low fares, and even though immediately after she explains that American had been offering fares that match ultra low cost carriers before Basic Economy.

Philipovitch describes Basic Economy as a way to “level the playing field” because low cost carriers were upselling customers after selling them tickets, while American had been including their services with the ticket. She says these fares that don’t allow customers to select seat assignments when they book their tickets, don’t allow customers to make changes even for a fee, and don’t allow customers to bring full-sized carry on bags onboard as “a win win.”

    American Offers Paid Seats for Basic Economy 48 Hours to Departure

Her complaint is that before Basic Economy American offered a better product at the same price. Which is always what I thought the goal was supposed to be in business.

Of course contra her explanation American is not just offering Basic Economy fares in markets where they compete against ultra low cost carriers like Spirit Airlines or Frontier. They’re offering it on most domestic routes and flights.

Basic Economy is a price increase that targets customers willing to pay more to buy out of a subpar experience including managed business travelers who aren’t presented Basic Economy fares.

It’s also a way to devaluing the American Airlines brand. It’s a way of ensuring American Airlines no longer means a full service travel experience. And it’s a way of telling frontline employees that the goal isn’t providing a top tier product to every customer every day.

United initially lost $100 million in their roll out of Basic Economy as customers chose other airlines with better products at the same price. So they doubled down on their bet, knowing American would follow them. Perhaps both airlines will generate incremental revenue from basic economy, accounting games notwithstanding. But there’s a real cost that won’t be captured in those numbers as well, the reputational hit they take with premium customers.

Listen to the full discussion:

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, 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 »

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  1. @Gary
    you have unleashed the rage of IAHPHX now, and he knows, after all, he reports straight to the drunk in dallas, you will also be called the laughing stock of AA management and a cry baby, but the majority of frequent fliers agree, although I have to admit, like everybody says, the vast majority of the flying public looks for the cheapest price, does not know about basic economy and for their once a year trip to orlando, they don’t really care….sad but true
    I went from flying between 75 and 100 k miles a year with AA for the last 10 years, to flying the same amount of miles with everybody else and literally zero miles with AA
    That said, I am aware that this has no impact on the company

  2. These rants are pretty pointless – airline execs don’t want unsolicited advice and you are preaching to the choir.

    There are only 2 solutions, both of which are improbable:
    (1) stronger regulation requiring detailed up front disclosure of all ancillary “fees” or (2) customers vote with their feet by avoiding BE fares and ULCCs (trend seems opposite).

  3. I actually prefer Spirit to AA. No, seriously. The seats have more legroom, the price to reserve a seat is reasonable, and the fares are great. I’d encourage AA to work on improving to at least to match Spirit.

  4. You are spot-on re this entire topic!

    As a marketeer, I was always impressed with airline marketing from the 1960s thru mid 1970s. The concept of pure customer experience-in all classes-was terrific. What could have been better than flying F on TWA’s 1011, Delta’s 747, or National’s DC10? Now, it seems as if the airlines are filling their marketing slots from the ranks of Amtrak.

    As a pundit on rail transportation, I am curious if AA and UA are not massaging the numbers to show how profitable Basic Econ is? Why should their Boards be expected to be different than Wells Fargo?

    As these carriers have pushed to the sidelines their marketeers by the “green eyeshades,,” particularly at AA and UA, the financial gurus have no concept how they have destroyed their carefully marketed product and negated whatever positive brand they thought had been built.

    Do the finance folks have even the vaguest idea how Lufthansa survives against all the cheap competition? Certainly not by dropping to that level, as Lufthansa respects its brand and how it is acknowledged for its Customer Experience.

    Caveat-those who follow airline financial data, be weary that those numbers have not been manipulated as it is now so well known and acknowledged how Amtrak has ignored GAAP to focus its resources just on the Northeast Corridor., at the behest of Amtrak’s Board.

  5. Everyone thinks that the Ma and Pa Kettle that only buys tickets once a year does not matter. I think they do matter. If they show up on a basic economy fare on AA, and find out that they have no baggage and they have to buy up. The will never forget it. Because they do not read blogs, they would not know that the airline has changed. So for the next 40 years (one or two flights a year) will be on a different carrier.

    This differs from myself, who reads this blogs, maintains status, and flies a lot. If AA or UA or DL undid their unfriendly policies, I might start considering shifting back, although I am now a loyal Alaska Airlines flyer.

    To me, I think airlines are doing permanent damage to their long term bottom line, and I do not see any way out.

  6. I don’t get what your problem with basic economy is. It is simply price discrimination (in the marketing sense, not something nefarious) and unbundling. Those who are price sensitive and willing to sit in the middle seat and not use overhead bin space should pay less. Yeah, maybe standard economy will go up a little in price, but at least now you will very rarely pay standard economy and get stuck in the middle seat.

    The airline industry is a highly competitive, low profit margin business. You just get your rocks off bitching about anything and everything AA related. If you don’t like them, don’t fly them. You have options.

  7. How about applying some game theory to the process of choosing a flight? For example: If 2 people were flying together in E- , they might choose a window/aisle near the back, hoping the middle is one of the last to be filled. If that couple considers that the airline might just assign that less desirable seat to a “basic”, it’s a disincentive for that couple to choose that airline or those seats.

    Here’s another: If an airline combines unreserved and reserved seats, the unreserved “basic” customer is almost guaranteed a middle near the back. On an airline with unreserved or first come seating, your chances of getting an aisle or window are much higher. In fact on a completely full unreserved flight, 2/3 of passengers would end up with a window or aisle, and that percentage goes up as load declines.

    I’m sure there are other ways to show that it’s probably better for both the higher paying customer to choose away from mixed flights, as well as for the lowest paying customer to choose another airline.

    It’s also seems pretty trashy listening to those boarding announcements explaining how the last boarding group get only one personal item, etc. , even if one is not in the “ghetto” boarding group.

  8. Knowing the mindset of management that implemented basic economy, this former ExPlat, instead of
    Ignoring Spirit and Fromtier for domestic flights, will now consider them. Because AA would rather be an LCC and the real LCCs can have a better experience than AA

  9. Seems like AA had it figured out when they had the deep discounted fares without the limitations. That made them better than the competition by giving customers the full experience at a price competitive with the those that give less.

    By the way @doug, your comment about “the [guy] in Dallas” is incredibly offensive and unnecessary. It reminds me the fact that anonymity and an internet connection bring out the very best in people.

  10. This is the a perfect example of implementation of US Air policies and programs at work. Lest anyone forgets, Useless Air purchased AA and kept the name since AA was the legacy carrier and US knew what a terrible product they had. Philipovich came from US Air and really doesn’t care about customer experience. I had written her a letter in Dec about an issue that I had and as an AA EXP flying over 200K miles/yr and spending over $100K, one would have thought she would have reached out to me. Rather, a minion called me – someone who couldn’t even pronounce her (Philipovich) name and basically gave me the “party line”. AA has lost the loyalty of someone who flew them almost exclusively for over 30 years – not that they seem to care, but this is the way of the business today

  11. I have a LOT of AA miles, but when I redeem them for international flights I ALWAYS fly on a oneworld partner airline. In economy the seats are roomier, the legroom generous (I am 6’3″ & 246 lbs.) and the food generally better. My last flights were on Cathay Pacific. AA’s international economy product is simply sub-standard compared with so many of their partner airlines. A lot of it is due to the wage differential between them and their foreign partners.

  12. Two vantage points from this writer: AA Lifetime Platinum, frequent “off the record” conversations with AA employees.
    Parker does mean it when he wants to be sure AA “never loses money again.” He will avoid losing money at any cost. Even if it erodes the customer and employee base.
    Perhaps we became spoiled by the prior patterns where airlines kept their planes flying when they lost money indefinitely.
    That was also the time when working for an airline had a connotation of prestige. Too big to fail.
    Times have changed. Gary is right that this, again, it is the best of times, but, sometimes it is the worst of times.

  13. HI Gary, after 9 years (maybe 500.000 miles) flying AA i gave up….
    I believe that each time that the board of company cut some cost, the employers understand like a “gave the worst service ever …. ” cuttem all the food, drinks and smiles…

    For me is that what ware happened year by year …

    I´m Brazilian and gone to Vegas las week by LAX.It is a joke.. the flight atendennts showing um little bottle of water and a small juice in hands, talking loud and tall: choice just one … how if this a million dollar prize ….

    AA gave somethings good , like new planes, they never had canceled flights, ever in time ..etc..
    But year by year, cuttem something of customers … number of miles to issued tickets for free bigger anda bigger, a poor gain of miles in yours own flights .

    It´s worse in a long time … costumer have a better choice in one disputed market like US.

    I´m was Ex Platinun last year .. today i´m not fly with them…
    I recevied a Premier 1k of United free of charge, with the obligation de voar only 35.000 miles.

    Tchau Americam …

  14. Just looked at booking a basic economy fare – nowhere when booking this fare on does it indicate that there is no free baggage allowance. Actually, it turns out that after paying to check a bag, the total cost is more than a normal Y care. So it’s a big scam and it’s far from transparent. Time for government regulation again.

  15. I’ve come to respect the basic economy decision. AA should be able to offer a similar bad product as the low cost carriers if that is what the market wants. I’ve come to a decision to not buy BE seats. In my experience, they are barely cheap enough to justify lack of seat selection and the half-credit for EQMs and EQSs. It’s taken some training not to buy the ‘cheapest ticket’ on (at the same time, I’ve started making better decisions about flight times. Now, it doesn’t seem as bad spending the extra 20 bucks for a better flight time whereas for years I always thought that the any savings is ‘worth it’ because I get to the same place anyways).

    My biggest complaint about the Basic economy is really a tangental one — and that is the large number of seats that require an ‘upcharge’ when you buy a REGULAR discounted economy fare. I have a few flights coming up and the number of seats to select without a charge is frustratingly limited. The 2-3-2 configuration 757s are particularly bad because AA will block all the aisle seats on the 2-side as a ‘preferred seat’, and the only place i can select without paying a (sometime outrageously high fee) is in the last 10 rows in the middle 3. At that point, I might as well have bought the basic economy fare and been thrown in any old seat. If you make seat selection one of the big differences between basic and regular economy, then at least let your non-elite regular economy ticket holders have an actual seat choice of consequence.

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