Basic Economy: 73.6% of Statistics are Made Up

In February I wrote that JetBlue was considering basic economy. Now they’ve announced they’ll do basic economy next year.

They’ve been pressured by investors to go to bag fees, less legroom, and now a fare that’s designed to make the product worse in hopes customers won’t buy it — and will spend more for a higher fare instead.

What strikes me as interesting is the belief that they can just raise fares and make more money. If that were true they’d just raise fares. What’s more nuanced about basic economy is,

  • It tries to raise fares on people who are less price sensitive, instead of everyone
  • In particular many businesses hide basic economy fares, so airlines can keep competing on price but not for managed business travelers

However we already know that United lost about $100 million when they rolled out basic economy, because other airlines simply offered more value at the same price than United. They doubled down on the strategy. We also know that American has had to relax restrictions on its basic economy fares because customers were booking away, especially onto Delta whose fares were less restrictive.

Southwest Airlines remains the largest domestic carrier. They fly more passengers domestically than anyone else. And not only don’t have they basic economy, they don’t have change fees. And they don’t charge for first or second checked bags. So there’s competition.

Nonetheless everyone believes basic economy works because airline executives keep repeating that it’s true. It was supposed to be a billion dollar idea and yet once implemented the revenue benefits don’t clearly materialize in the financials.

We keep hearing things like 50% of customers buy up to a higher fare, which strikes me as like “73.6% of all statistics are made up.”

  • The universe of customers really isn’t defined, are we talking only about customers on the airline’s website?
  • And what about customers who do not book on the airline at all because of basic economy, choosing another carrier entirely?

Moreover any time you hear such round numbers, be skeptical. Any time those numbers never seem to change much, be skeptical. Any time multiple airlines report the same number, be skeptical.

Basic economy was described as working at American — and then they changed it because it wasn’t working. Now that they’ve changed it, that’s working too and it’s as if the 50% buy up claim never existed.

According to [Robert] Isom, restricting big bags alienated many customers who would have otherwise booked basic economy; they saw only 20 percent of customers were interested in the fares. After the change, that number jumped to 80 percent.

There’s a group think in airlines, and among airline analysts, and in the feedback loop between them. I do think by the way that since companies generally own a portfolio of airlines, rather than just one, they’re pushing for higher fares which benefits the industry as a whole even if it doesn’t any airline individually. Sometimes investors push an airline to do things that actually hurts its bottom line, since it could boost share prices of the portfolio of assets they hold.

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 InsideFlyer.com, 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 »

More articles by Gary Leff »

Comments

  1. Since I mostly book Delta, I don’t know about UA or AA booking experience. On Delta, after booking basic economy, a pop-up window, says that you can book for around $50+ more and get a variety of included extras. If 50% of people pick those extras, there is your statistic. Are 50% of people picking those extra options? We may never know. I think the Big3 are fooling themselves that this is a way to compete against the LCC. The discretionary traveller already books way from the Big3, mostly to Southwest. In certain markets Spirit/Allegiant get the most price conscious travellers, who generally have given up on the Big3. Basic economy is a last ditch effort to get some of those travellers back. But UA and AA still don’t get it.

  2. Something to keep in mind also: If you have a co-branded credit card with United, you are spared pretty much every negative aspect of basic economy. So for someone like myself, they are actually lowering the price, and giving me an incentive to choose it. Which unless I’m going overseas in Business, I ALWAYS do for domestic flights under four hours.

  3. BUT United has started a crappy practice on their basic economy check in process. Basic economy passengers are required to get their boarding passes from the ticket agents- no pre-printed or scanable boarding passes even for Global Entry flyers.
    WHY? perhaps they want to hassle you and check that your personal item is small enough OR they want you to just buy up on your next flight to avoid the hassle again. I DID I booked my next flight on SWA for a few dollars less ++++ the top end benefits

  4. Yes rolling out basic economy was a great idea
    KoSouthwest profits from the stupidity of the legacy carriers as a result sa

  5. I don’t know what your problem is with basic economy. It makes sense to price window/aisle and early boarding groups at a premium.

  6. > since [investment] companies generally own a portfolio of airlines, rather than just one, they’re pushing for higher fares which benefits the industry as a whole even if it doesn’t any airline individually. Sometimes investors push an airline to do things that actually hurts its bottom line, since it could boost share prices of the portfolio of assets they hold.

    This is a feature of capitalism, not a bug. Maximizing investor value is what capitalistic companies are supposed to do, so Basic Economy is working very well in a free market. I don’t know what your problem is with it: are you asking for regulations against it so that shareholders make less money?

  7. Basic Economy wasn’t such a bad idea, but Delta seeking short term gain in not joining it completely (limiting carry-on) brought it to a fail. I’m happy to see that UA still tries to hold it strong.
    It was a good step into the direction of solving the current ‘not enough overhead bin space’ problem.

  8. While I can say I have never flown basic economy, I can say that given the restrictions and everything I’ve read about it, even CitiExec, CitiAA, Barclay AA & AA biz cards…I won’t be trying it. Perhaps some young millenials can fly with no luggage or go through all that crap to save $20 or $50, I’ll switch carriers if I’m not using points and just pay more…I don’t like being forced to pay for things that should be included in the cost of a ticket and really don’t like the idea of buying a ticket that gives them the right to treat you like garbage because you didn’t want to pay $1600 for a 3 or 4 hour trip in Biz. Like the one guy said, SW is fairly decent and gives me my luggage free. I flew a Spirit flight years ago ATL to LAS and it was actually not too bad and back then it included bags plus carry on luggage free. At least with them, you know its cheap and don’t expect much up front, when you get it you are pleasantly surprised. Very disappointed in AA.

Leave a Reply

Your email address will not be published. Required fields are marked *