How a $1248 Upcharge Has American Airlines Chasing Business Customers Away

Basic economy is an attempt by the major airlines to raise revenue by offering a worse product.

  • Basic economy fares generally do not allow seat assignments at the time of booking, so customers may get stuck with ‘what’s left’ like a middle seat in the back by the lavatory.
  • They can’t be changed, so if you buy a ticket and plans changed instead of a change fee you forfeit the whole fare.
  • Board last which if you’re on Delta, American or Alaska with a carry on bag you may get stuck gate checking it when they run out of room.
  • In the case of United, their fares are the worst, you aren’t even permitted to bring a full sized carry on bag on board.

The notion here is that the cheapest fares get called basic economy, and you have to spend more to avoid those restrictions. It’s a price increase that applies to customers that are willing to pay more to avoid the least comfortable travel an airline offers.

Originally these fares were conceived of as a way to compete against ultra low cost carriers. If Spirit was going to charge $49 one way, and American felt they needed to match the fare to avoid losing the business, then gosh darnit they were going to make sure the product customers got wasn’t better than Spirit’s.

Initially of course the thinking was mainline airline products would still be better with more room and the ability to put customers on other airlines when things went wrong. However American has been squeezing more seats into planes and their policy is not to put coach passengers on other airlines when things go wrong unless those passengers have elite status.

Meanwhile Spirit has plans to add inflight internet, and even participates in PreCheck now. The difference between the ultra low cost carriers and majors has been shrinking.

Basic economy isn’t deployed only against low cost carriers though, it’s in most markets and has gone international too, because it’s about a price increase and not just a competitive tool.

And though it’s often thought of as about an extra $20 each way that’s often not the case. When you see $400 buy ups to avoid basic economy that isn’t a mistake.

Instead it’s how airlines are re-asserting pricing power over business travelers. Many companies won’t show managed travelers basic economy fares. So airlines can offer cheap tickets to compete on price, while still showing only high prices to corporate customers.

Advance purchase and Saturday stay requirements used to separate business and leisure travelers, so that leisure customers buy cheap fares and business customers more expensive tickets. Those tools are mostly gone, and have been replaced by basic economy.

As long as businesses go along, the strategy works, even though it means that buy up for leisure travelers to get a seat assignment or be eligible for an elite upgrade can be prohibitive.

At the same time, sometimes airlines simply push things to far — such as American Airlines over the holidays. A reader shared the trip they were trying to book, London – Denver – Rome, and buying an advance seat assignment cost more than an extra $1000.

There’s a certain extent to which the strategy is understandable, American wants to charge business travelers more for the seat than leisure travelers. But there they make two mistakes.

  1. Thanksgiving and Christmas travel there simply are no business travelers

  2. Instead of picking up the $1000 from this customer, he went and booked an award ticket instead.

The cardinal rule of frequent flyer programs is that saver awards aren’t supposed to displace paying customers. Except airlines only think in terms of their own saver inventory. Here he used miles to fly Lufthansa business class instead of American coach. American’s overreach pushed this Executive Platinum customer to redeem miles and fly another airline instead.

United lost about $100 million rolling out basic economy, because American didn’t yet offer the restrictive fares so customers were choosing not to fly United. American got rid of their carry on restrictions from basic economy, because customers who wanted to bring carry on bags were choosing to buy tickets from Delta instead.

There’s a delicate balance here as airlines try to be all things to all customers, simultaneously offer the worst possible product they can as well as something that isn’t as bad for more money. Their ‘business versus leisure traveler’ models aren’t as simple as they sometimes believe. Business travelers are leisure travelers and telling their 100,000 mile business customers that they cannot fly the airline for the holidays is another recipe for chasing those customers away.

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 »

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Comments

  1. “Instead of picking up the $1000 from this customer, he went and booked an award ticket instead.”

    Assuming he went and booked that award ticket on AA, AA might actually see that as a more accounting-positive transaction than the $1000. Especially if it was a standard award.

    And cherry-picking extreme BE fare differences is no more meaningful than cherry-picking those odds inventory cases where cheap business (or PE) is available but only full-fare Y is.

  2. @ Gary — OMG! Even I would take the $53 ticket, and I haven’t flown Y for about 1 million miles now….

  3. UA not allowing any kind of elite status earning or carry on bags with BE is asinine. I hope they fire Scott Kirby and Nocella one day. It’s a terrible airline being run into the ground by two hacks who shouldn’t even be running Ryanair.

  4. I m all for OPM flyers subsidizing our low fares. I’d rather see $53 and $486 than all tickets going for $250.

  5. The old Saturday Night Stay requirement was, objectively, stupid. But it was good for airline profitability as it separated out business travellers (who will typically pay more) from leisure travellers (who will only pay less).

    Basic Economy seems partially motivated by the same principle. I think it’s very wrong to assume that “stupid” disparities between regular economy and basic economy fares are “bad” for the airlines. Sure, it may be unfair to business travellers, but it’s likely to be good for airlines’ bottom line. Since your website seems to be written to benefit savvy individual travellers who pay their own way, I would suggest re-orienting your thinking. Don’t worry if this is bad for AA, but teach your readers how they can play the airline’s game to their own advantage. I know I do. I recently bought a $69 Basic Economy fare on AA when the cheapest coach fare was over $500.

  6. AA and BA both suffer from a case of wanting to be a ULCC and a “Premium” carrier. Unfortunately, this strategy has lead to them being bad at both options. If you want to be viewed as a premium brand then actually offer a premium service, take pride in it, and market the fact that you’re a cut above the rest. If you’re going to be a cheapie brand, at least have the decency not to pretend otherwise.

  7. Not a fan of Basic Economy by any stretch (flatly refuse to fly it), but comparing a Basic Economy ticket to a FULLY REFUNDABLE Main Cabin ticket is extremely misleading.
    In fact, in your posted example, the first class ticket is $11 cheaper than the $486 Main Cabin ticket.

  8. “UA not allowing any kind of elite status earning or carry on bags with BE is asinine. I hope they fire Scott Kirby and Nocella one day. It’s a terrible airline being run into the ground by two hacks who shouldn’t even be running Ryanair.”
    ==========
    @Ray, United is doing just fine and isn’t going anywhere near the ground. They’ve overtaken American in profitability and closed the margin gap on Delta. You need to read up on their financials.

    After their $100 million mess up last year that Gary mentions they cut back Basic Economy to just the lowest fare buckets and the revenue has returned (and more). And they are not following AA in allowing the full size carry on. Part of it is that it reduces the number of carry ons that need to be gate checked at departure, meaning they hit D:0 more often, have a better ontime performance, fewer missed connections which helps reduce costs. UA’s non-fuel unit costs went DOWN year on year in the last two quarters, while their unit revenues soared. Now remind me, how’s AA doing with that D:0 thingy?

  9. @chopsticks, I’ve been reading over on FlyerTalk that the Saturday night stopover rule is quietly being brought back, as a way to differentiate between business fliers and leisure travelers as a way of offering cheap non-basic economy for leisure travel/family visits. Plus, some of the cheap transatlantic fares on the mainline carriers require a 7 night stopover, that’s 7 nights in Europe so returning 8 days after departure.

    That works fine for me. I’m originally from the UK and have close family there, so my business trips to Europe work out both fulfilling, and cheap for my employer.

  10. Day before Thanksgiving is hardly a typical LHR-USA transAtlantic (or anywhere within the USA) day for a fare compare, as with pre-Memorial Day 2019. And the non-BE default was for a fully flexible coach fare which in the domestic case higher than the F fare. Hit dogs vs caviar!

  11. USBusinessTraveller –Interesting observations about reintroduction of Sat. night stay requirement. Makes logical sense for the airline.

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