Despite the poor performance of Basic Economy, it doesn’t look like it’s going away. American is expanding Basic Economy system-wide soon.
Gary over at View from the Wing, as always, had an excellent write up on American’s recent quarterly report and earnings call. The call had a lot of interesting information on the world’s largest airline. But what jumped out at me the most was American’s decision to roll out Basic Economy systemwide.
It Doesn’t Make Sense
United hasn’t been hiding the fact that its Basic Economy hasn’t been selling well. They’ve even gone on record saying that they’re losing business to American as a result of their Basic Economy roll out. Of course, United also expects to regain lost customers once American completes its roll out of Basic Economy.
Despite United’s experience with the product American still plans to push ahead with its Basic Economy roll out. Even though they acknowledge the gains they’ve received as a result of United’s Basic Economy. Better yet? American acknowledges that they will experience “some share shift” once they implement Basic Economy. They believe that the product is essential to further boost revenues, estimating that 50% of passengers will choose to upgrade.
American is Expanding Basic Economy Final Thoughts
I’m not expert and don’t pretend to be one. However, if American not having Basic Economy is benefiting them, even marginally so, why implement the product. American very well may make more money with Basic Economy in the short term, but how will it play out long term? And don’t forget that Alaska, JetBlue, and Southwest don’t have plans to roll out a similar product. So given a choice, passengers may choose to move their business to one or more of these airlines.
Of course, there are passengers that simply won’t have a choice. Those living in the Dallas area, for example, will likely have to deal with American’s Basic Economy for at least some of their travel. And perhaps it’s those captive markets that American (and United) is counting on? At any rate, it’s clear (as I predicted) that all Basic Economy is a money grab. It isn’t about increasing competition, it’s about further increasing profitability.
If AA can offer basic economy at a lower price than WN offers their standard fares; then the average once-a-year joe traveler will pick AA. A lot of people dont know the difference between airlines or just don’t care. That’s why spirit is still making record high profits quarter after quarter despite their bare bottoms everything.
That’s what AA, UA, etc. are saying that’s what the purpose of basic economy is. But, in practice, others’ experiences have been that at least UA’s basic economy fares have often been higher than the ULCCs. True, some routes are cheaper, but not all.
Fare isn’t the only concern when flying. For me, IROPS is a big deal. When you fly Spirit, Frontier, Allegiant, etc and there is only three flights a week, you are totally ****** if your flight is cancelled. There is no “just catch the next flight”. The next flight is in two days. For me, flying the legacy carriers and super regional carriers (HA, AS, etc) is the only way I’ll go.
Exactly, KS77. Unfortunately, offering Spirit-level fares isn’t AA or UA’s goal. Basic economy is simply another money grab… another way to ripoff customers.