Money & Business

The State of Basic Economy Fares

By / Sep 11, 2017 (franckreporter/iStock/Getty Images Plus)

Not every airline is hopping on board the basic economy train, but some of the airlines that are have found mixed results from the approach. While United Airlines rolled back the offering, American Airlines expanded it. Here’s what travelers should know.

United Airlines was aggressive when it came to pushing basic economy seats, which it introduced as its no-frills equivalent to the offerings from low-cost airlines like Spirit or Frontier.

This kind of approach, analysts argued, was necessitated by the entry of these low-cost airlines into the market, which had the effect of depressing ticket prices.

“It’s impossible to underestimate just how important the effect of low-cost carriers are on a given route,” Consumers Union’s William McGee recently told The New York Times.

But United found something surprising from the strategy: It was costing them sales.

Last week, when the airline spoke about its financial picture during an investor meeting—on top of admitting challenges caused by the impact of Hurricane Harvey—the company’s chief financial officer, Andrew Levy, noted that the airline’s basic economy fares, which both drew controversy in the media (an issue for the airline this year) and allowed competing airlines to offer better value for the same price, ended up costing it business. That has led United to roll back the offering in some markets.

“We pushed it hard,” Levy explained, according to Skift. “We were aggressive. We took some risk, and in this case, you can look back and say maybe we could have done it this way or another way. I don’t think taking risks and failing occasionally—if you want to call it that—is a bad thing.”

Clearly, United’s take on basic economy has proved unpopular. But is the idea of offering limited amenities for the lowest possible price dead in the water? Not so much. In fact, American Airlines recently expanded its basic economy service —and is even considering a similar offering on international flights.

The difference may come down to strategy: American Airlines was very careful in its rollout, only putting it in a few markets at a time, while United put it in every market at once.

In an analysis, Skift reporter Grant Martin suggested that American earned an advantage on adding the seating option as a result of this approach.

“As American’s basic economy product continues to grow, it may see some of the same challenges that United did,” Martin wrote. “If it can learn from its rival’s mistakes, however, American may soon be the leader in domestic and international basic economy fares.”

The jury’s still out on whether basic economy—with a lack of amenities like overhead bin access and limited seating options—will stick around, but for now, one thing is clear: With all other things being equal, consumers still prefer amenities.

Ernie Smith

Ernie Smith is the social media journalist for Associations Now, a former newspaper guy, and a man who is dangerous when armed with a good pun. More »

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