Last year, American Airlines revealed a new billion dollar category class for their airlines, Basic Economy.
Many attempts have been made in the past to segment economy class, particularly upwards with a premium economy to capture more passenger dollars. This has been very successful for some airlines such as Qantas who show record performance.
American has taken the unique position of creating a lower economy category, Basic Economy. This following photo from their website explains the difference.
But that billion dollar dream is starting to shatter, with American recently revealing that it is just not working.
Why is Basic Economy failing?
Remember, different flying categories such as economy or business are just segmentations of the same base product, a flight between two destinations.
The basic economy section concept has been tested out by both legacy carriers United and American.
The logic behind United was that instead of improving their product and categories, they would make a worse category so they could charge more for their original product.
Passengers wised up and started to compare United’s normal economy offer to their competitors, making United lose $100 million in passenger trade to competitors. After all, you are charging $50 more for cabin baggage, seat selection etc, that is normally included. Passengers are not comparing your offer to other categories on your plane, but to competitors who fly the same routes!
Southwest, for example, does not charge for the first two checked bags, a massive win over the other airlines and squarely placing it as the most popular domestic carrier of 2017.
With American, they started to lift some of the more outrageous restrictions on Basic Economy (Passengers are now allowed to bring full-sized carry-ons on board and use the overhead bin), leaving only United with the original set of rules.
American has claimed that passengers are increasingly aware of what they want from a flight. Passengers say they need luggage and want to choose a seat, and thus will buy a plane ticket according to the price including those items. If a flight on Delta was the same price and included a bag, then it was an easy sale for the competition.
Thus American has said that their Basic Economy has ‘slightly’ underperformed:
What their expectations originally were with the class is unknown, but the performance has been bad enough that they have decided to admit it to their investors.
What has been the reaction?
Even passengers are hitting back on Basic Economy.
It’s a nightmare for their employees trying to police who gets to carry on bags and who doesn’t and it just creates chaos when flights are delayed and or cancelled – Mark @ Viewfromthewing.com
Their complaints range from mixing with the type of passenger who always flies the cheapest possible and that it was a mistake for American to try and compete with the likes of Spirit.
However, some critics have claimed that it is not a failure, that the Basic Economy model is working just fine and that America is still just tweaking the concept. After all, United has decided to not change their Basic Economy model, other airlines like Porter are bringing it in and favorites JetBlue are flirting with it.
Only time will tell!
Feature image: Laird Kay