American Makes Choice Fares What They Should Have Been When They Launched

When American and US Airways merged, there were plenty of people assuming that the airline would use a blunt instrument to increase revenues; we’d see flights slashed and fares skyrocket. What seems to be happening instead is that the airline is revisiting many aspects of its revenue generation capabilities and tweaking in more subtle ways. The clearest example of this so far? Changes to American’s Choice fares.

When Choice fares launched at the end of 2012, I had trouble understanding how the math worked, but I wanted to give the airline the benefit of the doubt. It now appears that the math didn’t work, and we’re seeing some big changes.

American Airlines Choice Fare Changes

The Choice Essentials fare was $34 more each way over the regular fare. It included 1 free checked bag, priority boarding, and no change fee. That was a pretty hefty benefit for not a ton of money. For an additional $10 each way, you could get the Choice Plus fare which also came with 50 percent bonus miles, free same day changes, and one drink. So the Essentials fare had the meat while the Plus fare was fluff.

It appears that the structure of this has changed dramatically. The price of Choice Essentials has now dropped to only $29 one way, but the change fee benefit is gone.

So now, you get a checked bag and priority boarding for $29 one way. A checked bag is $25 alone, so you’re paying $4 for priority boarding. You probably don’t care about priority boarding, but American figures this would be a good way to get people to prepay for a checked bag and then make a little extra revenue as well. There’s no cost to American to offer priority boarding so it’s just gravy if someone buys it.

Meanwhile, Choice Plus becomes a much bigger draw. It still includes all the fluffy stuff from before, but now it’s the only way to get that change fee waived. And American is now admitting that it was severely undercharging for that benefit before.

The Choice Plus fare is now $51 more per direction, or $80 more than the base fare.

Does this make sense? Absolutely. Will travelers like it? Of course not, because it costs more to get the same benefit. Either the new management team has a very different view of how this should work or a year’s worth of data has given them more ammunition to price this correctly. I’m going to guess it’s a little bit of both, though clearly the new management team is leaving its mark here.

I’d like to think that this is just a first step because it’s not perfect. After all, this Choice Fare product is a very clunky solution. It’s part of the filed fare as opposed to an add-on bundle, so that means it’s subject to the US 7.5 percent excise tax. It’s also very difficult for travel agents to book, even though it looks simple on the airline’s website. Even basic things like how it’s displayed on the website could use some help. (Why is it so hard to determine the value of each line item individually?)

As American continues to push forward on direct connect capabilities, I would think that the airline would pull these bundles out of the filed fare and instead be offered as a dynamic bundle. That would allow for the flexibility to change what’s included in each bundle along with the price. But maybe I’m getting ahead of myself here.

The point in the short run is that American is discovering two things here. First, to tempt people to buy-up at all, American is lowering the cost of the first buy-up level. Sure, the benefits dropped as well, but that’s not as important when it comes to optics. People may be tempted to prepay for a bag and then get that bonus priority boarding for just $4 more. Once American has convinced someone to consider the upsell, then they can offer the big buy-up with the more substantial change fee benefit.

The other thing American discovered is that it was clearly undercharging for the change fee waiver. This should be painfully obvious. Remember, when American launched this, the change fee was only $150. (Choice fares are only available within the Continental US.) Now it’s $200 and the bundle pricing hadn’t changed at all. So clearly this was due for an adjustment.

Is this going to have a huge impact on travelers? Probably not in a meaningful way. But it will allow American to make more money with the assets it has.


26 Responses to American Makes Choice Fares What They Should Have Been When They Launched

  1. Jared says:

    I just wish that for those that have status or the credit card that already comes with the bag and priority that you would get the option to just purchase up to choice plus for $51…

    • MeanMeosh says:

      The way it works is, you get 1 additional free bag in addition to your regular allowance. If you have the credit card, you’re effectively paying $29 for a second checked bag, and if you have status, $29 for a third. Of course, the Group 1 boarding doesn’t do you much good in either case, but you do still receive the benefit of one extra bag.

      • Jared says:

        I didn’t realize that but seriously, how often to people (especially elites) check 2 bags on a domestic flight? Haha.

        • MeanMeosh says:

          I think I’ve taken advantage of the 2 checked bags once in all the years I was an AA elite. My entire family was flying to Seattle for a cruise, and since my wife and I both pack light, we took two of their bags to save them the $70 they would have paid for them otherwise. But yeah, in almost 8 years of having that perk, I used it all of once.

    • CF says:

      Jared – That’s the kind of thing that they’ll want dynamic bundling for. This is the same kind of thing I talked about with United when I was there in December. If you have someone who is elite, you might want to offer Essentials but it would look different than what you’d offer a non-elite. I’m sure they’ll get there eventually.

  2. A says:

    Can’t comment with respect to AA but on Delta they give priority boarding away to anyone with the Skymiles Amex card. That puts a someone who can qualify for a credit card in the same boat as a the lower level elite status, i.e. the elite status is devalued. (And suddenly everyone is zone 1 boarding!!!)

    I like that AA wants to put a value to priority boarding, but it’s only effective if they don’t give it away for free to card holders. In the world of checked bag fees those bin spaces have value and they fill up fast. Also, I’d like the option to only buy the priority boarding and not the checked bag, see above for why.

    • LT_DT says:

      Having the AA credit card does give you better boarding, but it’s not entirely free since the card has a $95 annual fee.

    • CF says:

      A – You can purchase priority boarding alone at check in if you want. US Airways sell it bundled with priority check in and security (PreferredAccess). But I think this is all about the upsell. You have someone who needs to check a bag and maybe doesn’t care a ton about priority boarding. But when they see it’s only $4, then they might go for it.

  3. Dale says:

    Those without status might care about priority boarding especially if there is a carry on to go in the overhead. Think of a traveller without status who is carrying on a guitar. Choice Essentials would be just what the doctor ordered to assure a place in the overhead bin for the guitar as opposed to checking it and risking damage such as what happened when United broke a guitar.

    • Hunter says:

      Technically, no. A guitar does not comply with the published carry-on size requirements, so purchasing priority boarding doesn’t guarantee you’ll get to carry it on (although we all know enforcement is inconsistent, so it’s really a crap shoot). The only guarantee to that is to buy the guitar a seat.

      • David M says:

        I think the guitar bit was mostly an example as well as a way to get a dig at United. I did purchase priority boarding once from AA; I was traveling with a suitcase full of relatively fragile items, so I wanted to make sure I’d have overhead bin space and not have to check it. It was $9 for HNL-LAX-SAN, and worth it for the peace of mind. Of course, LAX-SAN was a CRJ-700 so I had to gate check the roll aboard suitcase for that leg anyway, but at least it was a shorter flight and less time and exposure to the baggage handling systems.

      • Alex Hill says:

        Actually, technically yes. American specifically allows guitars as a carry-on. From : “Exception: guitars over 45in / 114cm can be carried onboard as your only carry-on item if there is room available to safely stow it in an overhead bin or approved stowage location in the cabin. Please ask at the check-in desk on the day of departure”.

  4. Craig says:

    I think the problem with this move is that it so significantly diminishes the value of Choice Essentials that it may prevent customers from getting to a point where they consider the now-far-more-valuable Choice Plus fare.

    With Choice Essentials, for $29 each way, I get a checked bag and priority boarding. But if I’ve checked a bag (and presumably don’t have a large carry-on), boarding in group 1 doesn’t get me anything significant for the $4 AA is seeking above the checked-bag fee. I’ll be surprised if significant numbers of travelers see enough value in Choice Essentials to make it worthwhile, particularly when they are not certain whether they will be traveling with a carry-on or checked bag on a particular flight.

  5. ORD Rich says:

    Cranky

    Have yet to see a article on the new UNITED carry on
    restrictions… Not all Airports doing it yet… United
    is enforcing size of carry on effective March 1..
    Even trying to have First Class have restrictions..
    Businessmen will never go along with this…
    Only have seen 1 gate at ORD doing it and
    a gate in BOS Nothing on West coast yet..

  6. Carl says:

    These products probably only make sense for non-elites anyway. And at the $80 price point, which I assume is really $160 for a round trip, it’s not much of a savings vs. the $200 change fee. I don’t think they’ll be selling very many at $160, unless it is to a non-elite who knows they will check bags and that the trip is tenuous or has great likelihood of time/date adjustments. I assume this is only a waiver of the change fee, and you still have to pay up for any fare increases, which are likely if you have to change close to the date of travel.

    • CF says:

      Carl – Yes, you would have to pay the fare difference, but if you’re changing your return, that might not be an issue. Usually when changing the return, you can use the original ticketing date to calculate. So if the same bucket is available, then you would pay nothing if you had the change fee waiver.

      I think there are a fair number of people who check bags and are infrequent fliers. They’re somewhat nervous, and they like the idea of having some flexibility. Maybe the pricepoint is too high. I suppose they’ll see if there’s much uptake now that it’s shifted. But it’s probably better to price too high and sell too little than it is to price too low and sell too much.

  7. JayB says:

    I check air fares often, daily, sometimes hourly. There are probably better things to do with my life, but transportation prices, particularly air fare ticket prices have been a major part of my life, working and now just for pleasure.

    Yes, “night coach” fares were a very big deal when CAB finally approved them. “Joint” fares have always intrigued me. But fares like “Choice” fares, however many different “choices” there are, who cares. Well, I know who cares: the airline wanting to sell up and confusing its customers just enough to get away with it.

    Just the price please, thank you! Skip the category. But thanks, Cranky, always interesting even if I barely have a clue what you’re talking about.

    • CF says:

      JayB – Before you write this off as too confusing, go to AA.com and do a domestic search. I don’t think it’s all that confusing for someone on the website. I wish there was more disclosure about how much each item costs alone, but it’s still pretty clear what you get when you buy the bundle.

      • JayB says:

        Clearly I have a problem with what I view as unnecessary complexity in what I believe should be the ability to buy a ticket to ride. The personal computer, websites, you would think would have made things easier, but no, it’s just given the airlines the ability to add confusion.

        Whenever I see the word “options” I become suspicious that you are trying to confuse me, make things more complicated than they ought to be. Don’t confuse me with, well this is a normal excursion fare, and well, that’s a promotional fare, one includes this and the other, that. And, of course, I still have the opinion there ought to be a seconary market for ticket exchanges, like an AirStubHub, if you will. (I know, you don’t think much of that.)

        I wish things were so simple that you could simply buy a ticket at any kiosk in any community in the country. Like maybe an off-track betting parlor, but someplace where you could simply buy the ticket like you were selecting the grade of gasoline at your local service station and making the transaction.

        No, the airlines have come up with so many things to confuse the purchase, making it just impossible for the average potential customer to know what to consider and how to understand what is there to consider.

        To me, the industry has made airline ticket purchase one of the most confusing types of purchase most people will ever deal with. Consequently, so many people say: “Forget it! Let’s get in the car and drive or, too often, let’s not go at all.

        I know, a broken record here, but whatever. Thanks for your posts/comments, regardless.

        • CF says:

          JayB – I actually love the idea of a secondary marketplace. The problem is figuring out how to actually make that work. For an airline like Allegiant, which is point to point with no connections, it’s easier to work out. But it’s incredibly complex otherwise.

          As for simple fares, leisure travelers would end up paying a lot more while business travelers would often pay less. It’s not going to have the result that many people would like.

  8. George says:

    Geez Louise!!! After yesterdays article about Sky Pesos and this on this fee goes up, that fee goes down, it is obvious the management of the big 3 is in the hands of Laurel and Hardy, The 3 Stooges, and Abbott and Costello. The airline pricing model is broke-I’ll bet the airlines really don’t have a clue what it really costs to carry a person from Point A to Point B. Some regulars on this board have said it, and I’m beginning to think the are right-reregulate the airlines at least when it comes to fares. And on something totally different-last weeks article on de-hubing Cleveland-talk about adding insult to injury-the 30 plus page supplement in the United inflight magazine was about….wait for it…..You guessed right-Cleveland. It included a one page spread on the airport, and how the future looks bright.

  9. ABC says:

    “I would think that the airline would pull these bundles out of the filed fare and instead be offered as a dynamic bundle. That would allow for the flexibility to change what’s included in each bundle along with the price. But maybe I’m getting ahead of myself here.”

    Pretty sure this is due to technical limitations which eventually will change.

  10. Alex says:

    Extracting further revenue from the fare structure seems to be a smart move by the new management. However, I think its far too early to imply that blunt instruments won’t be used to increase revenue. I believe there will be plenty of flight slashing and fare increases in the coming years to the benefit of the airlines and detriment of travelers.

  11. Andrew B says:

    I thought the original choice essentials was a great deal for a non-elite flyer – I think i have a perfect example. I am a DL elite who needed to fly to GCK – an airline only served by AA. I booked a roundtrip from DCA on AA for a reasonable $279 roundtrip and tacked on the choice essentials, figuring that a.) I was going for a wedding and this way I could check a hanging bag for my suit, b.) I’d have zone 1 boarding (after elites) so I wouldn’t have to worry about bin space for my carry-on, and c.) the no change fee was alluring only because I was booking 5 months out, and who knows what might happen.

    As it turned out, due to work, I wasn’t able to go to the wedding. When I went to cancel, I was expecting to receive a small AA credit, of my $289 minus the change fee – I had totally forgotten I had bought the bundle some 4 months earlier. I was thrilled when the agent told me that I was due the full amount.

    This came in handy when planning a one way DCA-SJC (or SFO/OAK) trip on DEC 22 that was insanely expensive on every airline. Delta, my preferred choice was $750 one-way. AA was the cheapest at $342 one way, which after my $289 I was able to apply was a no-brainer.

    So to sum up: for a non AA-elite: old choice essential was a great deal.

  12. Maarten says:

    So… for $29 I get to check my bag and board with priority. But what is the point of boarding with priority if I don’t need overhead bin space for my bag?

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