United Missed a Real Opportunity to Make Basic Economy a Good Story

When United’s Basic Economy rolled out last month, I was generally in favor of the idea. The goal of offering a differentiated product to target the most price-sensitive travelers is smart, but it’s more than that. It’s necessary. Yet within days, the world was up in arms over the idea that United was going to start charging for carry-on bags. What could have been a good story was buried instantly, and much of that is United’s fault.

Just look at the press release and you get a quick sense of where this went wrong. Basic Economy was officially rolled out at investor day, targeting the Wall Street types, but the airline obviously knew this would be huge news for the traveler as well. So how does the airline introduce this to the consumer? With this press release headline:

United Sets Course To Be Best Airline For Employees, Customers, and Investors

A headline like that instantly sets off the bullcrap detector. It smacks of consultant-speak. The release went on to use all kinds of buzzwords… “more choice for customers”… “provides the added benefit for customers and employees of simplifying the boarding process,” you get the point. This launch somehow didn’t even warrant its own press release; it was buried in a laundry list that covered everything being revealed at investor day. For a company that just hired a chief storyteller, you’d think it could have done a better job of, ahem, telling a story here.

Instead, the media was looking for a simple story and this is what they heard: It’s like Delta’s Basic Economy but you get no carry-on bag or elite qualifying miles. Hearing the words “economy” and “no carry-on bag,” the media ran with headlines like “United Airlines to Charge Extra Fee For Using Overhead Bins” and “No more free overhead bin on United: Is an extra fee for oxygen next?” It became so rampant that there’s now even a Snopes entry to sort out the truth.

Not enough? Let’s get the feds involved. Sen. Al Franken (D-MN) wants this stopped, as does Sen. Chuck Schumer (D-NY).

It gets worse. The story has staying power. USA Today ran an op-ed yesterday chastising United (it did run a sensible and far-too-short opposing viewpoint as well) using rhetoric through which it’s easy to poke holes.

What a mess. United lost its chance to control the narrative. Part of it is because of the timing. The airline launched this months ahead of it actually being available for sale, so there are still unanswered questions that can’t be discussed (like pricing). But it was more than that. The story just wasn’t presented properly.

What is the Story?
I’m not a PR pro, but were it me, I’d make this the story (a bit tongue in cheek).

You know how you’ve always hated sitting next to someone and finding out you paid $400 more for the exact same experience? It took us decades, but we finally figured out we should be listening to you more, and this is the first big step forward. Now, we’re working to truly differentiate the experience so the next time you find out you paid more than someone else, there’s a good chance you’ll have something to show for it. At the same time, if you really just need the cheapest fare possible, for the first time, we have a product specifically built for you.

This is where United should have taken my advice and put that fantastic Polaris branding effort to work at the lower end. (I still vote for Uranus.) 2016_06_07 united uranusAnything that differentiates this new offering from the existing economy product is a good thing. I actually asked CEO Oscar Munoz about this in the as-yet-unpublished part two of my interview, and he mentioned that they thought it would be too confusing and instead decided it best to use Delta’s terminology. I see it differently.

Instead, using Delta’s terminology makes it look like United is just once again copying Delta here. That’s happened so many times that people are starting to be trained to just assume that’s the case. And I’ll assume that’s right. But it doesn’t mean there isn’t a good story underlining why this is a good idea, regardless of how it came about. It does make a lot of sense when you think about it.

The Building of the Story
What you have is a new product that is truly targeting the price-conscious for the first time. United is losing those price-conscious passengers to whomever is cheapest on any given route. And increasingly, those passengers are going to the ultra low cost carriers (ULCCs) Allegiant, Frontier, and Spirit.

USA Today thinks it’s being cute with paragraphs like this one:

The airlines’ spin on this is they’re offering price-sensitive customers what they want. Frankly, we haven’t heard many customers clamoring for less or complaining that regular economy is just too luxurious.

Funny, because while USA Today may not hear people “clamoring for less,” I hear it all the time. People want fares to be less. And if that means giving up something on the product, many are more than willing to do it. If they weren’t, then Spirit wouldn’t be in business.

The current strategy for competing with ULCCs is to match fares in many markets, but it’s not sustainable systemwide. United may be making healthy profits now, but if the ULCCs continue to grow fast, those profits disappear. It’s not about United cutting existing fares in the market. It’s about United trying to find a sustainable way to offer really low fares on a grand scale. United wants to avoid having the US look like Europe. Here’s what I mean:

Europe US ULCC Comparison

Keep in mind, the intra-Europe market is smaller than the domestic US market, so this is a striking difference. ULCCs absolutely dominate short-haul travel in Europe, and they continue to grow. There are hundreds of routes that you can only fly nonstop if you fly on a low cost carrier. These aren’t just tiny routes either. You want to fly from Berlin to Barcelona? That’ll be on a low cost carrier. Same goes for Manchester to Geneva or Budapest to Copenhagen. The legacy carriers have retrenched to their hubs, and even those aren’t safe. Ryanair has finally broken into highly-controlled Frankfurt. Paris sees a growing complement of low cost carriers arriving. And Alitalia is being decimated not just by its own ineptitude (though yes, that’s part of it), but by the invasion of ULCCs into Italy. On long haul, low cost carriers are ramping up ranging from Norwegian over the Atlantic to the Gulf carriers heading through the Middle East. There is no safe place for European airlines.

In the US, it hasn’t gone that far, primarily because Southwest Airlines prevented ULCCs from being necessary for many years. But Southwest’s fares have climbed dramatically in the last decade, and that has created real opportunity. The ULCCs in the US are several years behind Europe, but they are growing fast. United can’t be complacent. It needs to learn how to compete. Unlike its European brethren, United has learned that low cost carrier-within-a-carrier schemes aren’t the answer. The best answer today is to provide a range of different offerings on the same airplane to cater to different groups and their different needs. One of those offerings is a barebones product that caters to the traveler who only cares about price. Another is Polaris and its sleep-focused business class product. People will self-select into the option that fits their needs best.

Is this the right answer? It’s a new effort, so we’ll have to wait to find out. But I’m in the group that believes it is. I just wish United had done a better job of telling this story.

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50 Comments on "United Missed a Real Opportunity to Make Basic Economy a Good Story"

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grichard
Guest

I don’t see how this is a winning strategy. Even if it’s properly executed, the best-case result is that the major carriers can offer lower fares to cost-sensitive consumers without offering lower fares to consumers willing to pay more. It’s more-efficient price discrimination, but it doesn’t change the airlines’ cost structure.

A ULCC will always be able to match the fare at lower expense. Where’s the win?

The only thing I can think of is an attempt to drive ULCCs out of business, but that seems… unlikely… with this sort of strategy.

vasukiv
Member
If a seat on United is going empty because the price sensitive passenger is going on a ULCC due to cheaper fares, the new Basic Economy fare may entice people to stay with United. Even if United’s cost structure stays the same, it’s a win for United because they are getting that ticket revenue they otherwise would have lost to Spirit/Frontier/Allegiant. This presumes, of course, that they only offer a few seats per flight on the Basic Economy fare and that they judge the demand for ‘regular’ Economy and Basic Economy correctly. Their investor day presentation stated they realize their… Read more »
grichard
Guest

Yeah, hard to argue with your logic in principle. Seems like airlines have discovered, though, that the better answer is improved load factors leaving fewer empty seats to begin with. And they seem to be much better at this than previously. So in the sense that this product will fill otherwise-empty seats, it seems like a small change, and not likely to affect their competition with ULCCs.

Jon
Member

And it’s most important to note that the LCC and ULCCs VERY often offer direct flights. If I want to fly STL to RSW, I can fly for 5hrs with a layover in ATL/ORD/CLT on the legacies or I can fly for 2 hours direct on WN. When the pricing is nearly identical, I’ll take the airline without the nickel and dime fees.

I can’t be the only consumer making that decision.

PR
Guest

Those are not direct flights, but non-stops

Chicago Chris
Member

Completely agree, Cranky. United completely missed a huge opportunity to steer the narrative. It felt like they wanted it to just blow over, but it got much worse. Even on social media their responses to concerns were anemic.

Given the handling of the Polaris ramp up it seems United got too focused on the premium passengers. Sure they account for a large portion of revenue, but there are a lot of people who cycle through the basic economy seats and they’re the ones who (loudly) missed the point.

ChuckMO
Guest
What would have been truly revolutionary in product differentiation, would have been UA going in the other direction with baggage fees. Allowing one checked bag free in regular economy and charging for the carry-on and any checked bags in Basic. THAT would have shaken the US domestic market quite a bit. Then the media narrative would have been focused on the free checked bag rather than the charge for the carry-on. Of course that would have taken millions of dollars off the table, the shareholders would revolt and Wall Street would have lost their minds. But think of the positive… Read more »
Bill Hough
Guest

I agree completely. Airlines should charge an honest fare and stop with the nickel-and-diming.

jeff
Member

Why should the airline have to factor in costs into my fare for products I may not use but you do? Plus fares have transportation taxes that ancillary charges do not. It will never be completely fair to compare bundled and unbundled pricing vs costs because, unlike unbundled services, fares are only weakly correlated to costs for Airlines.

Hermann
Guest
Interesting discussion and I mainly agree – it comes down to differentiate the product as much as possible to have something fitting for every segment. Time and time again, it was shown that a very large group of passengers values price above everything, so if a low price is all they want, that´s what they should be offered – with services accordingly. No matter how much outrage there is about service reductions, it seems we actually haven´t found the service level yet that many people are not willing to go below if it is just cheap enough. Who would have… Read more »
Josh G
Member
Good points but I want to see how it’s executed before passing judgement. I particularly want to see how this goes over on a Monday morning at SFO where half the plane has Premier status and everyone in the boarding area feels on top of the world because they have XXXX status and work for YYYY start-up and think they can demand any seat they want and want to know they’re not on the upgrade list. Much of the successs of this initiative rides on the ability (and willingness) of the public contact employees to effectively administer this offering. At… Read more »
Kilroy
Guest
I have a lot of sympathy for the gate agents and the FAs, because enforcing the paid carry-on rule is going to be a pain and not fun. That said, I am (seriously) waiting for an airline to offer standing room only flights, with no carry-on luggage of any type, not even a personal item. I know the seat manufacturers have products for “standing seats,” and flying standby on a standing room only flight seems about as low as you can go. Sure, the FAA may throw a fit, but standing room works well for buses and trains, and for… Read more »
Jack
Guest

There are potential legal issues if an airline offers different pricing on standing room only tickets. Handicappped people who are unable stand (or stand for long periods) would not be able to take advantage of the lower fare. Therefore, you are offering a pricing advantage to non-handicapped people. This said, I think an airline will try it, but I could see this running into legal problems in the U.S.

A
Guest
I’ll agree that UA flubbed this one big time. Wasn’t even paying attention and heard all the news about carry-on bag charges. That being said I’m not a fan of the legacy carriers “race to the bottom” to grab ULCC traffic. For one they are differentiating their cabins too much. It reminds me of the old General Motors with a half dozen different brands for every price point imaginable. How’d that work out? In reality you only need a couple. Sure, ULCC’s are growing but how much of that traffic is coming from the legacies and how much are people… Read more »
James
Guest
Hi Cranky, did you see the news about Qantas launching non-stop Perth-London flights on 787-9? The bit that might interest you is how it involves the terminal situation at Perth Airport. Qantas wanted to operate the flights from its domestic terminal (for connecting flights to the rest of Australia), meaning the construction of new international facilities there, whereas the long-term master plan has domestic operations consolidating at the international terminal on the other side of the airfield (but at the moment that would mean a bus trip for connecting passengers). So the airport didn’t want to pay for temporary facilities… Read more »
David
Guest
I’ve read the United press releases – there seems to be very little mention indeed as to what sort of carry-on is or isn’t allowed with a basic economy fare. The only airline in Europe I can think of which charges for carry on luggage is Wizzair – but they do at least allow a small cabin bag – 42 x 32 x 25 cm (or 16.5 x 12.5 x 10 inches) for free and make this very clear on their website. Larger cabin bags are allowed, but you have to pay for them. United should have published something very… Read more »
David Matt
Guest

It appears it is getting even better there is now a petition on change.org against united and to elimimate the charge for overhead bin space. I see both sides of this coin. If u r purchasing the very basic fare, you are accepting those terms associated with it.

PeteyNice
Guest
I just don’t see how you can believe this. United has a high load factor, whatever revenue they are missing out on to ULCC’s does not seem significant enough to deserve this kind of effort. I also don’t see how that alone is enough to drive $1B in incremental revenue by 2020. No, this is about raising prices while not getting buried at the aggregators. The EWR-LAX $250 r/t fare which today includes carry-on, etc will still cost $250 as a basic economy fare but now all of that stuff will be extra. We’ve seen this movie before. JetBlue announced… Read more »
Oliver
Guest

Good post, Cranky. It really is a big opportunity to tell a story about offering choices missed by UA. I also wish they had committed to Premium Economy product as part of this, basically furthering the “choices” story.

David SF eastbay
Guest

An airplane isn’t exactly an oceanliner where you could put the cheap people in the bottom of the boat and the high end passengers up top where there was air to breath. A narrow body plane is still going to have coach passengers on top of each other and people will still get annoyed if the person next to them is getting something they aren’t or paying a whole lot less.

Itami
Guest

If anything, United should’ve taken a page out of JetBlue’s playbook when they first announced fare families. There was still brouhaha, but they largely preempted the criticism right out of the gate.

jaybru
Member
I will never understand managements’ ideas of pricing its service–flying from one city to another, in one of two classes (first and coach), in one airplane, or if it wants, one class in one airplane. Why do you want to mess with what your company stands for, quality-wise, by what the fare is? Sure, sell a million different fares, maybe one this minute, a hundred the next minute, half a million the next, however you want to spread fares out across all flights in the city-pair, a group of flights, or maybe just one single flight. Airlines, you build the… Read more »
Don livin
Member

Your right on target. As a 38 year customer service director for a major carrier Price is a consideration for about 60% of the flying public. Your not a bad PR person yourself.

JoEllen
Guest
Is this the answer ?, no, United. How about being REALLY DIFFERENT and just offer lower cost seating but still allow for carry-ons (like Delta). I’m so sick of all the subterfuge, “this is what passengers want”; “we’re hearing you”, baloney. You can poll a million people and of course the majority will opt for low fares but that doesn’t mean they want every other negative “experience” and more layers of confusion and ancillary fees (which don’t make up for the supposed lower fares anyway). Give it rest, United, we’re all sick of it. This, right at the time when… Read more »
southbay flier
Guest

If you poll the average person they will want low fares and lots of legroom and free food and multiple free bags. The market research of how people actually make their decisions probably show that people are very cost sensitive.

I had a friend of mine willingly fly NK for four hours and declare it’s fine for sleeping. I would find the same thing torture.

Sam
Guest

I think the biggest problem here is with online travel agencies. Someone may not get the option to upsell out of basic economy, or worse once stuck with it may avoid united in the future. Best idea would be to resurrect TED in name only and sell basic economy under a different airline code, but place it on the same metal. Customers wanting full service buy under a united flight number and customerers wanting basic economy buy under the TED flight number. You don’t dilute the United brand and can still compete with ULCC.

B.R.
Guest

This!

USBT
Guest

That’s possibly an ingenious way of doing it. Have a shell pseudo-airline set up purely to market and sell the Basic Economy fares as code shares. “AlmostNewLeaf operated by United”. Ted didn’t exist as a separate airline (just a brand) so they’d need a new one and flight code. I doubt it’d work though.

warren trout
Guest

If you don’t want the discount fares, don’t buy them!! Don’t force me to pay more.

stan
Guest
i am still at a loss in understanding how charging a lower price, but providing the consumer with no way to get any of the stuff they need to travel with on the plane except through and additional fee is actuallty a benefit to the consumer? please tell me. if cost of basic economy + charge for a carry-on capable of containing a weekend of stuff => cost of a normal economy fare with no carry-on restrictions, why would i but it? also if basic economy + charge for a carry-on capable of containing a weekend of stuff < cost… Read more »
Oliver
Guest

There are other differences (beyond carry on bag) between Basic Economy and regular economy. It’s getting lost in the brouhaha about united now charging for carry on bags.

TRC
Guest

I much prefer checking a bag, so with a Basic Economy fare, the ticket + checked bag may equal a “regular” economy fare, which would get me to buy because the carry-on is of low value to me. I’d love it if an airline moved to a “one free bag” system where the customer chooses whether to get a free carry-on or checked bag (with personal item still included).

Hey
Member

Seems to me since “Basic Economy” riders will board during last grouping, no checked baggage rule appears intended to ‘reduce’ number of carry-ons that require (free) checking at gate due to ‘no more room’ for bags.

When viewed this way, kinda makes since – though will be nightmare to police.

Yet, there is an ‘out – if ya wanna have carry-on rights, then purchase fare that permits you to do so!

Oliver
Guest

Why difficult to police? The last boarding group is BE and doesn’t get to carry on a large bag. Today the GAs typically force the last boarding group to gate check anyway because the bins are full. Really not much of a change. Perhaps UA will make the gate check fee $10 more than the regular bag fee to encourage people to not even take the carry-on sized bag to the gate in the first place.

Tim Dunn
Member
another good and high interest article, CF There are several reasons why ULCCs in Europe can’t be directly compared to low cost/ultra low cost carriers in the US. First, ULCCs in Europe started out using secondary and tertiary airports and had to offer very low fares to pull passengers away from the larger airports which the Euro legacies used. While the Euro ULCCs now serve a number of large airports, their reputation was built around a very discounted product that reflected their remote airports. Second, European legacies have not consolidated or been through Chapter 11 type legacies as US legacies… Read more »
USBT
Guest
I agree with Cranky and Tim that United could have rolled this out better. The fact that so many people are calling it “United to charge for carry on bags” when they’re not shows that UA didn’t control the narrative. However Tim – “If UA really wanted to copy DL’s Economy Basic fare (which is a fare product, not a cabin), then UA did not think through the logistics of how DL operates on a regular basis.” UA is *not* copying DL. They’re being much more restrictive to the non-elites wrt no carry on bag, and also to their elite… Read more »
southbay flier
Guest

I’m curious on how UA will enforce the carry on bag ban? Especially for those who either try to board before their boarding group or those who board right before they close the door.

DEN Flyer
Guest
As a business traveler with a travel department that is always looking to save a buck, I wonder how this is going to play out. I don’t fly as much anymore, but not earning any elite miles really gives me no reason to book United Basic Economy (I’m calling it s***conomy). Sure, as Silver I could check that bag for free, but after a few mis-routed bags or waits up to an hour at baggage claim, that game gets old real quick. And with no PQM’s, a year of s***conomy fares and there is no longer the free checked bag… Read more »
Oliver
Guest

Does your travel department force you to fly Delta Basic Economy fares? Many filter them out.

Kilroy
Guest

If your company won’t let you expense the cost of a carry-on bag on short trips (and the cost of a checked bag on trips over 4-5 business days), they are being penny wise and pound foolish IMHO and it is time to start thinking about finding a company that isn’t so cheap.

If the travel department is really being that cheap, get a few senior execs to make a stink about things and the bean counters should back down.

Mik
Guest

If United aspires to be like Spirit, its brand will suffer.

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