A funny thing happened on Tuesday when both American and United officially filed their first Basic Economy fares in the market. (If you aren’t familiar with Basic Economy, read this.) I had been waiting for this a long time, because while we had known what the program attributes would look like, we didn’t know what the fare levels would be. Now we do, and one thing is clear. The two airlines are taking different approaches in how they test these fares.
American Tests Markets
American started selling Basic Economy in 10 different test markets. The markets appear to have been chosen strategically while the fares themselves are pretty uniform. In general, here’s how American has set this up.
- The lowest fare in the market is the same, but it’s now Basic Economy instead of regular coach, meaning you get less for the same price you would have paid a couple days ago.
- Basic Economy will only be offered when relatively low regular coach fares are available (G bucket and below, for those who know what that means). In those cases, regular coach fares will be $20 each way above Basic Economy.
- When low regular coach fares are not available (meaning G and below buckets are closed for sale), there will be no Basic Economy fare offered. Those higher fare levels have not changed from where they were previously.
- The old lowest First Class fare has increased $20 each way as it remains tied to the regular coach fare, not Basic Economy
In other words, what we have is an old-fashioned fare increase on the lower-end fares. Where American is trying to vary things is in the market selection. Here is how I’d describe the markets that were selected.
| City Pair | Length of Haul | Level of Low-Cost Competition |
Route Type |
|---|---|---|---|
| Miami-Tampa | Very Short | None | Leisure |
| Philly-Charlotte | Short | Low (Frontier) | Hub-to-Hub |
| Charlotte-Orlando | Short | Low (Frontier) | Leisure |
| Miami-New Orleans | Short | None | Mixed |
| Dallas/Ft Worth-Tampa | Medium | Moderate (Spirit/Southwest) | Leisure |
| Philly-Ft Lauderdale | Medium | High (so many) | Leisure |
| Philly-Miami | Medium | Low (Frontier) | Hub-to-Hub |
| Philly-New Orleans | Medium | Low (Frontier) | Mixed Leisure |
| Dallas/Ft Worth-Baltimore | Medium | Moderate (Spirit/Southwest) | Mixed |
| Dallas/Ft Worth-Philly | Medium | Moderate (Spirit/Southwest) | Hub-to-Hub |
I’m just making this matrix up, but you can see the point. American went into a variety of different markets with the same basic fare structure and it wanted to test them out to see how they’d perform before rolling Basic Economy out further. This was about commercial acceptance of a set plan and not about operational success. That’s very different from how United approached it.
United Tests Fare Levels
When United made its announcement, it focused on an unlikely place: Minneapolis/St Paul. United chose to launch Basic Economy from there to all 7 of its hubs and nothing more. The markets may have varied in distance but not much else. This seems to have been designed on the surface to test it out operationally. It was easy to try to focus on making the airport experience work in Minneapolis (and the hubs, of course), while also dealing with that good ole’ Midwestern politeness that the airline undoubtedly hopes will make for smoother sailing in the early days.
United and American are similar in that they both set it up so that the Basic Economy price will be tied to the regular coach fare, but United didn’t just restrict Basic Economy to lower fares like American. Every coach fare has a Basic Economy counterpart, even the highest $1000+ coach fares. United has gone and broken its regular coach fares into two categories. There’s Economy, which is non-refundable, and there’s Economy Flexible which is refundable. The spread versus Basic Economy is different in each category, and it varies by market. Take a look.
| City Pair | Lowest BE Fare Compared to Previous Fares | Spread Between BE and Economy | Spread Between BE and Economy Flexible | First Class Change |
|---|---|---|---|---|
| Minneapolis-Chicago | $15 lower | $15 | $5 | None |
| Minneapolis-Denver | No Change | $20 | $5 | Increased $20 |
| Minneapolis-Houston | No Change | $20 | $5 | Increased $20 |
| Minneapolis-Los Angeles | $25 lower | $25 | $5 | None |
| Minneapolis-Newark | No Change | $20 | $5 | Increased $20 |
| Minneapolis-San Francisco | No Change | $25 | $5 | Increased $25 |
| Minneapolis-Washington | No Change | $20 | $5 | Increased $20 |
Now there’s a lot of noise here, so, as they say, your mileage may vary in specific situations. I was just looking at the filed fares and this is what I saw on a general level. These tweaks scream of President Scott Kirby wanting to test little variances. I don’t know for sure if he actually did, but I can just hear Scott telling the team to make it a $25 premium in San Francisco instead of $20. Every little difference can be measured.
While I like United’s approach to making this work operationally, I do have problems with the structure. The mere $5 difference between Basic Economy and Economy Flexible is frustrating and obnoxious. That’s a lot of money to spend on something for it to be completely non-refundable, non-changeable, and heavily restricted. That’s especially true considering that for $5 more it could be completely and totally refunded with a variety of other perks involved. I think it adds unnecessary complexity and it’s going to anger more people than it’ll help. It’s not worth the $5 for just about anyone.
Of course, these are the early days. For United, the fares aren’t for travel until April 18 while American made them for travel beginning on March 1. You know it won’t be long before the levels start changing and the markets start expanding. So get used to it now. The genie is officially out of the bottle, and it’s not going back in. Now it’s all about finding the structure that’s going to make sense for each airline.
