A Closer Look at American’s New Fare Structure

As planned, American yesterday pushed ahead with its rushed efforts to restrict the selling of lower fares through traditional third party channels. The plan shifted a little since the fares were first filed last week. The current arrangement is a surprisingly simplistic plan that doesn’t appear to take competitive dynamics into account. Today, we’re going to dig into the details.

When American flipped a switch yesterday, it created a hierarchy of fares within three categories. In theory there are some fares which can be booked directly with American only, but those are so far being used very sparingly if at all. There are also the fares which can booked directly or through third-parties who use the newer NDC connectivity. Lastly, there are the traditional fares which can be booked by any third party using NDC or traditional methods.

If you missed the discussion last week around what American is doing, you can read up here. I won’t rehash in this post.

Once American went live yesterday, I started poking around to compare what those booking tickets in Global Distribution Systems (GDSs) using traditional channels will see versus those using GDSs (or other systems) that take NDC content.

Main Cabin Results

To start, I went into random weekdays in September with the Cranky Concierge team, finding where availability was wide open in order to avoid availability-related noise. We looked at every single September nonstop market from the Phoenix hub to try and find a pattern. And you know what? There was one.

Lowest Selling American Non-Basic Economy One-Way Fare from Phoenix in Different Channels

An important caveat here is that we ignored Basic Economy entirely. These fares are no longer sold through traditional third party channels across the board, so there is no comparison to be made. Instead we looked at the lowest fare in what American calls Main Cabin. Markets with only blue columns mean the fare is the same in all channels. If you see a red column stacked on top, that’s the additional fare amount on top of the blue that makes up the lowest selling fare in traditional channels.

The chart above shows a lot of outliers, and those are to be expected. For example, I doubt they mean to have Grand Junction be so much more in traditional channels. But when you change your entire fare structure, there will be those kind of errors that get fixed over time.

What we see overall here, however, is a distance-based strategy being put into place. This chart is actually sorted by distance from Phoenix from left to right. Phoenix to Eugene is 952 miles while Portland is 1,009 miles. That’s also where there seems to be the first clear divide in the fare structure.

For flights under 1,000 miles, it seems American wants to be selling in the $170 range as a floor for traditional channels. If the lowest fare in the market is at that point of higher, then the price won’t vary by channel. But if the lowest fare is below that point, American will sell the low fare direct or using NDC but then increase to the $170 range for traditional channels.

Once you get over 1,000 miles, it jumps $50 to the $220 range where the same division is made. And over 2,000 miles, it jumps again to about $300 though that’s a small sample size. (Washington/National is just under 2,000 miles while Philly is over.) Lastly, we have Hawai’i in the $350 range.

This isn’t perfect, but you can very clearly see that shape come together more broadly. Of course, this was just looking at Phoenix, so we had to broaden the search to look at all kinds of different markets. The result is confusingly the same. Why is that confusing? You would think that American would be more concerned about raising fares in traditional channels in highly competitive markets, but that isn’t the case.

We looked at very competitive markets, especially those dominated by another airline like Chicago – Newark. That one is $113 via NDC but $179 in traditional channels. There’s a $23 difference from Chicago to Houston, and a $65 increase from LaGuardia to Syracuse where Delta flies nonstop and American doesn’t. Very competitive routes from New York see a premium too, like Nashville which is $104 via NDC or $168 via traditional channels. I would have assumed that American would have made changes depending upon competitiveness to help blunt the potential of losing too many bookings, but it doesn’t appear to be doing that… yet.

We also looked at markets where everyone all options connect, so there is no notable schedule advantage for one airline versus another. Maybe, we thought, in those markets American would be afraid of losing more traffic since it’s otherwise equally competitive. But if you’re flying Richmond to Buffalo, it’s $140 via NDC and $185 in traditional channels. The dozens of examples we searched all seem to get close to this idea of having a dividing line as we saw in the Phoenix example.

What About Blue?

It gets even weirder up in the northeast where American and JetBlue have their Northeast Alliance (NEA). Remember, the airlines are allowed to coordinate with each other on scheduling but not on pricing. Despite that, I’m sure you’ll be shocked to hear that a clear pattern has developed here as well.

Let’s look at the Boston – Washington/National market, a key business market that has flights operated by both American and JetBlue at different times of the day.

Lowest September Main Cabin Fares Boston – Washington/National by Channel

What we see is that JetBlue — not having the ability to differentiate between NDC and traditional channels — has simply stopped selling fares that American only sells through NDC channels. Even if you go on JetBlue.com, you will not see a fare that matches American’s lowest-selling NDC fare. Remember, they can’t coordinate by law, but JetBlue has made a decision here that undoubtedly makes American happy.

Meanwhile, American has entirely stopped selling fares on codeshares operated by JetBlue through traditional channels. This is particularly remarkable consider how they have carved up different markets. For example, American ceded the Boston – New York/LaGuardia market to only be flown by JetBlue. That means it will now not sell any fare at all through traditional channels in that business-heavy market.

Going Flexible and Premium

So far I’ve focused specifically on coach fares, because that’s where it’s been the most interesting. In a strange twist, it’s the higher fare categories which have much greater spreads and are virtually unusable in traditional channels when availability is good. I always thought this effort was supposed to apply to lower fares more, but apparently not.

When this structure was first filed last week, refundable fares (which American files as Main Cabin Flexible) were not bookable at all in traditional channels. That appears to have been a mistake and it is now bookable, but you’re going to pay a hefty premium to do so.

Lowest Selling American Refundable Economy One-Way Fare from Phoenix in Different Channels

And then there’s First Class. American bookings for First go into J, C, D, R, and I from highest to lowest fares. American will now ban any R or I fares from booking in traditional channels, so the premium is… rather large.

Lowest Selling American First Class One-Way Fare from Phoenix in Different Channels

I find this entire strategy perplexing, but then again, maybe it isn’t a strategy. Maybe it was just a simple way to implement this with future strategic tweaks to come. That’s actually what’s so particularly frustrating for people dealing with this change. There is nothing being said about what people can expect to remain for sale in traditional channels. This implentation could change tomorrow and American wouldn’t have to say anything about it. The airline can just adjust fares to sell as it sees fit.

At least for now, this is the plan… for domestic. The airline has already filed international fares in Latin America, but it hasn’t turned on the restriction that blocks many fares from being sold in traditional channels. That will come soon, presumably, and then we’ll see it follow in Asia and Europe.