AA and United Set to Compete with Budget Carriers Like Frontier and Spirit

Delta first introduced Basic Economy fares which offer reduced amenities and flexibility relative to standard economy class tickets back in 2012. The bare bones fares were available in select markets in order to compete with low cost carriers such as Frontier and Spirit.

Since then, they expanded into significantly more markets and now the other two big domestic carriers, United and American, have recently announced they will be introducing Basic Economy fares as well.

The Logic of Basic Economy Fares

When many travelers come across Basic Economy fares for the first time, their natural assumption is that these fares are cheaper than standard economy fares would have been on the same flight absent Basic Economy. Unfortunately, this is not true.

What the airlines are doing with these fares is reducing benefits for the lowest priced tickets (to be similar to low cost carriers) and increasing the prices of higher fare classes. For example, if a route previously had no Basic Economy fares and a standard economy fair was $300, you can expect a Basic Economy fare introduced on that route to cost $300 and a standard economy fare to be higher.

The tactic is intended to further segregate the market so that people willing to pay up for the extra benefits of higher fare classes will do so, resulting in increased revenue for the airlines. That assumes that angry travelers don’t take their business elsewhere, but now that Basic Economy is about to become so prevalent, there may not be much of a choice.

United Basic Economy Announcement Details

United’s announcement of Basic Economy fares has continued its long tradition of copying almost everything Delta does with respect to program devaluations. United will begin selling Basic Economy fares in January 2017. The details of Basic Economy fares are as follows:

• You will not be permitted to select seat assignments prior to check-in or makes changes to the seat you are given.
• No ticket changes will be permitted. This means that even if you are willing to pay the standard $200 change fee you are out of luck. You will lose the entire value of the ticket and must buy a new one if you need to change anything.
• No full size carry-on bags will be permitted, though you may still bring a personal item (purse, backpack etc.). This restriction will not apply to elites including Star Alliance Gold members or to co-branded credit card holders.
• These fares will not be eligible for elite upgrades.
• Elites will not be eligible for Economy+ seating.
• Non-elites will not be permitted to buy up to economy+ seats. Elites will effectively have to start paying for Economy+, on routes where Basic Economy fares are being offered, in the form of a higher fare.
• United MileagePlus members will receive no elite status credit. This applies to qualifying dollars, segments, and miles. However, you will still earn redeemable miles on Basic Economy fares.

There are a few interesting takeaways from these new rules:

Earning Elite Status – Frequent flyers who want to earn or maintain United elite status will likely feel compelled to avoid Basic Economy fares since no elite qualification miles, segments, or dollars will be earned on these flights. This is especially rough for business travelers stuck in a United hub. They (or their employers) will now be forced to pay for more expensive fare classes in order for all that business to be worth anything in the form of elite benefits. This, of course, is the motivation behind the airlines’ tactics and it may work to the extent that travelers cannot move their business to other airlines.

Carry-on Baggage – Many readers may be wondering how exactly United plans on screening passengers to make sure no Basic Economy ticket holders try to sneak a full size carry-on bag onto the plane. United will put all Basic Economy travelers into boarding group 5. Gate agents will be trained to know that group 5 passengers are not permitted a full size carry-on bag. Gates will have payment processing equipment in place so that agents can process full size carry-on bags as checked bags. Flyers will have to pay a processing fee in addition to the standard checked bag fee. This increases the value of co-branded credit cards such as the United MileagePlus Explorer card from Chase, since a benefit of this card is priority boarding. Cardmembers can fly on a Basic Economy ticket and get both a free checked bag (current card benefit) and a free carry-on bag (by virtue of not being in boarding group 5).

Family Travel – Basic Economy travelers do not get to choose advance seat assignments, meaning they will be stuck with whatever is available at check-in. This will make it more difficult, and often impossible for families to be seated together. This could create another category of travelers (low volume leisure travelers) induced to pay up for a higher fare class.

Comparison: United vs Delta

Now that we have details of United’s plans we can do a proper comparison of Basic Economy fare rules. United has made things worse than Delta in multiple ways and we sincerely hope that another round of copy-cat race to the bottom devaluations doesn’t ensue.

Future Developments

The process of having United gate agents screen and charge for full size carry-on bags is sure to cause a spectacle on more than one occasion. Customers will inevitably argue with agents who are already pressed for time, slowing the boarding process and leading to frustration all around. We wouldn’t be surprised if this one area where United ultimately relents.

American will also begin selling Basic Economy fares beginning in 2017, though the details of their fare rules are not yet known.