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Whether American travelers like it or not, basic economy fares are here to stay. All three legacy carriers — Delta, United and American (in that order) — have announced their own take on this bare-bones fare type. As a result, flyers face a new conundrum: Do they prioritize getting to their destination for a low price (with more restrictions), or do they pay more for amenities, such as carry-on baggage, that were once complimentary?
Representatives for the airlines say that their passengers demanded basic economy fares, while those advocating for travelers maintain that basic economy fares negatively impact the flying experience. When all factors are considered, do these fares actually provide a discounted option for seeing the country? Or do they create a false sense of savings for the passenger?
Basic Economy and the United States: An Economic Love Story?
From the beginning of the jet age, passengers traveling with US legacy carriers knew they would be treated to certain complimentary items while flying. Among these items were free soft drinks, a snack or meal and free checked bags.
By 1992, the seeds of change were planted by a relatively new airline executive. After visiting with Southwest Airlines on a fact-finding mission, Michael O’Leary returned to Ireland with a plan to turn around struggling carrier Ryanair. His plan consisted of offering discounted, “no frills” airfare, adding on prices for everything else.
In the US, this idea was unheard of, despite a high number of airline bankruptcies during the period. According to Airlines for America (A4A), more than 40 US carriers went bankrupt between 1991 and 2001, including major carriers America West Airlines, Hawaiian Airlines, Pan Am twice and TWA on three separate occasions.
As the struggling legacy carriers began a period of industry consolidation, international low-cost carriers were thriving. The formation of ValuJet in 1992 served as a test case for low-cost carriers and value fares, as the airline became the fastest in American history to turn a profit. However, after the ill-fated Flight 592, the airline also served as a cautionary tale of why outsourcing and minimal training could be dangerous cost-cutting measures.
The aviation industry faced a completely different problem after September 2001: terrorism. In the aftermath of the September 11 attacks, passenger traffic took a steep decline. As a result of the lost revenues, United Airlines was forced into bankruptcy on December 9, 2002. Other major international carriers, including US Airways and Delta Air Lines, also struggled during this period, as both airlines declared bankruptcy at least once.
By 2002, Allegiant Air took advantage of the economic conditions through offering low-cost flights to Las Vegas from smaller, under-serviced airports in the United States. To make up the difference, the airline charged for everything from carry-on luggage to advance seating assignments. Five years later, Spirit Airlines made a similar transition, charging small fees for checked baggage, and $1 per soft drink. The model proved successful, which caught the attention of the legacy carriers.
In May 2008, American Airlines would be the first legacy carrier to charge a checked luggage fee. Citing high jet fuel prices and dwindling passenger counts, the carrier announced a $15 fee for checking one bag on domestic flights. Less than a month later, United and US Airways announced they would follow suit, while Delta joined its legacy competitors in November. From there, airlines continued to cut amenities and add fees in the effort to become profitable. And the strategy worked; by 2016, the airline industry was collecting more than $1 billion in baggage fees alone per quarter.
The Argument for Basic Economy
The growth of checked luggage fees and the rise of low-cost carriers in the United States contributed to the addition of basic economy fares. Those backing the airlines say these changes weren’t brought about to drive airline profits, but rather were the result of passenger demand.
According to a 2016 Ipsos Public Affairs survey commissioned by A4A, 86% of travelers said they care most about price when it comes to determining which airline they fly. Furthermore, two-thirds of those polled in the study said they’d rather pay for airline tickets on an à la carte model, where passengers are charged only for the services they want, without being forced to pay for additional items.
Accordingly, legacy airlines have claimed that basic economy fares would cater to this audience of non-regular passengers who want the freedom to travel at a low price. In statements announcing basic economy fares, executives for all three legacy carriers (American, Delta and United) cited customer choice as a driving factor.
The Argument Against Basic Economy
Although the airlines claim the new basic economy fares are a result of passenger demand, there may be unintended consequences of the race to match low-cost carriers. Both business travelers and congressmen have decried the new fares as the latest money grab from airlines.
In an article published shortly after American’s announcement, The New York Times highlighted the reality for business travelers. In an economy where businesses want to save on airfare, travelers could actually end up paying more out of pocket for everything from extra legroom to a second checked bag. While Delta’s basic economy fares allow travelers to carry a bag and a personal item on board free of charge, American and United only allow basic economy passengers to carry a personal item on board (though elite members and co-branded cardholders have additional allowances).
Business travelers may not be the only ones feeling frustration with the experience. Shortly after United announced its basic economy fares, Senator Charles Schumer (D-NY) called on the carrier to abandon its planned fee for overhead bin access. The senior senator noted in a statement that the loss of the overhead bin could create major inconveniences for those passengers who were used to flying with two carry-on items, as was customary. Under United’s policy, those who bring a second carry-on bag without checking it ahead of the TSA checkpoint could pay up to $50 in additional fees: a $25 checked bag fee, followed by a $25 gate handling charge.
Is basic economy truly economic?
The rise of low-cost carriers across the country, paired with the profitability of airline fee tables, means all airfare could eventually move to the à la carte model. Passengers who want the extras that come with the traditional travel experience can purchase the “main cabin” economy ticket, while those who can get by with just a backpack are free to cut their costs with the “basic economy” fare. However, it remains to be seen just how much of a discount basic economy fares truly offer passengers.
To illustrate the example, we searched all three legacy carriers for basic economy flight options on their announced routes between May 11 and 16, flying under 1,000 miles one-way. All of the fares were taken on March 1, 2017.
On Delta, a trip between hubs in Atlanta and Detroit ranged from $186 to $234 in Basic Economy, and between $304 and $352 for Delta Comfort+. Because the carrier does not charge additional fees for a second carry-on bag, the basic economy fare would remain at the base price, unless those travelers wished to check an additional bag for $25. The price difference between basic economy and main cabin fares ranged from $25 to $40.
On American, a flight between Charlotte and Philadelphia produced several options, ranging from $145 in the cheapest basic economy seat, to $257 for the most expensive main cabin seat. As American only allows one carry-on in basic economy, travelers would have to pay an additional $25 for one checked bag, or $50 to check luggage at the gate. In this situation, the additional fees of gate-checking a second carry-on bag would negate the $40 savings between basic economy and main cabin.
Finally, United offers basic economy seats between Minneapolis and Newark, the longest trip of the three surveyed. Basic economy fares ranged from $157 to $432, while regular economy seats ranged from $177 to $452. In every case, the price difference between basic economy and regular economy was only $20, which would immediately be negated by checking luggage in place of a second carry-on bag, or paying $30 more to gate-check a second carry-on bag.
For the traveler who plans very carefully, a basic economy fare could lower actual flight costs, providing great accessibility to those on a budget. But at the same time, these fares come with a very narrow margin of error. If a bag cannot fit underneath the seat on American or United, travelers could be forced to pay the total of $50 in fees. For a family of four, this one mistake alone could cost up to $300 in unanticipated luggage fees: $50 per person to gate-check extra luggage and $25 in checking fees to return those bags.
Travelers can avoid some of those fees by holding the right credit card. Co-branded cards from all three legacy carriers — including the Citi / AAdvantage Platinum Select World Elite MasterCard, the Gold Delta SkyMiles Credit Card from American Express and the United MileagePlus Explorer Card — offer travelers one free checked bag for themselves and their party members, even in basic economy. In the example of the family of four, the savings on one flight could more than make up for the annual card fees. The savings would not be lost on solo travelers either, as the annual fees combined with the opportunity to earn additional airline miles creates value over time higher than the potential $100 in gate checking fees. Passengers also have other options when it comes to luggage, including shipping luggage to their destination ahead of time to avoid fees.
Bottom Line
Regardless of how passengers feel about basic economy fares, they are now a part of the American travel experience. And how much they save you depends on a variety of factors, such as whether you need to check luggage or want to pay extra for privileges such as extra legroom seat assignments. Much like their rise, their future will be dictated by how travelers respond to these fare structures.
Source: thepointsguy.com