Airlines gauge success of Basic Economy by how many passengers avoid it

Airlines are trumpeting the benefits of Basic Economy when they don’t have to sell the bargain-basement fares.

Legacy airlines developed the so-called "Basic Economy" fare as an offering to compete against ultra-low-cost carriers such as Frontier and Spirit. The fare covers the seat, but little else. Fliers who want overhead storage of a carry-on bag or an advanced seat assignment have to buy a more expensive fare. 

But the legacy airlines are finding that offering bare-bones pricing has yielded the pleasant result that passengers want more amenities. Half of the American Airlines customers who take a look at Basic Economy wind up with something pricier.

“Performance has been in line with expectations, with about 50% of customers who received a basic offer choosing to buy up to the main cabin product,” American President Robert Isom said Thursday.

American had rolled out Basic Economy across its entire domestic system by Sept. 5.

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The airline didn’t reveal a revenue figure for Basic Economy in its conference call with investors to discuss third-quarter earnings. But Donald Casey, American’s senior vice president of revenue management, said Basic Economy is boosting yields.

Before offering the option, about 3% of the airline's total revenue came from fares marked down to compete with ultra-low-cost carriers, Casey said. After passengers explored Basic Economy and chose something else, revenue generated by the cheapest fares dropped to 1.5% of total system revenue, Casey said.

“Right now, 50% of the people that were buying these fares before are now going to be paying more,” Casey said. “So that's the increased yields.”

Delta Air Lines President Glen Hauenstein said something similar in an earnings call Oct. 11. He described Basic Economy, which Delta pioneered in 2012, as “more of a defensive product than it is an offensive product” because the airline wants to be best-in-class -- even for the price conscious.

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But he said passengers don’t really want the fares when they discover what isn’t included, such as getting a seat assignment before showing up at the airport.

“Our sell-up continues to remain high,” Hauenstein said. “And really, the success of that product isn't how many people buy it, in our mind, but how many people don't buy it and choose another product. And that's really where we're focused.”

United Airlines President Scott Kirby also called Basic Economy “a great tool” during that company's Oct. 19 earnings call. The airline is still tinkering because the fares boost sales of non-stop flights, but aren't bought at the same rate by passengers booking connecting flights.

“What we do essentially is we're going to be selling more seats in the local market,” Kirby said. “But we can change our yield management posture on the connecting flows because essentially we now have fewer seats to sell in some of those connecting flows. And so there is improvement in the local market, but the connecting markets are places we can improve as well.”

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