AirKarp

Basic economy is a success if it does NOT sell

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A key to understanding airlines’ basic economy fare strategy is this: the carriers are more than happy if basic economy tickets ultimately don’t sell well. These fares are meant to ward off defections to ultra low-cost carriers or, if there is no ULCC competition on a given route, to simply get price-conscious customers in the door.

Delta Air Lines was the first US major to introduce basic economy fares. It now offers the fare class on every domestic flight, more than 50% of its flights to/from Latin America and expects to have basic economy available on its entire global network by the end of next year. But here’s a bit of an open secret: “Really the success of that product isn’t how many people buy it, but how many people don’t buy it and choose another product.”

That was Delta president Glen Hauenstein speaking to analysts and reporters this week. Basic economy is “more of a defensive product than it is an offensive product because we need to have a product for people who are just price conscious,” he explained, adding, “Our sell-up [from basic economy] continues to remain high and I think that’s the key part.”

Delta and other airlines have concluded there is a certain segment of passengers—or potential passengers—who care only about prices when shopping for a flight ticket. In order to fully compete for these passengers, Delta believes it needs to offer them a bare-bones fare. But here’s the upshot: many of the passengers booking basic economy later upgrade to standard economy.

If Delta’s basic economy fare were not available, perhaps these customers would have either booked on another carrier or decided not to fly at all. But once they have purchased the basic economy ticket, often they decide that, for example, the ability to pick their seat before the day of flight is worth spending $30 or $40 to upgrade to standard economy.

There may not be extra legroom involved, but avoiding the middle seat is worth the extra money.

“People don’t really want [basic economy] when they see what exactly it is,” Hauenstein said. “It doesn't come with seat assignments and you have to wait until check-in to pick your seats—and a lot of people don’t want to do that.”

The passengers who do stick with basic economy will get “Delta hospitality” and “an industry leading product even in that space,” he noted. So if their choice was between Delta and a ULCC, they end up getting better customer service in Delta basic economy compared to the ULCC. If their choice was Delta basic economy or not flying, they get a taste of Delta and perhaps will become a return customer.

The bottom line is that airlines, at least as far as the US majors are concerned, are not trying to create a new class of passengers by offering basic economy fares. They’re just trying to get the most price-conscious travelers on the aircraft to begin with.

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