The Basics of United’s new Basic Economy fares


That Basic Economy fares were on the road map for United Airlines was not a surprise. Today the company detailed the policies around those fares and some industry observers were caught off guard as the rules were laid down. Perhaps most notable: Basic Economy passengers will not be permitted a full size carry-on bag. Passengers choosing the cheapest seats will only be permitted a “personal item” and otherwise subject to fees for checked bags. The new fares will go on sale in Q1 2017 starting with flights in Q2, just ahead of the peak summer rush.

Limits

In addition to no carry-on bag United’s Basic Economy passengers will not have the opportunity to select a seat in advance. Seats will be assigned by the computer shortly before boarding and there will be no opportunity to change the seats at that point. This raises the potential for families to be split up, of course, something that United recognizes. It is approaching that situation by calling attention to the potential and discouraging families from booking such fares; it is unclear just how that will play out at the gate. Not only will Basic Economy passengers not be able to choose a seat, they will also not be eligible to buy up to Economy Plus or premium cabin seating. Given the significant revenue these up-sells generate some have questioned the total economic impact of that decision.

Basic Economy passengers will also be the last to board the plane. It is unclear if a new boarding group designation will be created but this separation should help with enforcing the carry-on bag limits as all travelers in that group will be subject to that policy. The impact of this is so great that COO Greg Hart suggested the reduction in gate checked bags with solve a huge operational problem “in one fell swoop” as fewer carry-on bags even make it to the gate area, much less on the plane. Unless the number of seats in Basic Economy increases significantly (which the company explicitly said is not expected) this seems overly optimistic, but it should help.

The newly designated fares will earn award miles but will not earn any credit towards elite status nor towards lifetime million miler tiers. But the rules do allow for some benefits based on elite status. An elite member or the primary cardholder on certain co-branded credit cards will keep their priority boarding benefit and will also be afforded a carry-on bag allowance. Checked bag fees will also be discounted or waived based on status tier. Still no advance seat assignment nor Economy Plus, but not a complete erosion of elite benefits.

Ancillaries

In theory the introduction of Basic Economy fares is meant to drive ancillary revenue. Travelers are encouraged to buy the benefits they want ad hoc rather than paying the higher fare that includes all of those features. As the number of benefits included in the normal fare erodes it is harder to discern exactly what those benefits will be, but United believes it can still drive the incremental spend. Blocking some ancillary purchases, such as E+ seating noted above, is surprising in this context. Preventing a traveler from paying more to receive differentiated service is counter to the theory of building ancillary revenue. But it can still work.

By reminding passengers at the initial transaction point that the fares are highly restricted the airlines are often able to induce payment of the slightly higher “normal” economy fare. These same passengers are then able to buy Economy Plus or up-sell premium cabin seats later in the process, essentially allowing the airline to double-dip on incremental revenue, though only one of the two transactions would be considered ancillaries. Regardless of what they are called it is clear that the goal of these new fares is to increase revenue per passenger on board.

Co-brand FTW

Perhaps the biggest winner with this new offering is Chase. The value proposition for a one-off customer to carry a co-branded credit card is now significant. Getting the priority boarding and carry-on bag included is a solid value proposition given the relatively low annual fee.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, LinkedIn and .

32 Comments

  1. I do prefer to fly some like spirit and then upgrade to the best seat on the plane it worked for me this year. I just buy my coffee and food before boarding or even before I get to the airport. This looks awful and some people of course will buy a seat and then complain there getting so very little. I think there better off with a LCC but of course lots of people out just don’t know the difference they just look at the price.

  2. @Glen – I think you’re making a very valid point. Unbundling is not going to end up working out in AA, DL, and UA’s favor.

    DL has already said they can only attribute $20MM in incremental revenue to Basic Economy per quarter and they have no attribution of what business they have lost due to it.

    Airline revenues are remaining flat and low oil prices are what are saving them. I don’t think we’ll return to the chronic bankruptcies of the past due to lowered competitive pressures but I also think the airlines might end up depressing travel demand or losing a lot of passengers to LCCs.

  3. Completely agree with you. What is the point of offering such a rigid fare when the most profitable part is the ancillary fees. One has to question their ability to run a successful company…

    1. Well, that’s not actually what I wrote, so we probably don’t really agree.

      Driving that “double dip” from the airline side of things has huge potential revenue implications.

    1. Seth Miller Perhaps it’s not what’s allowed, so much as it is unreasonableness from pax. It only takes one BE customer who doesnt realize [or doesnt care that] she isnt entitled to her “crucial” carry-on to make a GA’s life un-fun.

    2. Sure, David, but that already happens today when the bins are full and you’re last to board. At least in this scenario the passenger buying the ticket most likely has been warned.

      Don’t get me wrong – I’ve seen the Spirit GAs dealing with pax swearing up and down that they didn’t know they had to pay for a carry-on – but I think that well defined rules are easier to work with than not.

    3. Agree David. Gives the GA a new level of stress during boarding process. And then pax saying “what do you mean???? I never bought a fare that doesn’t allow carry ons”

    4. Not that Seth’s wrong, but United also does a very consistent job of making pre-boarding announcements about “check your bags now if you’re in 4 or 5 because you likely won’t have room for them” on full flights. That properly sets expectations for late boarders, and avoids people making a scene when their bag gets gate checked. Not always, of course, but more so than if they weren’t consistent.

    5. Connor Carson Heim Which leads to an interesting scenario. If a pax refuses to check the bag (or implores the GA) and is on a BE fare, will GAs let is pass, or will they deny boarding?

  4. Blocking E+ is not surprising. Delta doesn’t let you buy up to their comfort extra when booking a basic economy fare.

  5. I think they missed the mark by restricting ability to buy up to Economy Plus or pay for advance seat assignments as well as taking away practically all bundling options except for luggage fees.

    Ideal solution will be simply offer the same bundling options but build in an algorithm to charge a larger premium to customers booked on basic economy fares. Easy Peasy and ensures they can double dip revenue opportunities.

    This is why ULCC succeeds. Charge rock bottom fares and charge for everything (the real profit center) – not charge rock bottom fares and “take away options”. I am not an United CH shareholder, but I would not be very happy with this strategy if I held shares in UAL.

  6. How will UA enforce the carry-on bag restriction in practice? They won’t prevent you from bringing 1+1 at security, since they won’t check everyone’s fare class. And I read somewhere else that Basic Economy boards with group 5, and some of group 5 can bring a carry on…unless they’re changing who is allowed in with group 5? Or will they charge some kind of fee at the time of gate-check if you’re a Basic Economy passenger?

    1. For your short hops around the east coast and Texas Southwest and the companion pass are a spectacular option. I’d definitely be trying to keep those.

  7. Will we see an abundance of abandoned bags at airports when passengers can’t even pay to take them? What happens when someone just can’t take their bag? Do they leave it at the gate? Seems like a huge security issue.

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