United Airlines President Scott Kirby spoke to an investor conference on Wednesday and, unsurprisingly, came out with some interesting numbers about what the company’s Basic Economy product is delivering since its official introduction in February. There are two facts I find most insightful.
Domestic Rollout Complete
Nearly every domestic market is now available with a Basic Economy fare. There are a handful of exceptions in Alaska and Hawaii but pretty much every passenger looking to buy a ticket on United Airlines for a domestic trip will now have the “choice” to buy the severely restricted product. It took Delta far longer to get to full deployment, from its launch of Basic Economy and American Airlines, which launched Basic the same day as United also lags behind in rollout. Delta is ahead in the sense that it recently began placing the fares on international/intercontinental routes. Expect United to catch up on that front soon.
A 30% take rate
Kirby also shared that more than 30% of coach passengers are buying the Basic Economy fares, even with all the warnings and restrictions that are associated with these tickets. That number is higher than I expected and represents an interesting revenue number. Kirby expressed confidence that such market segmentation should lead to $1bn in annual incremental revenue for United by 2020.
UA carried 12.6mm passengers in May 2017. Many of those are international (~45% of ASMs) but some rough math suggests about 60-65% of travelers were eligible to buy a Basic Economy ticket. Call that 7.5mm passengers each month now facing a $10-50 price hike in each direction for the tickets, and 70% of the passengers are paying that as only 30% are buying the Basic Economy option. If we pick $20 as the average price increase due to the Basic Economy mark-up that’s a quick $100mm/month in incremental revenue and United is already starting to see that come to fruition. Of course, there are still some passengers with seats bought before the Basic fares were introduced in markets but my back of the napkin math suggests that getting to $1bn in annual incremental revenue because of Basic Economy might actually be underestimating the value proposition of this fare hike to travelers.
Read More about Basic Economy:
- Basic Economy isn’t about the LCCs
- Learning from United’s beating, American rolls out Basic Economy
- United Basic Economy fares are alive, spreading
- Basic Economy, real penalties
- The Basics of United’s new Basic Economy fares
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