GLEN HAUENSTEIN, the president of Delta, is optimistic about the future of basic economy. On a conference call this week, he boasted that the stripped-down airfares actually act as an incentive for passengers to upgrade to the more expensive standard economy tickets. Despite Mr Hauenstein describing it as a product that “people don’t really want”, the airline says it will expand the revenue-boosting basic-fares system in 2018.
Delta was the first carrier to roll out basic economy fares—sometimes called “last class”—in America in 2012. Since then the model has caught on. Both American and United quickly introduced similar services on some domestic routes. By taking away a perk here and adding another there, each airline has created a unique version of the same miserable experience.
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The new fare system is not without its critics. Many have pointed out that it is just a clever way to raise the price of standard economy fares. Others noted the problems with hastily designed pricing algorithms, which sometimes led to regular economy seats being on offer for less than basic economy ones.
For a while, such criticism slowed expansion. In August, United’s aggressive roll out of last class unexpectedly stalled. In a cryptic statement the airline declared that it had “under-appreciated that incremental revenue from buy-up would be more than offset by share loss to legacy carriers without similar basic economy offering.” In other words, customers had started to shop elsewhere.
However, other carriers have not been so hesitant. Some are expanding basic economy fares into international routes. American Airlines announced that the fare would be on offer on flights from the United States to the Caribbean and Central America—a first for that carrier. Delta, too, is now planning to take basic economy overseas. It is likely that other carriers will soon follow suit and that last class will spread across the world. For business travellers, this paints a bleak picture of a future in which booked flights will have to be carefully managed to avoid the pitfalls of basic economy fares.
But for airlines, the outlook is bright. Recently Warren Buffett invested heavily in them. Other investors are flocking to the legacy carriers too, as strong quarterly reports continue to roll in. Doug Parker, the boss of American, captured the industry’s jubilant mood in a meeting with investors in late September when he said: “I don’t think we’re ever going to lose money again.” It is not clear whether Mr Parker will come to regret such a bold statement, but it certainly looks like basic economy is here to stay.
Source: economist
Carriers in America are doubling down on budget airfares