United and American are introducing “Basic Economy” fares this month – a new class of service most easily explained as “you get a seat and that’s it.”
By MARK FELDMANPassengers sitting inside an airplane [illustrative](photo credit: Wikimedia Commons)
Over time, words morph into different meanings and to quote the prolific science fiction writer, Philip Dick: “the basic tool for the manipulation of reality is the manipulation of words.”The word “basic” resonates in most people’s minds: the bare necessities, the minimum requirements, and the simplest of choices. In the US, congressmen are debating the basic details to replace Obamacare.The basic idea is that the state has no right to interfere with the religion of its citizens.The vast majority of soldiers throughout the world begin their military service with basic training. There’s even a movie called Basic, starring John Travolta and Samuel Jackson, although more people remember Basic Instinct, where a manipulative woman is involved.Now we have in the airline industry a new catchphrase, designed to placate and pander to the public: Basic Economy.Put together, those two words feel like a description of the barest of services and in reality, it is exactly that. Now that United and American are introducing “Basic Economy” fares this month – a new class of service most easily explained as “you get a seat and that’s it” – we’ve made it. Welcome to the bare necessities.So, what does basic economy entail? Basic economy is a discount fare class that exists within an airline’s economy cabin.As a result, the in-flight service and experience will be the same for basic economy as it will be for someone who purchased a pricier main cabin economy ticket. This means passengers who go the basic economy route will sit in the same seats, enjoy the same in-flight perks and amenities as everyone else in coach. With American rolling out its plan in February in 10 markets, and United getting under way soon after, this is coming our way rapidly.Once discount airlines started charging for every possible “frill” (as if using the overhead bin above your own seat is a frill), and the larger airlines responded by “unbundling” their existing fare structures to compete, the current situation was inevitable. Say what you will about Allegiant, Frontier and Spirit, but these ultra-low-cost carriers are earning serious profits and growing quickly. The three major US legacy airlines have noticed their success, and are now scrambling to offer their super-low fares whilst imposing more fees. Delta, United and most recently American Airlines have done so by introducing Basic Economy fare classes.So rather than complain we should have all seen this coming.
United Airlines, like Delta Airlines and American Airlines, elaborates on its limitations by stating it came from consumer demand. “Created for our customers who may be more price-sensitive, these lower- priced fares, have important restrictions that you’ll want to be sure to review carefully before booking.”Seat selection and upgrades are not availableWhen you choose a Basic Economy ticket, your seat will be automatically assigned prior to boarding, and you won’t be able to change your seat once it’s been assigned.Your ticket will not be eligible for purchasing Economy Plus seating or using complimentary or mileage upgrades.Family Seating is not availableThat means when customers are traveling together, they will not be able to sit together!Full-sized carry-on bags are not permittedYou’re not even allowed a full-sized carry- on bag, unless you’re a high-level frequent flier member. Everyone else who attempts to bring a full-sized carry-on bag to the gate will be required to check their bag and pay the applicable checked bag fee plus (yes in addition!) a $25 gate handling chargeOne personal item is availableSome good news – you are allowed one small personal item that fits under the seat in front of you, such as a shoulder bag, purse, laptop bag or other item that is 22 cm. x 25 cm. x 43 cm. (9 inches x 10 inches x 17 inches) or less.Flight changes and refunds are not allowedUse it or lose it; even same day changes are not permitted. You will however still earn miles for your flight if holding the applicable frequent flier membership.WE NEED to delve deeper into why these legacy carriers felt pressured into making this move and how the European airlines and El Al are responding. In a bid to broaden its customer base, the legacy carriers have unbundled their main coach cabin and segmented it into very specific product offerings and services. For instance, those coach passengers who want more legroom can pay to upgrade to an exit row seat. Those who want aisle access can pony up the dough for an aisle seat, while those who want a bit more luxury, but can’t afford business class, have the option to pay for premium economy. Those who are primarily concerned with price, but are unconcerned by where they sit and don’t have any luggage can opt for basic economy seats.The legacy carriers believe the advantage of flying basic economy over a low-cost alternative is more legroom, better in-flight service, more flights, more destinations, and a broader set of amenities such as free streaming in-flight entertainment.For the legacies, this level of segmentation allows them to better cater to the needs of specific customers while maximizing revenue. After all, an airline is a moneymaking venture.With that said, the vast majority of passengers will remain main cabin customers and be charged in the same fare class as they are today. Keep in mind that those three U.S. airlines also happen to be the three largest airlines in the world. That size means they have the largest fleets and they have the benefit of an absolutely massive and relatively captive domestic market that does not really exist anywhere else – apart from perhaps, China. As a result, the sheer size of their operations and high demand for domestic travel creates economies of scale that negate much of the concern over brand dilution.However, this doesn’t mean America’s big three have not tried launching low-cost brands in the past. Two of the best examples of this happened in the last 15 years.In 2002, Delta launched Song – a low-cost boutique carrier aimed directly to compete with JetBlue. However, high fuel prices, a drop in demand post 9/11, the cost of maintaining a separate brand, and Delta’s own bankruptcy forced the airline to shutter Song in 2006.In 2004, United Airlines introduced a low-cost brand called Ted. The Denver- based operation was designed to compete against Frontier. But high fuel prices and low demand due to the financial crisis forced United to put an end to Ted in 2009.In eschewing separate brands but going directly after the ultra-low cost carriers that operate quite successfully in the United States, the chances of success are far higher.In Europe and Asia, there is a clear delineation between full-service and low-cost carriers. Airlines such as Ryan Air, Easy- Jet, Norwegian, and AirAsia dominate the low-cost market. In Israel, Arkia and Israir occupy that role competing against El Al with a modicum of success. The mainline international carriers have generally refrained from introducing discount cabin products aimed directly at these low-cost competitors but have chosen to charge for advanced seating in a novel attempt to increase revenue.Instead, global carriers such as Air Canada, Lufthansa, Singapore, and Qantas have created separate budget brands – Rouge, Germanwings, Scoot, Tigerair, and Jetstar – that operate under different business models with lower overhead to address the low-cost threat. Early indications are showing limited success with these budget airlines, but labor issues continue to impede greater success.El Al, with a far smaller fleet, and labor issues that continue to bubble over, has neither the financial wherewithal nor desire yet to create a basic economy price and is tepidly stepping into the water by requiring passengers to pay to choose their seats.There is now a $10 surcharge for passengers wishing to select and reserve a particular seat ahead of time – otherwise they will be allocated seating randomly by the airline.The new charge in no way affects the fee of $25 to $100 that has always been imposed for those wanting a preferred seat with extra leg room or near an exit. If a passenger cancels an airline ticket after paying the new charge for a selected seat, the money will not be refunded.El Al does not guarantee that families or even couples can sit together on busy flights, so the new fee may be necessary for people who want to travel together or are fussy about what part of the plane they like to sit in, or whether they prefer a window or aisle seat etc. Generally speaking unreserved seats are in the back half of the plane.Exempt from these fees are members of El Al’s frequent flier program who have achieved Gold Status.El Al is by no means alone in introducing the seat reservation charge. British Airways can charge $35 to $40 for reserving seats. Swiss charges $29, Air France charges $20, Iberia charges $19 to $22 and Lufthansa and Austrian Airlines each charge $20 to $40. From tomorrow, Air Europe is also introducing a seat reservation charge of $25. Loopholes abound and a savvy travel agent can often find a way to snag you pre-reserved seats, but this trend will only intensify as airlines continue to seek out new avenues to increase their revenues.One major exception to this galloping wave of forcing passengers to pay for a specific seat was recently walloped by the CEO of Southwest Airlines, who reiterated that the carrier will not offer Basic Economy because carving up the cabin would only sow confusion among its customers. Their CEO, Gary Kelly pointed out that they have a very powerful brand and was proud to say: “There is a huge value in offering all of our customers – 100% of them – a great product. We like to say at Southwest, there is no second class.”Southwest is one of the few carriers left that also permit two free checked bags for all of its passengers. No doubt the airline must be swimming in red tape and barely able to make a profit. Sorry to disappoint but their profits for 2016 were a staggering $2.24 billion, compared to $2.18 billion in 2015.Far more impressive was that they have had more than 40 years of profit, quarter after quarter, year after year. No reason to inquire why their stock symbol is LUV.There are no right and wrong ways to work in this business, but there are some basic common-sense practices. It’s all about having a product that you’re proud of and coming to work every day. Those basic building blocks are the same in any business and basic economy with its banal meaning is a concept that we will have to internalize.The writer is the CEO of Ziontours, Jerusalem. For questions and comments email him at mark.feldman@ziontours.co.il