Who would have thunk it? American Airlines has a problem that it shares with travel startups: the infrequent traveler. That means American will continue to match low-cost carriers and American plans on further unbundling its fares.
Here’s a dirty little secret about American Airlines: President Scott Kirby says about 87 percent of its passengers fly once or less per year and that represents more than half of the airline’s revenue.
Kirby presented this statistic during American Airlines Group’s third quarter earnings call today in explaining why the airline matches the fares of what he called ultra low-cost carriers such as Spirit Airlines.
“If 50 percent of our customers [in terms of revenue] are up for grabs we can’t walk away from that side of the business,” Kirby said.
That’s why American will continue to match fares from Spirit, Frontier, Norwegian Air Shuttle, and Volaris and others, Kirby said, adding that Spirit is American’s number two competitor (behind Southwest) in Dallas, for example.
For these 87 percent of American’s “unique customers” who fly once or less per year, “travel is clearly a commodity,” Kirby said.
American, Kirby said, has new fare initiatives in the works for 2016 now that it completed its reservation system migration this week. American states that the migration had “no operational impact.”
The airline plans to “further disaggregate the [fare] product” in 2016 with low fares that have attributes that would enable American to directly compete with the low-cost carriers, Kirby said.
On the other hand, other new fare offerings in 2016 will target higher-end flyers “with a greater suite of attributes to give customers choice,” Kirby said.
Competition from low-cost carriers even impacts fares in drive markets where they don’t fly, such as in Greensboro, North Carolina, which is affected by discounting in Raleigh Durham, North Carolina, he said.
This fare competition “does affect a bigger piece of the pie,” Kirby said.
American will continue to match fares and be competitive while it is developing the new fares for cost-conscious and higher-end flyers, Kirby said.
In the interim, Kirby said, American will not walk away from competition with the likes of Delta, United, Frontier, and WestJet. “We are going to repeat and match their prices.”
Have a confidential tip for Skift? Get in touch
Photo credit: U.S. Airways President Scott Kirby in a photo from 2006 speaking at the Reuters Aerospace and Defense Summit in Washington. Yuri Gripas / Reuters