American Airlines has lagged behind Delta Air Lines in instituting basic economy and premium economy fares to compete against the rise of low-cost carriers in the U.S.
American Airlines president Scott Kirby said today at the Bank of America Merrill Lynch 2016 Transportation Conference that basic economy fares will become available by the end of 2016, following a short trial, while premium economy fares will appear sometime in 2017.
“These fares are transformative, particularly in a world where we compete against low-cost carriers who are growing 30 percent per year,” Kirby said. “Being able to have some segmentation is a really, really big deal that we’ll get sorted in the next year.”
Kirby hopes for a billion dollar positive impact on American’s business from the new segmented fares, but said new products will ultimately help the consumer save money if they want.
“I think the economic impact is in the hundreds of millions; I’ll personally be disappointed if it’s not north of a billion for an airline of American’s size,” said Kirby. “I think its great for customers because this will now let customers select what they want. If you just want a cheap price and cheap ticket, and you’re willing to give up seat assignments or whatever product attributes it has to get that, then you can. If you want to have more attributes then you can pay more.”
As competition heats up between legacy carriers and low-cost carriers, providing more amenities in exchange for higher fares could help legacy airlines retain flyers who spend more on travel.
“We have a lot of customers who are just going to take the cheapest price, if we don’t match that price they’re going to fly on the low-cost or ultra low-cost carrier,” said Kirby. “We also have customers who are willing to pay more, and are never going to fly on an ultra low-cost carrier, but today we don’t give them any reason to pay the higher price.”