American and United Aren’t Yet Ready to Compete With Spirit Air on Price

By now, all three major U.S. airlines were supposed to be selling new discount fares that allowed them to more forcefully compete with domestic airlines known for bare-bones service — Frontier Airlines, Allegiant Air, and Spirit Airlines.

But major airlines are complex entities, and sometimes they cannot implement new strategies as quickly as they wish. So while Delta Air Lines has been aggressive in rolling out its new super cheap fares, even selling them in some international markets, United Airlines and American Airlines have fallen slightly behind. Both carriers have said in the past week that they do not expect to meet their goal of implementation by year-end.

American said Thursday on its third quarter earnings call that it should have the new no-frills fares in place early next year. United, which had once planned to implement the fares in October, has not said when it will introduce them.

This is good news for travelers. The new fares will be cheap, but they will not include many amenities most passengers expect. If American’s and United’s new fares are anything like Delta’s, passengers probably will not be able to choose seats in advance, nor change their flights, even for a fee. Elite frequent flyers likely will not be able to upgrade for free into extra legroom seats or first class.

With the new fares, legacy airlines want to match discounters on price, without giving travelers who buy deeply-discounted fares too many perks. Spirit, Allegiant and Frontier, all charge for just about everything. But their base fares can be outrageously low: Frontier this week was selling $1 one-way fares (about $20 with taxes) from Los Angeles to Chicago.

Delta’s new fares are so restrictive that airline executives said on Oct. 13 that many corporations prohibit employees from buying them. Delta also has a pop-up message on its website warning customers considering Basic Economy fares about all the perks they will not receive.

Delta has said the new bare-bones fares have been successful at helping it segment its product, and American CEO Doug Parker said Thursday his carrier is hoping for similar success, though American  on Thursday declined to estimate how much revenue the new fares would produce.

American Delays Plans Slightly

American had long planned to introduce the new fares in the “second half” of 2016, but executives said this week they’ve decided to delay implementation slightly.

New American President Robert Isom said the fares are ready, but the carrier did not want to implement them during the busy holiday period.

“We are on track,” he said. “We are prepared to launch at the end of this year, but right now our game plan is going to be to hold off on that and start the roll out in January. We want to avoid the holidays and disruption to our folks.”

The architect of American’s strategy to thwart ultra low cost carriers, former President Scott Kirby, left in August for United. But American executives said Thursday their strategy remains the same — American does not want to permit Spirit, Frontier or Allegiant to undercut it, especially in its hubs.

“We have to compete aggressively on price against carriers like that,” Parker said Thursday.

United Unsure of Rollout

By now, United had told employees, the new no-frills fares were to be available. United had even given them a name — “Budget Economy” — and started training employees on what they would include.

But in the past two months, Kirby and Chief Commericial Officer Julia Haywood have both joined United’s senior leadership team, and they said on United’s Oct. 18 earnings call that they wanted to further analyze United’s plans before putting the fares into the market. They said they would offer more information on Nov. 15 at United’s investor day.

“With Scott and I coming in, we wanted to take another look at everything that we’re offering within that product segment and make sure that is exactly the way we wanted to be and that we also roll it out really well to the front line,” Haywood said.

While at American, Kirby said the no-frills fares were vital because 87 percent of American’s customers flew the airline only once per year. That group accounted for 50 percent of all of American’s revenues, and Kirby said he did not want to lose the business to discounters.

At United, Kirby said, 85 percent of customers fly the airline once per year and account for “close to half” of all revenues.

Kirby said the new fares are just as vital for United as American.

“It will allow us to offer low fares to people that care only about getting the lowest price and then allow us to offer a better product to customers who care about other aspects of the product,” Kirby said on Oct. 18.