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As the big three major U.S. air carriers have moved to fight back against low-cost carriers, emulating basic economy fares has become a fascinating challenge.
Eroding the quality of service in order to compete on fare price is easier said than done. When American Airlines introduced its basic economy fares with restrictions on bag size, it quickly realized that the fare’s value proposition wasn’t resonating with its customers.
“One of the ways the ultra-low-cost carriers (were able to reduce fare prices) is by putting restrictions on carry-on bags, and we did the same; we thought that would be a good mechanism to allow us to compete,” said Robert Isom, president of American Airlines, at Skift Global Forum in New York City on Thursday.
According to Isom, restricting big bags alienated many customers who would have otherwise booked basic economy; they saw only 20 percent of customers were interested in the fares. After the change, that number jumped to 80 percent.
“We stood out there for a year and that was enough,” said Isom. “In terms of customer perception, there’s definitely a benefit to that as well.”
Overall, increased segmentation whether with premium economy or basic economy fare has resonated with customers.
“We’re doing an incredible job of working with customers to find products that they are willing to buy and find value in,” said Isom. “When you take a look at American Airlines over the last few years, we’ve taken a look at demand and done a good job with segmentation… all those price points allow us to offer customers something of value. The good news is we’re seeing that customers really do want to buy up.”
While flyers complain about shrinking seats and paying more for less, Isom maintains that the investment by American in new planes is actually improving the in-flight experience.
“When you take a look at the product itself, that renewal of the seat is providing something that is better than what has been out there in the past,” said Isom. “The good news is that customer perception scores are increasing and I think it has to do with the investment in the product we made, and the operations performance for the industry as a whole has improved.”