A funny thing happened the other day. I was looking at Phoenix – Denver — my favorite market to watch since it’s full of stupidly-low fares at all times — and I noticed that American had removed its basic economy fares from the market. It’s not that American raised fares either. American just replaced the basic economy fare with a lowered regular economy fare. It turns out, this is not an isolated incident, but there seems to be something bigger going on here related to the expiration of the change fee waiver. If that is the case, I have trouble understanding this strategy.
Unfortunately, I do not have access to the ATPCO fare feed, and ATPCO won’t provide that data, so I had to resort to some manual hunting and pecking to understand what exactly was happening. In short, it looks like American pulled all of its remaining domestic (and some international short-haul) basic economy fares at the beginning of the month. If you can find one that still remains, let me know, because I checked all the usual haunts and found nothing.
Let’s use an example here to illustrate what’s going on. Instead of Phoenix, I switched to look at Los Angeles – Denver. Why? Because that’s another market that’s full of hot garbage fares, but it’s one that also has nonstops from Delta, so it gave me a broader view.
I priced one way flights on May 11 where every fare class was open on American, Delta, and United so I’d see the lowest possible fares, and I started playing with ticketing dates. When I did this on April 15, United and American would both sell me a one way ticket for $39.40, but United’s is in basic economy while American’s is in regular economy. So I started backing up to see when it changed.
The price has remained $39.40 consistently, but on American on April 2, that fare was in regular economy. On April 1, it was in basic economy. I added in Southwest and current fares for Frontier to show you a comparison of what the different airlines are offering in this chart below.
LAX-DEN Fare for Travel on May 11
|<—– Ticketed March 31||Ticketed April 15 —–>|
Frontier has Tuesdays cheaper than any other day, but it appears United is taking the Frontier lowest fare and adding in the $45 value of the Perks (bags, seats) bundle to get to its regular economy selling fare. Then it offers a basic fare for cheaper for those who don’t care about so-called perks. Remember, United still has no carry-on bag on basic fares unlike the others, so it is differentiated.
As for the basic fare of $39.40, I’m not quite sure how United got that basic dollar amount, but I assume this is probably just matching American. It equates to a $25 base fare, so maybe the non-ULCCs just won’t go lower than that.
Delta, being Delta, seems interested in trying to get a large premium in the market. Interestingly, Delta is currently the only one of the big three to have widespread basic fares domestically. In fact, it looks like a religious adherence to the idea since it is in every single market I see out there regardless of competitive dynamic. American and United had previously pared back their basic offerings to be only in markets where it was required for low cost competitor purposes, but American had been taking things further.
American had been pricing basic as a plus-up off the Frontier fare in competitive markets, but it also matched regular economy to Southwest’s lowest selling fare. You’ll find that pretty consistently spread around the country. If Southwest was selling a fare, American was matching with regular economy, not basic. This just happens to be a cheap enough market that Southwest won’t stoop to Frontier levels, so American filed both to be competitive.
Now, however, American is undercutting everyone. This doesn’t seem to make much sense. Does American really want to give away $10 for no good reason? I can’t imagine that’s going to stimulate anything. It’s just pure dilution. On the surface, this strategy doesn’t work, so I had to think about possible ulterior motives. The date of the change caught my eye.
The shift happened on April 2nd, but there were some other fare changes on April 1st as well. And what was going on at that time this change took place? Change fee waivers were expiring. This would make more sense.
Remember all those change fee waivers? All of the big guys recently extended their change fee waivers to go through the end of April instead of the end of March… except American. I remember being surprised that American didn’t fall in line, just as JetBlue had done when it tried to make the waivers go away. But this could be a really weird form of protest where American decides to hurt itself to get a message across.
Think about it this way. American already has change fees gone from all tickets in the US except for basic economy. If it didn’t want to extend the change fee waiver, it could just get rid of basic economy tickets entirely and achieve the same goal. Of course, it didn’t do that. It kept basic economy in longer haul markets, both the “with checked bag” and “without checked bag” versions, so it’s really just confusing and inconsistent.
I’m trying not to think too hard about this, but I can’t see any other reason why American would have done this. I assume the idea is that by taking a stand, American is telling its competitors that it won’t bring the waiver back and neither should they. But if they do, American will continue to put stupidly low regular fares to match other airline basic economy options.
I have trouble with this strategy, because it hurts revenue without gaining anything of significance. Case-in-point, if you go to Expedia, you see this:
Sure, if you click in, you can find out that United’s fare is basic and doesn’t include carry-on bags, but the prominent feature here is that there are no change fees either way you buy. I just can’t imagine this is going to move much if any share for American. Wouldn’t the airline rather hope that people see the $40 fare, click in, and then pay more for the regular economy upgrade? I guess not.
The way to know what’s really going on here is to look again whenever the waivers actually go away. If basic economy comes back when that happens, then we’ll be able to assume we know why. American didn’t have basic in a whole lot of domestic markets anyway, but in those places where it did… travelers can now enjoy the stupidly-cheap regular economy fares instead.