Basic Economy Fare is Not the Issue, the Enforcement Is!

KI_8708_RTBy Kevin Iwamoto, Senior Consultant

Recently, the introduction of United and American Basic Economy Fare products have been covered extensively in the press, with many of the articles outlining the new guidelines for budget conscious travelers in exchange for the lower ticket pricing.  At a high level, the product and guidelines aren’t anything revolutionary; it’s trading fewer amenities and benefits for a super restrictive low-ticket price point.   The whole low-ticket price or low cost carrier (LCC) model has been around for decades and the LCCs have carved out a profitable niche for themselves by setting low service expectations in exchange for making budget travel available to a marketplace segment that needs to fly but doesn’t require any traditional airline services.

All the airlines have been accused of nickel and diming consumers to make a profit.  Frankly, I’d argue that a healthy and profitable airline industry is better than what we had previously (overcapacity, irrational and non-profitable pricing and the assumption that all travelers want and should pay for the same benefits and privileges).

The current market segmentation of travelers and their various price points makes much more rational and revenue generating sense.  Travelers have the option to buy what perks and services they want in their travel experience and the airlines then get predictable revenue generation.  The fact that in 2015 the airlines made over $59.2 billion worldwide in ancillary fees validates that the market segmentation of services and pricing works and is much more reliable from a revenue generation perspective than hoping that fuel prices, labor contracts and fuel hedging work to their advantage.

flying-people-sitting-public-transportationCorporations and travel buyers need to decide whether to block these fares from their online booking tools if they feel they’re too restrictive and negatively received by their travelers, or to allow them to optimize cost savings.  If you are blocking them, then you also need to modify your travel policy rules engine to exclude these new fares from the lowest logical fare bucket and prevent your travelers from mistakenly selecting them especially with the on-line booking tool displays.

The reality is marketing segmentation is universal in other industries, so why should the airlines be exempt from doing what other industries have successfully done?  The bottom line is, if you want to be able to upgrade, to bring more bags on board, or to have a higher boarding priority, you can – but you should pay for only the specific services that you want.  The airlines should be commended not criticized for not treating all travelers as equals when in fact they are not.

Case in point: I’ve traveled millions of miles globally and epitomize the “Road Warrior” definition.  The vast majority of business travelers paying the higher fares follow the airline guidelines, especially with regards to carry-on baggage size and limitations.  Guess who abuses the carry-on baggage guidelines consistently, holds up the boarding process and starts bin wars with other passengers?  Yep, it’s the leisure travelers traveling on the cheapest fares.  Why should the airlines be criticized for trying to come up with a way to correct these various unpleasant situations that dampen the customer experience?  Charging for carry-on luggage automatically limits what the basic fare passengers can bring on board and alleviates what is currently a real challenge in boarding and deplaning aircraft.

Where it will be challenging for the airlines looking to further segment their passengers on board will come in the form of consistent enforcement both at the gate and on board for the various degrees of perks and benefits.  Once that door is closed and passengers want to move to a better seat, is the expectation that the flight attendants (many of whom are unionized) will be the enforcement agents in the air?  Who will arbitrate midair disputes?  Won’t this impact their customer service skills by having to verify which passenger benefits apply to which passengers in the cabin?  A great example of this is the consistency in announcements and enforcement of telling passengers to only use the lavatory in their ticketed cabin.  How often do you see passengers totally blowing off that rule and using the first class lavatory with some flight attendants enforcing the policy and others who say it’s their job to announce it and not enforce it?

mexico_AirplaneInFlightGood luck trying to block people wanting to move to an aisle, exit/bulkhead row or window seat.  The ticket counters at the airport will also have to decide whether to enforce the rules and leave premium priced seats open based on what passengers have paid or fill the planes despite the segmentation.  Those opportunities for inconsistent enforcement of the rules for the lower fare traveler will lead to passenger and staff disputes both on the ground and in the air.

Another example is the carry-on baggage size limitation rules.  Everyone has seen the sample bag size displays at boarding gates, but how often have you seen counter agents enforce the bag dimensions?  How often have you seen check in bag size luggage smuggled on board hogging the bin space because they’re not regulation sized?  I’ve seen way too many boarding time altercations between passengers, flight crew, gate agents, and sometimes even pilots, over these oversized, non-regulation sized bags and articles brought on board with an ample share of finger pointing as to whose responsibility it is for enforcement.

Finally, how will this impact the ability for corporate travel buyers to manage traveler experiences in their travel and meetings policies?  How will it impact their ability to drive compliance and market share to preferred airlines?  Like any other disruptive industry development, I have full confidence that the airlines and corporate buyers will eventually sort out the fine print for this new Basic Economy Fare type of market segmentation pricing.  After all, some things never change, specifically the ability and desire of the business travelers to follow corporate policies or break from it based on their willingness to sacrifice their own travel comfort and mileage program benefits.

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