Basic Economy Fares: Branding Genius

NH_8823_RTBy Neil Hammond, Partner

Many years ago, airlines implemented a multi-tiered fare structure that effectively distinguished between business travelers and leisure travelers. Business travelers were likely to pay higher fares as they were more committed to the need for travel, and at the same time, the airlines were able to vacuum up the discretionary dollars of the leisure traveler.

The airline revenue managers accurately identified the difference in the profiles of the business traveler and their leisure counterparts and created a set of seemly inane rules to segment the inventory. And so we lived in a world where in order to buy the cheapest fares we were required to include a Saturday night stay, book early and purchase non-refundable tickets. This model was very effective and served its purpose for a number of years.

Then two things occurred over time which destroyed the model completely:

  1. Southwest airlines grew and offered low fares without many of the rules that restricted the business traveler. Business travelers seemed not to mind the ‘low cost’ experience for shorter flights, and in many cases the natural advantage of the alternate airports meant that many got to their final destinations sooner.
  2. The second event was that managed travel programs began decode the restrictions and drive traveler behavior towards buying cheaper tickets. Travel policies were updated to encouraging advance booking, permit weekend stays, define a lowest logical fare policy. The impact was fueled by the advent of online booking tools and finally the legacy airlines threw in the towel by offering more flexibility on the reuse of non-refundable tickets to their corporate customers.

Now the airlines are having another run at market segmentation and this time they are using a tool far more powerful than ticket rules. That tool would be ‘branding’. The release into the marketplace of ‘basic economy fares’ has been accompanied by a marketing campaign focusing on just how awful the traveler experience will be for anyone foolish enough to purchase one.

We make predictions in this industry at our own peril but I suspect that this will stick for a considerable time. There has been considerable focus on the traveler experience in our industry and the banning of basic economy fares gives corporate travel programs the opportunity to show that they are listening. In our recent survey, 74% of respondents have blocked basic economy fares in their online booking tools, and over a quarter of travel managers have sent communications to their travelers advising not to use them. Behind the scenes, we are seeing travel policies being updated with basic economy being removed from the Lowest Logical Fare definition.

So, after the introduction of the premium economy product saw limited success in drawing business travelers towards higher fares, creating a ‘product’ to define the worst seat on the airline has worked far quicker and with far less investment. Genius.

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