Is There No Limit To How Expensive Basic Economy Fares Get?

American, Delta, and United all sell basic economy fares. Delta pioneered this concept back in 2012, and in the past couple of months American and United have started selling these fares as well. The restrictions associated with these fares vary by airline. They all don’t let you select seats and upgrade on these fares, while American and United don’t even let you bring on carry-on bags when purchasing these fares.

How airlines justify basic economy

Airlines have justified basic economy fares in two ways:

  • It allows them to compete with low cost carriers, who charge for all kinds of extras
  • It offers passengers a lower fare option

Unfortunately both of these theories don’t quite add up:

  • If you look at basic economy pricing, it rarely goes as low as what Frontier, Spirit, etc., charge, so they’re still charging a premium while having a similar fee structure
  • Airlines aren’t actually lowering fares with the introduction of basic economy, but rather the current lowest fares in many markets are basic economy fares, while they’re simply making “normal” tickets more expensive

To that last point, here are United’s fares between Minneapolis and Denver hours before they introduced basic economy:

United-Basic-Economy-1

And here are the fares after:

United-Basic-Economy-2

So why do airlines have basic economy fares? Because they can. It’s as simple as that.

Is there no limit to basic economy pricing?

I was just trying to help a friend with a ticket between Tampa and Los Angeles for next week, and saw that the Delta nonstop was $570 roundtrip when searching through Google Flights. Ouch, that’s pricey, though given what other airlines are charging, seemed worth it for the nonstop.

But then when I went to Delta’s website to look up the fare, I saw that this was actually the basic economy fare (unfortunately Google Flights doesn’t show which fares are basic economy). Want to be able to assign seats, etc.? That’ll cost you an extra $20 each way, or $610 roundtrip. Now, $20 each way isn’t a huge amount, but it’s a clear way the airlines are nickel-and-diming, and this has nothing to do with competing against low cost carriers.

Basic-Economy-Fare

This roundtrip covers a distance of 4,316 miles, meaning the basic economy fare costs 13+ cents per flown mile. Maybe it’s just me, but I don’t consider 13 cents per flown mile for economy airfare to be “cheap,” or to be in low cost carrier territory.

I’m not cherry picking examples here, as I’m sure there are much more expensive basic economy fares out there. This was a real life scenario I was just facing, and it shows you how much airlines are milking basic economy fares.

Bottom line

While basic economy fares were originally introduced innocently enough in markets dominated by low cost carriers, make no mistake about the direction these fares have taken. Basic economy fares are quickly becoming the new “standard” economy fare. Basic economy fares don’t offer lower fare options to passengers who don’t care about frills, but rather are a way for airlines to extract an extra ~$20 per flight out of people who don’t want to be in a middle seat in the back of the plane.

Even more puzzling is that this is being done at the same time that Delta and American are introducing free meals in economy on select domestic flights. Want free food? Sure. Want to carry on a bag when there’s room, or be able to assign a seat in advance? That’ll cost you…

Comments

  1. I think Google Flights should have 5 options:
    Basic Economy
    Economy
    Premium Economy
    Business
    First

    It should default to economy on normal searches. We wrote about how some airlines out of MSP (specifically Sun Country) are getting the short end of the stick in search results. We also later discovered that Hopper is a great app to filter out basic economy all together. Unfortunately Hopper dosen’t have a desktop version yet. Searching for great flight options on a phone isn’t ideal.

    Hopefully Google Flights recognizes this and makes changes.

  2. Cheap basic economy fares are not going to be for last minute travel which airlines define within 7 days. There for the airline to capute cheap leasure flyers who purchase weeks in advance.

    Just like cheap economy fares usually aren’t found last minute…especially in a market TPA-LAX. its not NYC-LAX.

  3. Its less than half the price for nonstop if your friend leaves from MCO instead of TPA. Saving $300+ for a 90 min drive might be worth it.

  4. Then rows 31-35 get no food. And rows 35+ have their food confiscated and distributed within first class. #trumpcare

  5. I am planning my first trip to the US next month in sha Allah. I need to take a domestic return flight from DTW-NYC(all airports) was searching fares in Google Flights. Spirit is offering the lowest fare at about $150 but it’s a bare fare when you add up check in bag and seats it goes upto $290. The other option is Delta which is about $320 but I am yet to figure out whether this is basic economy fare or the regular Eco fare.

    I am a bit surprised by how expensive the fares are for a 2hr flight when compared to fares for same distance flown in Europe or Asia that too for booking a month in advance.

    I don’t mind taking a one stop flight if the fare could be significantly lower. If anyone could pitch in with some info on this will appreciate. Thanks!

  6. I had been reading also that when you book tickets with bank points (ie Flexperks, Chase Points through the Travel Portal, etc), that it is basically impossible to determine whether the flight you are getting is basic economy or humane economy. Do you know if this is still an issue, or if there are plans from the banks to make this more transparent? (Yes I do recognize the irony in that last sentence…)

  7. I still don’t understand why there is so much outrage and angst over basic economy fares. Let’s suppose lucky is right and this is just a stealth fare hike of $20. So what? The price for airplane tickets goes up and down all the time. If Delta just initiated an across-the-board fare hike of $20 on domestic tickets without changing the terms of the fares, would anyone care? Probably not. In fact, across-the-board fare hikes are very common—and this blog barely mentions most such fare hikes. (For just a few examples of across-the-board fare hikes that were barely noticed, see http://time.com/3528144/airlines-domestic-fares/ and https://skift.com/2016/01/05/the-3-largest-u-s-airlines-just-raised-their-fares-across-the-board/ and http://www.foxnews.com/travel/2016/01/11/every-major-us-airline-just-increased-fares-by-3.html and https://www.thestreet.com/story/13870533/1/southwest-airlines-luv-stock-climbs-increases-domestic-fares.html. There are many other examples.)

    Admittedly, $20 is a tad bigger than your typical across-the-board fare hike (usually the across-the-board fare hikes are around $5 each way). But this increase comes after fares have fallen pretty significantly over the last year or two—and unlike across-the-board fare hikes, this change only applies to passengers who buy the cheapest restricted tickets but want to carry-on a bag or select a seat assignment in advance.

    Note that this $20 fee does come with some concrete benefits compared to how things worked before: Since the cheapest fares don’t allow carry-ons, more people are likely to check their bags or just bring small bags that fit underneath the seat in front of them. As a result, convenient overhead bin space will be a lot easier to find for the people who chose to pay $20 extra for a regular economy fares. That also means that the boarding process is likely to go a lot faster for everyone. Under the old system, when the last group boards and people realize that there’s no space for their bags, they have to go back up to the gate agent to have the bags checked. Presumably with fewer carry-on bags, this problem won’t be as pervasive.

    I understand that people don’t like being nickeled and dimed, but we need to keep in mind the context that these airlines are not particularly profitable businesses. There are law firms in New York City with, say, 800 lawyers that have been vastly more profitable over the last 15 years than United or American–each of which has close to 100,000 employees. Hard as it is to believe, economically speaking, these airlines are just scraping by given the amount of capital they need to run their business. They have been getting killed by the online tools that steer people to the cheapest possible fare. Even today, their debt is consistently rated as “junk bond” status because the airlines make such tiny profits relative to capital invested than even a tiny economic downturn will make them all start bleeding red ink. As Warren Buffett famously quipped, “How do you become a millionaire? Make a billion dollars and then buy an airline.”

    Given the challenging and ultracompetitive environment in which these airlines operate, add-on fees are a matter of survival. So I can’t really blame them for trying to extract an extra $20 where they can.

  8. The gap between Basic Economy and the next-lowest economy fare is what’s relevant, not the total price. Delta knows that for a transcon they can get a good percentage of customers to buy up that extra $40 each way.

    The reason for Basic Economy isn’t so much “because they can” as it is “to drive customers to spend more for what they were previously getting.”

    I’m ‘basically’ ok with that, it’s the lying with claims that this is somehow done in the interest of the customer, that these are new lower fares, that rubs salt in the wound. American to their credit says that these are NOT new lower fares, but ‘new attributes’ for their lowest fares.

  9. Interestingly, it seems like Delta is not using basic economy fares in markets where they have to compete with Alaska, even on fares that are very cheap. For example you can get JFK-SEA for $149 or LAX-SEA for $75 with no basic economy even offered. JFK-PDX used to have basic economy (when I flew it in the fall) but it has since disappeared (after Alaska added EWR-PDX). Lucky for the PNW that there’s still some competition in that corner of the country…

  10. @Gary Leff — The problem I have with the “airlines are lying” argument is that we don’t have any way of knowing what would have happened to fares if basic economy had never been introduced. The fact that basic economy fares are the same as what regular economy fares used to be doesn’t tell you much, because the relevant question is not, “What does regular economy cost today compared to what it cost before?” Airline fares are going up all the time. The relevant question is, “What does regular economy cost now relative to what it *would have cost* if basic economy had never existed?”

    There’s no way to know the answer to that second question. If airlines hadn’t introduced basic economy, maybe they instead would have had to increase economy fares across-the-board so regular economy fares would have gone up anyway. Since basic economy is pitched at the most price-sensitive consumers, it’s quite plausible that, over time, basic economy fares will increase more slowly than regular economy fares *would have risen* if basic economy had never been introduced.

    Given the uncertainty around that, I think it’s hard to jump to the conclusion that the airlines are intentionally lying to us. It’s possible that basic economy won’t result in lower fares — but it’s also possible that, over time, basic economy fares will end up being lower than regular economy fares would have been without the change. So I think we’d have to engage in a lot of speculation to suggest that the airlines are intentionally “lying” when they suggest that basic economy is a lower cost option.

  11. @John Basic economy is intentional obfuscation from the airlines to make shopping more costly, difficult, and frustrating for consumers. And there’s a ton of research (besides common sense) that when shopping is difficult, consumers end up being screwed, paying more than they afford/have budgeted (in this case, the $40 to upgrade to “sane” economy). Especially the less educated ones.

    So we do know that cost of travel (fares + fees) will increase overall because the difficulty in shopping has increased. The question is not “what does regular economy cost now relative to what it *would have cost* if basic economy had never existed”, rather, how much consumers are paying in an obfuscated marketplace vs. what they would have paid in a transparent marketplace.

  12. @ Gene — I don’t see any evidence that airlines are intentionally obfuscating what basic economy is about. I just went on United.com and ran a search for a MSP to ORD trip. When you click on basic economy, a pop-up comes up with a little table that tells you exactly what is not included with a basic economy fare. It also shows very clearly the price difference between regular and basic economy (which is actually only $15 for the dates I happened to search). It’s very clear and transparent.

    It may be that on price comparison sites like Expedia the attributes of each fare aren’t as clearly presented — but it’s up to the price comparison sites to fix that. There’s no reason Expedia, etc., can’t provide clear information to consumers about what each fare is. Google Flights is already pretty good about helping you see which airline has above average, average, or below average legroom in economy. I’m sure it’s only a matter of time before they update their search results to clearly label basic economy versus other economy fares, and to note any salient differences that consumers care about.

    There may be some slight consumer confusion at first, but once people fly on a basic economy fare once, I think they will understand the trade off. It’s not like some super complicated investment or life insurance policy where you need an advanced degree to understand how it works. It’s pretty simple. So I do think consumers will be able to make educated decisions about whether they want a basic economy or a regular economy fare.

  13. I’m guessing they’ll end up regretting this. I’d say we’re 6 years out from the next major airline bankruptcies. Mark this post.

  14. You guys are misunderstanding how Basic Economy (“E”) on Delta works. Basic Economy on Delta is not its own special fare class. It is basically a negative add-on in the form of a discount while getting restrictions. As Lucky’s screenshot shows, the lowest fare class in economy for that flight is “X,” higher than “V,” which is the lowest discount economy.

    So why is “E” available and no “V”? Because it’s the “E” price is based on the lowest available economy fare, which is “X”.

    Delta doesn’t file for special “E” fares and says, hey let’s price “E” at $500 and “X” at $540, and “V” at $200. That would make no sense.

  15. I suggest people start flying low cost airlines as much as possible. If you’re going to get the same lousy service, might as well save some money on it…

  16. $570 from Tampa to LA?!
    Meanwhile you can fly nonstop from Hong Kong to Seattle for $560 roundtrip… also on Delta

  17. My theory:

    Basic economy has nothing to do with consumer choice. A price-conscious domestic flyer is already avoiding the US3 where possible because Southwest and Frontier will beat their prices 90% of the time. An international flyer is already avoiding the US3 because foreign airlines match their prices with better customer service, better food, and newer airplanes.

    Basic economy is a way to extract more money from business travelers forced to purchase the least expensive fare. If an employer only reimburses the $173 in lucky’s screenshot above, but the traveler can pay $20 out of his own pocket at the time of check-in to guarantee the benefits he expects, he’ll shell out the $20. It’s the new LFBU kiosk upgrade, except instead of getting a big seat with free booze, you’re getting the same old shit sandwich.

  18. @ Bannon — Your theory doesn’t really work because they’re not selling upgrades on basic economy fares. Once you buy a basic economy there are no changes, no upgrades, period. On United, at least, you can’t pay the difference to upgrade to an economy plus seat, even if one is available on the day of departure. Your only option would be to buy a new ticket.

    I do think they are trying to extract $20 out of as many people as they can. But they want to collect that at the original point of sale, since there’s no buy-up option when you check in.

  19. @Tom

    There isn’t really a world where the majors would declare bankruptcy and Spirit and Frontier survived. The thing that would drive the majors down is a crazy fuel spike or war…but that’d hit all the mini-me’s just the same. The big guys are making tons of money.

  20. @ Tom — I agree with @ Ryan. It’s a little silly to suggest that a $20 fee will drive these airlines into bankruptcy. If customers really revolt against this, they would just back down and abandon basic economy. I’m not holding my breath for such pushback, though. I think most passengers aren’t going to hyperventilate over $20 the way some people on this chain seem to be.

    For the reasons @ Ryan points out, we certainly can’t assume these airlines won’t end up going bankrupt again at some point in the next few years. While that doesn’t seem likely today, they face all kinds of risks that could materialize and wipe out their shareholders. But it’s a little crazy to suggest that this little fare experiment will lead directly to their demise. It’s more likely that big macroeconomic factors will determine the fortunes of the airlines.

  21. @ John —

    That quip was from Richard Branson, not Warren Buffett and was clearly meant as tongue-in-cheek, otherwise why would he have started an airline under the Virgin Group?

    Besides, Warren Buffett is clearly into airlines now seeing as how he’s invested $10 bn into all of United, American, Delta, and Southwest in the past few months.

  22. @ RC — Here’s my source attributing the quote to Buffett, not Branson: https://www.fool.com/investing/general/2012/05/23/if-you-have-to-invest-in-airlines-dont.aspx

    Maybe they misattributed that particular quote, but whether he made that quip or not, Buffett has made a number of statements critical of airlines. Forbes quotes him as saying that airlines have been a “death trap for investors.” https://www.forbes.com/sites/antoinegara/2016/11/14/warren-buffett-comes-around-on-airlines-after-calling-them-a-death-trap-for-investors/#1b6da957513f.

    He’s quoted in US News as saying, “A durable competitive advantage has proven elusive since the days of the Wright brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” http://money.usnews.com/investing/articles/2016-11-16/5-reasons-that-warren-buffett-suddenly-loves-airline-stocks

    While news reports indicate that Berkshire Hathaway is now investing in airlines, those same reports indicate that that probably doesn’t reflect a change of heart by the famous Oracle himself. U.S. News notes: “‘I don’t think this is Buffett himself – I think this is his deputies, Ted Weschler and Todd Combs. Berkshire Hathaway no longer only means Warren Buffett,’ says Patrick Kaser, portfolio manager at Brandywine Global in Philadelphia.”

    Bottom line, Buffett’s public statements clearly indicate that he thinks airlines are bad businesses. Maybe some of his deputies now think the airline shares are so beaten down that they’re undervalued and thus worth a value play. But that doesn’t mean it’s a healthy long-term business.

  23. Personally I think domestic fares are getting a bit ridiculous. I live in NJ, so I have to use EWR or JFK, sometimes PHL. I like New Orleans, and try to visit at least once or twice a year. To go non-stop, I usually have to fly UA. I recently checked prices for the entire year. For coach the lowest I can get is around $326, and not often. I search using a five day criteria. Many times the price is well over $400 to over $500. When a simple trip (3 hrs) costs the equivalent of an international flight or more, without food, it’s nuts (they may give you a bag of nuts). I could use points, but even at the saver fare of 25K, the value is rarely two cents per point, which seems to be a waste of points. When fares to San Francisco for less than I can get to NOLA for, I have to wonder what is going on with domestic pricing.

  24. American did the same thing! Their basic economy fares are equal to what the economy fare used to be, so this is basically a hidden fare increase! And a big one at that since most economy fares are at least $20 more expensive!

  25. @Lucky — do your friend a favor and book them a connecting flight on DL. I’ve been on that TPA-LAX run and DL was using a dreadful, decrepit 767 for the route with no IFE or anything. Ever since then I’ve either booked a connecting or flown out of MCO. As of late, I find myself flying out of MCO about 75% of the time due to better flights and better aircraft. Also, the Residence Inn immediately N of MCO has great park & fly specials which often means I get the hotel stay + free breakfast + parking + transport to/from the airport for less or the same cost as parking on-site at MCO.

    From the screenshot you’ve posted, perhaps they’ve changed aircraft for that route, but man that was a throwback when I got stuck on the old bird. I was glad I had my external power pack to keep things going.

  26. @ Chris Jensen

    What’s happening right now in airfares is indeed fascinating. I recently checked a one-stop route on the majors and the fares were around $250 each way. Then I checked Spirit. They wanted 56 bucks. Either way you go bags cost extra. Plus, on Spirit the big front seat only added about $75. Why in the world would anyone book on the majors when you can get a confirmed big seat for less money? I guess people have enough cash right now that cost doesn’t affect behavior much.

  27. I see it being more as being so hostile to business travelers (no upgrades) that they are hoping corporate programs that have been booking the most discounted regular economy fares won’t go so far as to start dipping into basic economy.

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