WOW: United Rolls Back Basic Economy, Admits They Were Wrong

In May United rolled out basic economy throughout almost their entire domestic network. While Delta had been offering basic economy for years, they only did so in limited markets in limited fare classes.

United took the opposite approach. In May they introduced basic economy on virtually all domestic routes for almost all economy fare classes. In June, United president Scott Kirby said that just over 30% of eligible economy passengers were booking basic economy, and was confident that within a few years they’d earn a billion dollars of incremental revenue annually by better segmenting the market.

Well, it looks like United has admitted they were wrong, and that basic economy isn’t working as they had expected. Per @e_russell on Twitter, here’s what United said about the performance of basic economy at a global transportation conference:

  • Basic Economy improves ability to optimize revenue through customer choice and is a tool to more effectively compete for price sensitive customers
  • New product was rolled out broadly in domestic system at the end of May
  • However, we under-appreciated that incremental revenue from buy-up would be more than offset by share loss to legacy carriers without similar Basic Economy offering
  • We have adjusted our approach by:
    • Scaling back breadth of offering to a portion of our domestic network
    • Offering Basic Economy only in the bottom five fare classes instead of entire fare ladder
    • Varying buy-up levels depending on competitive landscape

So expect the buy-up costs to vary, basic economy to only be offered for the lowest fare classes, and for basic economy to be scaled back to select domestic routes.

The timing of this is especially interesting, given that American just rolled out basic economy nationwide yesterday. I’ll be curious to see if this causes United to reconsider reconsidering basic economy, or if that many people are instead booking Alaska, JetBlue, Southwest, etc.

Gosh, isn’t it gratifying for us when customer unfriendly moves like this are rolled back? I’ll be curious to see how this plays out now, especially in relation to American.

Comments

  1. The timing! Doubtless an epic egg-on-face moment at AA HQ today:

    “We went full throttle with a failed product they just rolled back”

  2. Sounds like they are finally going where Basic Economy should be – combat that $25 spirit fare DEN-DFW, but don’t make the $200 fare $40 more expensive. I really do understand the desire to segment their customers but to turn that goal into creating an elite tax made no sense.

  3. YES! Thank you United for making the right call. Nice to know I’ll be able to fly you guys again because I have pretty much avoided UA entirely since basic economy has been in effect.

  4. Couldn’t agree more with @SFO-FF; but very odd it came out one day after AA went “national” with theirs.

    I’m actually surprised they didn’t try to make it less punitive instead of rolling it back so far, perhaps maybe by rolling it back to Delta’s level (still getting a carry on bag, etc.)

  5. Punishing the most loyal consumer probably isn’t the best business model. The BE crowd is definitely going to still fly the absolute cheapest in spirit and frontier if the fares are considerably cheaper. What they saw in the market shift when AA still had Main Cabin fares on all routes probably is worth more than the marginal increase in revenue. Whoever rolls back DFW-ORD is my new lifetime airline

  6. BE has been bad for the brand since day one. You can’t compete with LH, CX, F9, and NK all within the same fuselage. Proof is in the way the Polaris launch hiccuped and died, mostly unremarked upon… the Dao incident and the BE rollout dominated and reset the UA narrative.

  7. Hahaha at this point it looks like United and Delta are just trolling AA.

    “Let’s get them to make the dumbest possible moves, then reverse ourselves”

    Seriously though I would love to know why AA went forward rolling this out; surely if the numbers in terms of market share loss were so clear for United then AA must have noticed an uptick? Or was their thinking that this is a “short-term trend” in market share growth for that would likely not be sustained anyway? A real wtf moment.

  8. “We under-appreciated that the incremental revenue from buy up would be more than offset by share loss to legacy carriers without similar Basic Economy offering.”
    Hopefully we have seen the bottom of just how low the legacy carriers can go. People have choice when it comes to air travel and they have spoken. Hopefully this is the beginning of a larger rollback of (bad) ideas and changes.

  9. I’m afraid I missing something. Could someone explain what the following means:
    “Offering Basic Economy only in the bottom five fare classes instead of entire fare ladder”

    Somehow I’m thinking Basic Economy is the lowest fare class.
    Thanks

  10. @Neil so even what we took for granted on purchasing like a tier 6 economy fare same day (still NR) would require a buy-up from basic economy. Pretty much every seat on a UA flight was sold with a BE bucket

  11. I think I’ve flown about thirty legs on United since they put in BE, and there were never more than two or three people in Group 5 on any of those flights. It always gave me a good chuckle getting on the plane.

    United vexes me because Oscar Munoz started off seeming to do all the right things, and then BE just went completely off the rails. The planes were already full every flight, even during the Smisek era; what were they trying to accomplish?

    If they get rid of Spirit and their $25 fares, do the legacies really think that the people flying Spirit will suddenly pay ten times as much to fly with United instead? The legacy carriers don’t seem to know who their target customers are. No business operated by people who know what they’re doing would write “Everyone” in their business plan.

  12. This is great news for consumers. I recently switched most of my flying from United to Southwest. The awful customer service issues were a factor, but basic economy made the decision for me. I don’t fly enough to get status but fly about 10 to 12 times a year and had the United credit card. I had the least to loose by taking a basic economy fare as I could avoid some of the consequences and did not need qualifying miles. I was just tired of supporting this behavior and am glad my wallet talked. I saw a bad use of basic economy recently with DC – Cincinati. United was price matching direct flights with Southwest at BWI at Dulles with basic economy. That is noncompetitive as both airports are well outside of DC and parking is cheaper out of BWI anyway. And people wonder why BWI is growing and Dulles is declining.

  13. While I am a typically a very loyal UA customer, with Premier Gold status this year, and I even defended them during Leggingsgate and the Dao incident; Basic Economy has caused me to change a lot of my travel in the second half of 2017. WN is consistently 10 – 20% cheaper than UA’s BE fares, and I’ve even found some flights this fall where I can fly Spirit with a Big Front Seat and carry-on for less than half of UA’s regular economy fare. It is hard to justify paying so much more to UA, especially when they are being so miserly with free upgrades as they attempt to sell last minute F seats. The result is that I will likely only renew to Silver with them next year, not bothering to make the effort to fly them to get back to Gold.

  14. …but they are still going to try and trick people to buy basic and buy-up past what a standard economy fare would give them.

  15. Well that’s a welcome bit of news. Luckily our travel booking tool has excluded BE fairs since sometimes work plans change. I’ve been sweating it that we would be seeing these fares at some point. And also interesting to note is that the tool no longer factors Frontier and Spirit into the cheapest fare option.

    A couple weeks ago I was at BUR. I got there early and hung out by the UA check-in counter since there was a seat and an outlet. A lady came in distraught over the fact she had missed her flight by about two minutes. The agent explained she was SOL because she bought BE. He told her “This is why you should never buy Basic Economy.” So even the contracted GA’s aren’t a fan.

  16. @ Tom – what did delta do may I ask ? They had rolled back their basic economy too recently ? I am not aware any news on that or unless i missed something

  17. This whole BE nonsense is another method of trying to compete for a market segment that is not a good fit for traditional carriers and in doing so allienates the market segment that pays the bills.
    Remember TED and Song from DL…Most people have the good sense to understand fire is hot, the less intelligent need to get burnt but remember, the complete retard gets burnt then comes back for more as they are too dumb to remember the last time.

  18. Kudos to AA for not attempting to totally screw their highest paying customers like UA. At least they had the brains to think about the product before they put it out. Still, not great for the brand.

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