Alaska Airlines Hints At The Introduction Of Basic Economy

I’ve always respected that Alaska Airlines does things differently than “the other guys.” Unlike American, Delta, and United, they don’t offer basic economy fares, and they continue to award miles based on how many miles you fly rather than how much you spend on your tickets. They also continue to have a really compelling award chart for partner redemptions.

As I wrote about a couple of weeks ago, the airline is starting to lose thier mojo, as they’re having a hard time balancing being a favorite among employees, customers, and Wall Street. Discontent at the airline is growing among employees, some customers perceive that they’re not as special as they used to be, and for the past few years they’ve been facing an attack at their home airport of SeaTac from Delta, which has driven down prices. On top of all of that, the airline actually tries to differentiate themselves, and it’s tough to differentiate yourself while not being able to command much of a revenue premium.


Economy cabin of a Virgin America A320

That brings us to yesterday’s Alaska earnings call, where Alaska’s Chief Revenue Officer, Andrew Harrison, said the following:

With a single reservation system, we will be able to address upsell and segmentation opportunities which the legacy carriers are executing on today and that we have not been able to participate in. There are a number of ways for us to participate. Basic economy is just one of those, fare families and ancillary bundles are others. And whatever approach we take, we are committed to tapping into the opportunity before us to increase upsell and ancillary revenues. This particular opportunity would represent incremental revenue above our stated synergy targets for the merger. We are just beginning to evaluate the full potential of upsell and will share more with you on our future calls.

On that same topic, later in the call Alaska’s SVP of Revenue Management and & e-commerce, Shane Tackett, said the following:

I think that Andrew mentioned segmentation, obviously, basic of sort of where everybody else has gone. We have modeled the impact. Andrew just mentioned, we think it’s north of $100 million once it’s fully out and running and sort of optimized, which — that would take some time. I would just say, other airlines, I think, it took a year or more to get to market and sort of fully roll it out to every — their network. I think some of them are still expanding it now into international. And I think we’ll go faster than that. We certainly are going to be motivated to be faster than that, but it’s not something that’s going to hit like Q2, as an example. And I’ll just say, we haven’t decided on what this would look like for us. And it could be something that’s like basic. We tend to not do me toos of sort of the network carriers, our business is a little bit different. It usually doesn’t need the same product set. So we’re looking forward to being able to talk with you guys in the future call about what this might look like for us.

I think it’s worth noting here that Alaska isn’t saying that they’re going to introduce basic economy as the other carriers have. As they say, they tend not to do “me toos of some sort of the network carriers.”

However, they also note that they see a revenue upside of over $100 million from changes that “address upsell and segmentation opportunities.”

In addition to basic economy, they mention fare families and ancillary bundles as other ways to capitalize on the market. We’re not yet sure exactly what this would look like, though one thing is for sure — if they want to see a revenue increase of over $100 million, they’re going to make some changes to their fare structures that we don’t like. 😉

I suppose we could see them selling bundles, like priority check-in, security, and boarding, for some amount or money, or fares that come with a free checked bag. However, I don’t see them getting that quite the revenue upside they’d like without something more widespread.

We’ll have to wait and see how this plays out. Given the situation Alaska is in, I have a hard time imagining they won’t be introducing something along the lines of basic economy.

The good news is that there are different ways to introduce basic economy, as we’ve seen that American and United have introduced more restrictive basic economy fares than Delta has. I could see Alaska introducing basic economy but not actually making it that bad. Here’s to hoping, at least.

How do you see this playing out for Alaska Airlines?

(Tip of the hat to @elysium55)

Comments

  1. I think you and the bloggers play up Alaska trying to be “different” too much – the only reason they don’t have basic economy fares and mileage accrual based on dollar amount is because they don’t have the tech yet. The business sense of basic economy and mileage accrual on dollar just is too good to not go for, yes, we saw United botch basic economy, but, I don’t believe them turning it into an “elite tax” is what a successful basic economy model will be.

    Alaska is a great airline, but, they have mostly been distracted by the merger and in the same way it took AA an extra year it will take them an extra one, just wait.

  2. I think Alaska needs to take a hard look at how many customers they want to send to Southwest. In the battle for west coast market share, consumers are much more likely to put up with the “cattle call” boarding on Southwest when they aren’t paying for bags or basic economy.

  3. Why do CEOs always suggest new ways to nickel and dime (up sell) the customer. Whatever happen to great customer service as a strategy?

  4. Customer service doesn’t matter if there aren’t enough people willing to pay for it. The flying public has repeatedly demonstrated (at least the vast majority) that the price is the absolute most important factor in booking a ticket.

  5. Im not too familiar with Alaska’s fare setup as Im an east coast based flyer, but maybe they are aiming to do something similar to JetBlue’s fare classes, but take it a slight step more. For example JetBlue has the blue fare which doesn’t include a checked bag, then theres blue plus that has a checked bag, and blue flex which is the refundable and changeable full fare. Maybe their aim is something similar but snacks/drinks may be cut from the lowest fare or maybe something as simple as boarding group arrangement.

    JetBlue Plus Card is great too because I can book a blue fare and still get a free checked bag, so maybe they’ll introduce something similar to that as well?

    Might not be a totally bad thing.

  6. I like Alaska Airlines (good customer service, generous upgrades, great FF program), but it’s pretty much been a tragedy with this merger, especially in VX markets. Not helping has been how tone deaf their whole operation has been to the Virgin America flier, who is interested in premium upsells (good BoB food!) but has no tolerance for being nickel-and-dimed for crap products (select your seat for an extra $90.00!.) Does anyone at AS think a VX flier would eat one of their food options, or wants to rent one of their janky Windows tablets? Cool it with the “Bacon on Donuts sure is weird” lingo and figure out something better than a squished turkey sandwich in a greasy bag for a 6 hour flight.

    I guess we’ll see how it plays out.

  7. Alaska is a great airline, but their leadership doesn’t know what to focus on. At one point it was TransCon but that didn’t work out because of the gates problem and fierce competition from US3. Then they shifted to IntraCal, thinking that those customers would be as loyal as PNW ones, but that’s not been going so well either.
    They also wanted to grow regional routes but QX is a burden who didn’t deliver as promised. This has a severe consequence on their on-time performance, thus dragging customer satisfaction down. Their stock is almost -40% down year over year, it should mean something.

  8. I think you give AS too much credit here. If SVPs and CROs feel it necessary to mention changes such as these in an earnings call, then I think it’s a fairly safe bet that we’ll see those changes in the near future. And I’m sure they’ll fall under the guise of providing the customer “more options”. I think you’d be hard pressed to find a company that isn’t driven by revenue and the bottom line. And to think AS is somehow immune from the siren song of (100 million) dollars is pure naivete. Yeah, AS used to be this homegrown airline that everyone could love. They still retain elements of that. But as you mentioned, competition is forcing them to change their business model.

  9. I used to like Alaska a lot, but have become more and more ambivalent to them as an airline of choice. I often find myself choosing Delta over them due to the amenities, service, and routes they offer. Their Comfort+ is a decent domestic premium economy product, which makes the choice of flying transcon on either Alaska or Delta a no brainer for me

  10. Smart move by Alaska remember they are one of the big 4 now as they continue the merger with Virgin. Basic economy is highly profitable. American beat all analysts revenue projections last year and Doug Parker attributed this to selling basic economy. There are people out there clearly looking for the lowest price and that means boarding last and sitting in a middle seat and not being eligible for miles or upgrades.

  11. Things seem to be falling apart @ AS rather rapidly. Despite having ~300,000 MP points with Alaska (not to mention the points in my family’s accounts), I am *seriously* looking at moving back to Southwest — which I all but stopped flying in 2007 when VX started flight ops — for sort-haul flights, and JetBlue for transcontinental flights. International flights are a problem, considering the lack of points with the L3 carriers, but (perhaps) I can still use my AS points, coupled with the transferable points I have with Chase, Citi and Starwood to fly overseas.

  12. @ Zachary B – Alaska has premium economy on most routes which would be equivalent to Delta+. Might be worth checking out.

    @ Jason – Things at AS are hardly falling apart. Growing pains are to be expected with any merger. I can tell from your previous posts you’re sad to see Virgin disappear. Maybe give AS a fair shot before jumping ship. Assuming youre an MVPG or 75k they still offer one of the best programs in the industry. But if you’re really unhappy I’m sure SW and B6 will welcome you.

  13. @Erik —> That all depends upon how you look at it, and when/where you last flew AS…

    21-25 December, my wife & I flew AS SFO-MEX r/t. We were in PE on the way down, and in F on the return journey. The only food offered in Economy (Premium or otherwise) were bean burritos — certainly NOT what the menu in my (and my wife’s) seat-back pocket promised! No choices, and presented by the FA’s with a “take it or leave it” attitude. Flying in PE was supposed to come with certain amenities, none of which our row (6 of us) received. Apparently they didn’t load enough, as we — in the last row of PE — never received anything. Nor were their any tablets available for streaming in-flight entertainment. On the return flight, in F, there was again only one choice, a rather tasteless and dried out “Thai salad” — AGAIN, not what the menu offered; indeed, not even a choice on the menu . . . again, no tablets.

    On the previous flights taken September 8-10 — SFO-SNA-ABQ o/w; ABQ-PDX-SFO return — the in-flight team was just as obnoxious and un-caring as the flight to Mexico City and back. The food offered was, again, inedible. Indeed, the best part of the experience was when the SNA-ABQ leg was cancelled due to thunderstorms, so after spending 2h45min on the tarmac, we arrived at the gate and deplaned JUST UNDER the 3-hour limit for compensation, but at least the AS ground agents provided us with a taxi voucher from SNA-LAX, and F on an AA flight that landed around midnight . . . .

    I do believe I have given them a “fair shot,” as you put it. So far, my wife and I have received $400 (each) in travel vouchers as compensation, but I don’t want compensation — I’d really much rather enjoy the flight(s), to the level and standards for which AS is known!

    And let’s not overlook that the much talked about new AS Boardroom at SFO seems to have been — if not cancelled — put on hold indefinitely. (Please tell me why I recently paid for a Lounge membership when I can’t really take advantage of it at my home airport . . . yes, I know, clearly I “pulled the trigger” too soon. Can I get a refund . . . )

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