American Airlines To Eliminate Complimentary Upgrades On New Basic Economy Fares

Back at the end of October last year Scott Kirby, American Airlines’ president, used a Wall Street earnings call to announce that 2016 would be the year American Airlines would introduce tickets priced to compete with discount airlines like Spirit and Frontier. Basic Economy fares were coming to American Airlines.

At the time I pointed out that this wasn’t just about making tickets prices cheaper (no airline really wants to do that) but, as Kirby mentioned, it was about allowing American Airlines to “disaggregate the product” which would then come with “appropriate benefits”.

The phrase “appropriate benefits” translates directly to “less benefits” in this case and that left us all wondering which benefits American Airlines would cut for these new Basic Fares. Well, now we’re starting to find out.

American’s CEO Doug Parker gave a 40 minute presentation at the JP Morgan Aviation, Transportation & Industrials Conference yesterday in which he outlined the recent successes of the airline, discussed how he sees where the industry is now as well as giving  an insight into what he called “product segmentation”.

I’ll pull together a post about what Doug Parker covered in his presentation and post it within the next couple of days but, for now, I’m just going to focus on what he said, albeit briefly, about the AAdvantage changes and the new Basic Economy fares.

AAdvantage Redesign

Parker didn’t want to dwell on the changes to AAdvantage but what he had to say gave an insight into the new way American Airlines is thinking about its customers. When taking about the AAdvantage redesign this is what Parker had to say:

[We think] a much better way to reward customers for their loyalty is not so much how many miles they flew but how much they spent. That’s good for our customers that spend these dollars and it’s good for the company to reward those who spend more [and] we can use that, of course, to encourage people to spend more versus flying more.

Put simply, Parker wants you to give American more money for flying less.

The fact is that, if Parker really wanted to reward customers for how much they spend, he’d revamp the Business Extra program and put more money into the pockets of those who actually pay for the tickets. The real customers who pay for the expensive seats are, mostly, the companies/corporations who send their employees flying all over the world. The employees are just passengers. Customer doesn’t always equal passenger.

Product Segmentation

In this segment (no pun intended) Parker concentrated on the Basic Economy fares that he said will be coming in the second half of 2016:

We’ll have Basic Economy rolled out by the second half of 2016. It will allow us to have a product in place to compete with ultra low-cost carriers, that can be differentiated from our other products so that things like upgrades will not be included which will mean a lo… a number of our customers won’t want to buy that product. Again, things that some others have done that we think make a lot of sense and we’re moving very quickly, we’ll have that in place by the second half of 2016 as well as Premium Economy across the international fleet.

So, no upgrades for Basic Economy fares. I’m going to assume that means no complimentary upgrades for Executive Platinum flyers and no option to use 500-mile upgrades for other elite ranks.

It was funny to hear Parker have to stop himself from saying “which will mean a lot of our customers won’t want to buy that product” – he’s hoping that significant numbers of American Airlines elites, used to getting free upgrades for decades, will choose to pay more just for the chance of an upgrade.

Let’s be clear about this. Not only will the Basic Economy fares not give you the chance to be upgraded but the “regular economy” fares will only give you the chance to be upgraded, there’s still no guarantee. Passengers will be paying more just to have a chance at an upgrade – just like they do over at United for some of their upgrade instruments.

American is wandering down the same road as Delta (and to a degree United) and that’s who Parker was referencing when he said “things that some others have done that we think make a lot of sense”.

Note: What Doug Parker said right at the end of that quote was almost certainly what he meant to say…because there;s absolutely no way that American Airlines will have Premium Economy across the international fleet by 2H 2016…they’ll only just about have it on a handful of new aircraft.

Bottom Line

This is what you get when you’re left with just three major airlines in the US – they can all offer pretty much the same options because the passengers have nowhere else to go.

The people who are going to be affected most by the Basic Economy fares will be those whose corporate travel policies dictate that the lowest available fare has to be booked. They could well find themselves flying 100+ segments on American, with top-tier status, but without a snowball’s chance in hell of an upgrade.

You can also be very sure that the new “regular economy” fares will be higher than a discount economy fare is today. American is in this to make more money and they’re not going to do that by just offering a cheaper option. Prices will definitely be going up and AAdvantage Elite status (especially Executive Platinum status just took a big hit).