Basic economy seats are improving American Airlines’ bottom line
American Airlines’ basic economy fares — those no-frill tickets that offer no upgrades, no cancellations and an extra charge for large carry-on bags — are helping to boost fares for main cabin seats and driving prices higher on competing low-cost carriers.
Those are some of the conclusions from a study by New York-based Wolfe Research about the basic economy fares launched by the Fort Worth-based carrier in February. Rival United Airlines also launched basic economy fares in February. Delta added a limited number of basic economy seats in 2012.
As passengers book the last of the basic economy fares, American is not adding more basic economy seats, the study by Wolfe Research analyst Hunter Keay found. Instead, the airline sharply increased the price of main cabin seats an average of 117%.
“This is literally exactly what’s supposed to happen,” he said in the report that looked at pricing on 10 American Airlines routes over a five-week period.
(Basic economy fares are the same seats as main cabin seats on American but are about $20 cheaper and include many more restrictions.)
Keay’s study also found that as soon as passengers booked all of American Airlines’ basic economy seats on a specific route, ultra-low-cost competitors such as Spirit Airlines and Frontier Airlines increased fares on the same route an average of 62% just two days later.
“This implies [American Airlines] is actually the price setter in these markets due to its size,” he wrote.
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