United's 'Basic Economy' fare: Does it strike the right balance?

United Airlines will roll out its most trimmed-down fare early next year. The airline hopes to compete with budget carriers while maintaining the company's 'on-board experience.' For budget travelers, it may be a step in the right direction.

Louis Nastro/Reuters
A United Airlines Boeing 787 taxis as a United Airlines Boeing 767 lands at San Francisco International Airport Feb. 7, 2015.

United is committed to its customers and its bottom line, the company suggested Tuesday.

As part of United Airlines’ Investor Day, the company unveiled plans for a new fare class. Set to debut in certain markets from January, “Basic Economy” fares are the result of almost a year’s work by the airline. Customers are limited to one personal item, receive assigned seat arrangements, and don’t receive the same rewards points as economy class passengers. Onboard, though, amenities and services are the same.

With Basic Economy fares, the company hopes to strike a new balance between low prices and quality customer service, along the lines of popular low-cost carriers such as Southwest Airlines and JetBlue. The fare signals United’s changing attitude toward budget travelers: This group can provide an answer to slim profit margins, while quality customer service may keep them coming back to United better than any loyalty program could.

“It’s probably a win-win: They can fill their plane with smaller gaps, and there are going to be people who [the new fare] will definitely speak to,” says Ceridwyn King, assistant professor at Temple University’s School of Tourism and Hospitality Management in Philadelphia, in a phone interview with The Christian Science Monitor.

The airline industry is well-known for its narrow profit margins, which make having every seat filled each time a plane takes off critically important. Meanwhile, online travel websites have made it easier than ever for customers to find the cheapest fares – with little mention made of what “extras” are included in that fare.

That business model works well for ultra low-cost carriers such as Spirit or Frontier, who tack on additional charges for everything from hand luggage to snacks. But it’s left so-called “network carriers”, such as United, Delta Air Lines, and American Airlines, scrambling to maintain their brand while filling their planes.

For United, which ranks as the least profitable airline in a 2015-2016 study by global management consulting firm Oliver Wyman, the Basic Economy fare is an attempt to diversify its options and appeal to a price-conscious audience, both within and outside United’s existing customer base.

“It’s definitely changing – the products that customers feel are most important to them and what we’re delivering,” Jonathan Guerin, a United spokesperson, tells the Monitor in a phone interview.

Eliminating options like roll-aboard carry-on bags helps create a “more smooth boarding process,” because there’s less need for space in overhead bins, he explains. And assigned seating means that the airline can fill vacant seats, earning United more money than if the seat were left empty.

At the same time, passengers are “still receiving that whole United experience” – including snacks and Wi-Fi – onboard the plane, Mr. Guerin says. 

It’s a new approach to brand loyalty for the airline, suggests Professor King, who studies loyalty programs in the tourism industry. United will not offer the same rewards for Basic Economy passengers as for the rest of its customers but may win repeat business with its in-flight experience.

“United understands that a loyalty program doesn’t mean loyalty,” King says, noting that loyalty programs are costly for airlines, which have to provide free flights. But “in service organizations ... what really makes us loyal is the service they provide.”

The archetype of brand loyalty in the air travel industry, many say, is Southwest Airlines.

“We refuse to nickel-and-dime our customers ... that just doesn’t fit with our brand,” explains Southwest spokesman Dan Landson in a phone interview with the Monitor.

The airline offers two free checked bags, as well as two carry-on items, for budget prices. Southwest chief executive officer Gary Kelly, speaking to the Global Business Travel Association in Orlando last year, said the airline “would lose a billion dollars” if it started adding fees and trimming services.

Unlike the new United fare, Southwest also allows families with children ages 6 and under to board earlier and sit together, meaning families can take advantage of the best-value fares.

Given Southwest’s success with customer-friendly policies, United may find that it can do more for its customers than the current Basic Economy fare offers, while maintaining low prices and quality service.

The company plans to keep in touch with its customers to see how they feel about the new option. Asked about United’s ability to compete with Southwest and JetBlue without offering roll-aboard carry-on bags and family seating, Guerin said, “It’ll definitely be something that we’ll take a look at” as time goes on.

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