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AA Takes on Budget Carriers With New “No Frills” Fares

In the hope of better competing with ultra-low fare carriers, American will introduce its own ultra-low cost fares with added restrictions and fewer perks.

American Airlines is planning a new ticket class in hopes of luring frugal flyers away from budget carriers like Spirit and Frontier. Basic Economy fares are scheduled to be available for select flights early next year. The low-cost tickets will come with extra restrictions and fewer amenities.

Airline officials discussed the new fare class Friday during a third-quarter earnings call with analysts and investors. Despite enjoying the highest quarterly profit in the airline’s history, CEO Scott Kirby said the legacy carrier is facing increasingly steep competition from “no frills” carriers, especially at American’s Dallas/Fort Worth International Airport (DFW) hub.

“Given that 50 percent of our revenue is up for grabs in these markets, and these carriers have had so much success when they weren’t matched,” said Kirby. “We know that we have to match their fares.”

Company officials say that matching fares of budget carriers such as Spirit and Frontier will require matching those airline’s restrictive policies on the cheap tickets. American will follow Delta Air Lines lead in creating a special fare class that comes with special restrictions. Delta’s Basic Economy tickets offer competitive prices on mainline flights, but the tickets are non-refundable, travel does not accumulate frequent flyer points, passengers are not eligible for upgrades and seat selection is not available.

Kirby is banking that customers who are used to flying no frills airlines will be willing to trade these amenities for the cheapest fare available without alienating its flyers who have come to expect a higher standard of customer service.

“We will do more to disaggregate and really do more to have a product that has less frills,” Kirby explained to investors. “That will allow us to offer a product that is competitive on price with ultra-low-cost carriers, but also customers who want a better product and are frequent fliers, who want a better seat on the airplane. We can give them the choice of not paying that fare and having a better product.”

[Photo: American Airlines]

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13 Comments
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jediwho November 1, 2015

Most of the comments here hit the mark. AA, DAL and UA are digging their own grave essentially. They are making their programs less lucrative, status more difficult and in many cases, their FF programs will end up being worse than those offered by point to point carriers (LCC). One of the best FF program is from LUV where they offer free companion ticket. LCCs are growing capacity anywhere from 5% to 10% a year and currently have more than 30% market share. At this rate, they will have close to 40% in five years and still keep their planes full. LUV and JBLU have already started flying international and I can't wait until they start flying some longer route. Regarding business flyers, a and a few people I know flying for business have started using JetBlue Mint for transcon vs. UA despite having a status. Speaks volumes of how messed up US/DAL programs are. If I was UA/AA/DAL, I would be strengthening my FF programs and make them ironclad.

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Anton Von Bresson October 30, 2015

Oooops I thought AA was no frills already?!

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_bart_ October 29, 2015

Here's the deal: employer will insist on the cheapest fare (remember: no upgrade, no miles, most likely a middle seat since you can't choose the seat). My EXP status won't get me anything (except maybe boarding early). The result? American: happy to get my company's business Employer: happy to save money Me: pissed - Can't imagine clocking over 100K+ miles per year in these conditions, and not even getting any credit for it. If it turns out the way I predict here, I'll quickly be looking to traveling on another airline. Even if that means changing job. A shame after qualifying for EXP 10 years in a row, but I'm sure others will be happy to get by business!

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Sydneyberlin October 29, 2015

I almost always buy first class tickets anyway and this is just another reason to continue doing so. The issue starts when they introduce those cheap fares and then the great unwashed on their cheap tickets make life hell for the ones who have paid their decent fares. British Airways had this system for years and it always creates a mess on overhead luggage storage taken by the cheapies and even, my personal pet hate, them using the toilet up the front with the crew not even blithering an eye.

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physina October 29, 2015

I flew 4 segments on American last week. Two of them were over 3.5 hours long. They never offered snacks on any of the flights just beverages. That is on their regular standard fare so they are already cutting perks without cutting price.