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

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

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]

View Comments (13)

13 Comments

  1. FCfree

    October 26, 2015 at 1:27 pm

    Interesting, but Frontier DOES have a frequent flyer program. Not a great one, but at least it has one. Also, on Frontier, you can upgrade that super cheap fare with “The Works” for $49 and up (depending on the route) that includes stretch seating and some flexibility in changes, along with a free carry-on and free checked bag.

    From the above, American’s “dirt cheap” fare sounds even more restrictive than Frontier. Will it also be even cheaper than Frontier’s? Is that even possible?

  2. ksandness

    October 26, 2015 at 2:10 pm

    I’m old enough to remember when “no frills” flying meant no meal, no free alcohol, and less leg room. Soon these “no frills” features came to be the norm on domestic flights.

    That’s why American Airlines’ announcement should fill its customers with foreboding. Instead of saying, “OK, the low-cost carriers can have the low-budget fliers, and we’ll take the frequent fliers,” they’re saying, “We have to join the race to the bottom.”

  3. Centurion

    October 26, 2015 at 2:28 pm

    AA is already playing the “pay up” for $eat game. Just look at seats available when you are not logged into your account if you are elite. Last time it showed zero seats available unless I purchased or waited until airport but when I logged into my AA account plenty of seats and not just for elite members.

  4. grbauctions

    grbauctions

    October 26, 2015 at 7:33 pm

    The cost to fly First class domestically has gotten so much more in line with what it should be I hardly ever sit in economy unless im stuck with SWA has my only choice. Now i Know every one is not in my situation and might have to fly the cheapest but I like the pick what you want model. For many of my friends who only fly once or twice a year loyalty means nothing. trying to have a one are two sizes fits all doesn’t work in today economy imop…

  5. Open Jaw

    October 26, 2015 at 7:39 pm

    If these low fares are not going to earn miles, I wouldn’t choose AA over B6 to cities like BOS. I don’t need bonus miles, but I do believe I should earn at least some miles.

  6. diburning

    October 27, 2015 at 2:58 am

    Looks like they’re copying Delta.

  7. cmd320

    October 27, 2015 at 6:51 am

    If we’re going to copy DL, then I expect MCE to start getting complimentary booze…

  8. hdvargas1

    October 27, 2015 at 11:41 am

    “No frills”, ultra cheap fare flyers are generally used to one cabin. Albeit, there might be extra legroom seats on the flight. I wonder how being exposed to First, E+ or Economy Comfort, etc will affect them?

    I wonder how Delta’s Basic Economy is doing?

    I would think normal economy as it is offered is generally considered to encompass the most basic of services. And sometimes it’s not that great, especially if your flight is using a little tin can with wings (ERJ/CRJ). The fact that some airlines sometimes use these tin cans on 2+ hour flights is ridiculous, btw. To me, Delta and American’s ultra low fares are not worth it at all. And if you understand what these new low fares encompass and book them while having the ability to afford normal econ or E+, then I won’t really have much sympathy for you.

  9. physina

    October 29, 2015 at 4:34 am

    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.

  10. Sydneyberlin

    October 29, 2015 at 4:50 am

    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.

  11. _bart_

    October 29, 2015 at 12:34 pm

    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!

  12. Anton Von Bresson

    October 29, 2015 at 5:29 pm

    Oooops I thought AA was no frills already?!

  13. jediwho

    November 1, 2015 at 9:56 am

    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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