Industry Analysts: AA and Delta May Have to Introduce Basic Economy Fares

Analysis suggest “basic economy” fares could expand to overseas markets

With the expansion of international low-cost carriers across the United States, analysts expect “basic economy” fares to start reaching outside of the United States into targeted European destinations. Bloomberg reports the expansion could be a direct response to lost revenue during the second quarter of 2017.

Throughout the year, all three carriers have introduced “basic economy” fares on domestic routes, in which flyers exchange the right to carry-on luggage and selecting seats for a discounted price. While this tactic was successful in attracting new passengers away from competitors Frontier Airlines and Spirit Airlines, it has not helped retain trans-Atlantic traffic. According to financial records from the legacy carriers, American Airlines and Delta Air Lines both reported lower fare-per-mile on Atlantic flights in the second quarter, while United Airlines grew less than one percent.

At the same time, European low-cost carriers have continued their growth across the country. On August 23, 2017, WOW Air announced expansion into four new markets by 2018: Cincinnati/Northern Kentucky International Airport (CVG), Cleveland Hopkins International Airport (CLE), Detroit Metropolitan Airport (DTW) and St. Louis Lambert International Airport (STL). Norwegian Air will also continue expansion through opening a second base in Providence, Rhode Island.

As a result, at least two analysts believe the legacy carriers will expand their “basic economy” programs to international flights. Analyst Michael Bentley from Revenue Analytics told Bloomberg the low cost carriers would force the legacy airlines’ hands “by taking incremental bookings and forcing them to lower their own fares,” while another expects basic economy to be a matter of time.

“My expectation is they’ll roll it out [basic economy] in some form,” Savanthi Syth of Raymond James Financial told Bloomberg. “Right now they’re aggressively matching [European low-cost carriers].”

Executives at the legacy carriers say they are aware of the low-cost carriers’ positioning, but have not gone to announce the expansion of “basic economy” fares. Leadership at American told shareholders: “There is excess capacity in the [European] marketplace,” while Delta president Glen Haustein has gone on the record acknowledging “…the European business sector picking up, and we’re seeing that in the travel to and from Europe.”