Originally Posted by
jsloan
If this analysis were true, ULCCs would go out of business immediately. Their entire business strategy is to entice people with low fares and then make their money on ancillary revenue. People are simply more willing to spend $100 twice than $200 once. Study after study has proven it, and the fact that the ULCCs are still in business confirms it.
Just because you're not seeing E+ full on your flights doesn't mean it's not full on others. It also doesn't mean that the customers currently seated in E- aren't going to be willing to do a last-minute buy-up when they realize how lousy their seat will be -- perhaps even a TOD all the way to F.
I'm both a frequent flyer and a long-time airline investor (a better profession than many might think), and I'm both fascinated and troubled by what UA is doing with basic economy. When the idea was launched, I assumed it would only be utilized in nonstop markets that competed against the ultra low cost carriers like Spirit and Frontier. Frankly, from a business perspective, I thought it was brilliant. It solves the major airline's problem of what to do when a ULLC offers a lowball fare in a major airline's hub market. Previously, the major airline had to cede this business to the ULLC, or "match" the ULLC fare -- even if that was a money losing proposition (especially since the major airline had no way to collect the ancillary revenue that the ULLC would likely receive -- for instance, with a carry-on baggage fee).
As a frequent flyer, I loved when airlines like UA would match a ridiculous Spirit fare and give me great service. I've even been upgraded on $49 fares. But for UA, that's a stone cold money losing proposition. Basic economy solves this problem for the airline.
But offering BE systemwide in markets without ULLC competition is a entirely different animal. It basically means UA is offering a "come on" fare: a lower price for a product that you don't really want to buy and the airline doesn't really want to sell you. They're clearly hoping to get your attention and have you buy up. But offering these fares is certain to annoy your best customers, and exposes UA to the risk that its competitors will match UA's fares but include the "normal" services. In that case, almost nobody is going to pick UA for that flight. Of course, it's also possible that the other airlines will offer a fare somewhere between UA's basic economy and it's regular fare, which might also be a problem for UA.
In other words, it's difficult to predict how this pricing structure will play out. It may be another huge win for UA, especially if DL and AA also go systemwide with it. It will basically be a hidden fee; kind of like a resort fee. It may also be a significant failure, especially if DL and AA do not adopt this pricing strategy. Only time will tell.
I also think BE helps Southwest because they are the only airline that keeps pricing (including frequent flyer miles) simple. Most people aren't sophisticated enough, or willing to spend enough time, to figure out all these fare and loyalty rules. You don't have to be a committed rocket scientist to fly WN. Increasingly, you do have to be a rocket scientist to get a good deal giving your business to the major airlines. Perhaps they benefit from the complexity; but for the individual traveler, especially the novice ones, the complexity is a royal PITA.