AA Expects $1 Billion in Additional Revenue Thanks to Basic and Premium Economy

Jan 27, 2017

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Update 1/29/17: American Airlines is now listing “late February” as when Basic Economy fares will go on sale:

On American Airlines’ investor earnings conference call this morning, there was quite a bit of discussion about Basic Economy. And one of the fascinating revelations was AA management’s proud claim to investors that Basic Economy and Premium Economy are expected to increase the airline’s revenue by $1 billion per year. When asked for clarification, AA management wouldn’t detail how the additional $1 billion would break down between Basic Economy and Premium Economy.

This should put to rest any hopes that American will decrease fares with the introduction of Basic Economy. As confirmed in the call, AA will continue to “match the ultra low-cost carrier pricing with our Basic product.” Regarding the price difference you’ll have to pay to avoid Basic Economy, the airline says it’s “going to have to figure that out as we go.” However, this difference between Basic Economy and standard economy is probably what’s going to generate most of the $1 billion.

Here’s what we know about American Airlines Basic Economy so far.

With the new information revealed in the conference call, here’s what we now know about Basic Economy:

What: American Airlines Basic Economy is a stripped-down version of the carrier’s economy tickets. We go into full details here, but in short, you’ll be the last to board; won’t get assigned seats; and will have no large carry-on bags, no flight changes (even paying a fee), no upgrades and reduced elite mileage earnings.

Why: American is getting strong price competition from ultra-low-cost-carriers (ULCCs) such as Spirit and Frontier. AA has figured out that it has to match these airlines’ prices or lose significant market share. However, the ULCCs charge extra for everything from carry-on bags to drinks, while AA still provides these as part of the low fares. Basic Economy is a way of leveling the field while still matching the same fare.

When: The first Basic Economy tickets are going on sale on February 10. However, AA says it’s “going to be really smart in terms of how we roll out Basic Economy,” stretching the process throughout 2017 and into early 2018.

Where: American will first introduce Basic Economy in 10 yet-to-be-revealed markets. However, we can expect that these markets will be heavily served by ultra-low cost carriers such as Spirit and Frontier. By early 2018, American says it expects to have Basic Economy “throughout our domestic network.”

Bottom Line

There are just a few weeks left before AA’s Basic Economy goes on sale. Today’s conference call pulled back the curtain on just how big of a deal this new offering will be once implemented. While you can expect Basic Economy fares to continue to be very cheap, American Airlines expects to increase revenue by over $1 billion by charging more for the same standard economy product.

Featured image courtesy of American Airlines.

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