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Basic economy may disappear after the pandemic — but don’t get too excited

July 14, 2020
6 min read
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The global pandemic will have many lasting implications. Our "new normal" could one day become normal, even after there's a readily available vaccine.

We're already getting a sense of what that's going to look like for the aviation industry. Gone are the jumbo jets in favor of more fuel-efficient and cost-effective types of widebody planes. Furthermore, airlines have committed to being smaller post-pandemic, operating fewer nonstop flights to secondary cities.

There's another aspect of the industry that the coronavirus has changed, and that's the segmentation strategy behind basic economy fares. Should that last, airfare pricing models could be changed forever.

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The basics of basic economy fares

Perhaps the most unwelcome change in the airline industry in the last decade was the introduction of basic economy fares. These bare-bones tickets stripped out many of the typical inclusions you’d find in a regular coach ticket: things like seat selection and the ability to earn full miles. (Delta’s the sole outlier of the "big three" and awards full mileage on basic economy tickets.)

In order to better compete with the ultra low-cost carriers like Allegiant, Frontier and Spirit (and simply generate more revenue), the legacy, "full-service" airlines got creative.

Spirit A321neo economy (Photo by Nick Ellis/The Points Guy)

With basic economy fares, the mainline carriers could more closely match the fares of low-cost carriers by stripping out many of the inclusions you’d typically get with a regular economy ticket. Such fares now exist at all major U.S. airlines, save for Southwest.

These tickets are a segmentation strategy to extract as much revenue based on each passenger's willingness to pay. As Savi Syth — managing director of equity research for airlines at Raymond James — told TPG, basic economy "is a recognition that you cannot profitably be all things to all people, but in this industry, you have to cater to passengers with different priorities. With product segmentation, you can to some extent do a better job of tying the revenue generated to the cost of providing the service."

Though basic economy means different things at each airline, there's one major restriction across the board — typically, these tickets can't be changed or canceled after purchase.

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Related: How to use credit cards to defeat basic economy

Basic economy has less relevance during the pandemic

By offering fares with limited flexibility, airlines could better mimic the policies of the budget carriers. Additionally, this restriction is too punitive for most business travelers, who prefer to purchase more flexible (and therefore expensive) tickets.

As such, these tickets did a great job of catering to the price-sensitive travelers who are willing to lock in their plans well in advance.

But now that we're living in unprecedented times, airlines have needed to offer sweeping change fee waivers to incentivize people to book future travel. And since these waivers generally apply to all ticket types, carriers lose the segmentation strategy of selling truly nonrefundable airfare to leisure travelers.

Not only that, but with planes less full and some airlines capping capacity, the lack of a seat assignment doesn't matter as much either. With boarding processes modified to promote social distancing, it also makes no difference that your ticket requires you to board last.

Finally, all U.S. airlines have extended elite status. So the fact that a basic economy ticket earns little to no mileage shouldn't really make that much of a difference for the average flyer.

Screenshot courtesy of American Airlines

Combined, that's why basic economy is losing its relevance during the pandemic. Carriers like Spirit are selling tickets at rock-bottom prices, and major airlines are matching. So why would anyone — price sensitive or not — choose a more flexible coach fare when the only major difference is your baggage allowance?

Related: What basic economy means across the airlines

The future of basic economy is uncertain

With many temporary changes to the flight experience, basic economy fares aren't nearly as relevant or effective as a segmentation strategy.

Other than baggage allowance, none of the other restrictions really matter during the pandemic (Screenshot courtesy of United)

But once there's a vaccine, will things snap back to normal?

JetBlue's COO, Joanna Geraghty, isn't sure. In an interview with TPG's founder and CEO, Brian Kelly, she mentioned that "flexibility will be a significant component of the future of air travel. As we move through this experience, it’ll be interesting to see how customers use change [policies] going forward. Longer term, it will definitely be part of the purchase decision."

So long as people can't reasonably book travel six months in advance, one of the strongest levers of getting people to buy-up from basic economy won't be enforceable. And that could lead to higher prices.

JetBlue coach on the A321neo (Photo by Zach Griff/The Points Guy)

Syth told TPG that "If for some reason [change fee] restrictions cannot be brought back, then the cost of the lowest-priced tickets will have to go up because the cost of providing that service will be higher."

Of course, revenue managers are likely in the process of devising other ways to segment the market of basic economy and regular coach flyers in the absence of flexibility constraints. Time will tell how this plays out, but so long as there are change fee waivers, fewer and fewer people will choose to splurge for the "full" coach fare.

Related: How coronavirus could change the future of travel

Bottom line

The future is uncertain. We don't know when the pandemic will end, and we certainly don't know when travel will return to pre-COVID levels.

That's why airlines have implemented flexible waivers. One of the biggest implications for waived change fees is the inability to segment customers between basic economy and regular ticket types. Combined with blocked middle seats, modified boarding procedures and extended elite status, there's much less of a reason for someone to buy-up from basic economy.

And until these restrictions can once again play a role in the purchase decision, we're likely going to see more innovation in the basic economy fare.

Featured image by (Photo by Zach Griff / The Points Guy)

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Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
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    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

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Why We Chose It

Sometimes it's worth a large investment to reap the benefits of a great credit card. That's exactly the case with the Amex Platinum card. In exchange for the annual fee, you'll unlock access to the Amex Membership Rewards program that let you access airline and hotel transfer partners, along with new lifestyle and travel credits. This card is also incredibly rewarding for travel purchases, helping you rack up a ton of Membership Rewards points for your next award trip.

Pros

  • The current welcome offer on this card is quite lucrative. TPG values it at $1,600.
  • This card comes with a long list of benefits, including access to Centurion Lounges, complimentary elite status with Hilton and Marriott, at least $500 in assorted annual statement credits and so much more. (Enrollment required for select benefits.)
  • The Amex Platinum comes with access to a premium concierge service that can help you with everything from booking hard-to-get reservations to finding destination guides to help you plan out your next getaway.

Cons

  • The high annual fee is only worth it if you’re taking full advantage of the card’s benefits. Seldom travelers may not get enough value to warrant the cost.
  • Outside of the current welcome bonus, you’re only earning higher rewards on specific airfare and hotel purchases, so it’s not a great card for other spending categories.
  • The annual airline fee statement credit can be complicated to take advantage of compared to the broader travel credits offered by competing premium cards.
  • Earn 80,000 Membership Rewards® points after you spend $6,000 on purchases on your new Card in your first 6 months of Card Membership. Apply and select your preferred metal Card design: classic Platinum Card®, Platinum x Kehinde Wiley, or Platinum x Julie Mehretu.
  • Earn 5X Membership Rewards® Points for flights booked directly with airlines or with American Express Travel up to $500,000 on these purchases per calendar year and earn 5X Membership Rewards® Points on prepaid hotels booked with American Express Travel.
  • Get $200 back in statement credits each year on prepaid Fine Hotels + Resorts® or The Hotel Collection bookings, which requires a minimum two-night stay, through American Express Travel when you pay with your Platinum Card®.
  • $240 Digital Entertainment Credit: Get up to $20 back each month on eligible purchases made with your Platinum Card® on one or more of the following: Audible, Disney+, The Disney Bundle, ESPN+, Hulu, Peacock, SiriusXM, and The New York Times. Enrollment required.
  • $155 Walmart+ Credit: Cover the cost of a $12.95 monthly Walmart+ membership with a statement credit after you pay for Walmart+ each month with your Platinum Card. Cost includes $12.95 plus applicable local sales tax. Plus Ups are excluded.
  • American Express has expanded The Centurion® Network to include 40+ Centurion Lounge and Studio locations worldwide. There are even more places your Platinum Card® can get you complimentary entry and exclusive perks.
  • $200 Airline Fee Credit: Get up to $200 in statement credits per calendar year in baggage fees and more at one select qualifying airline.
  • $200 Uber Cash: Enjoy Uber VIP status and up to $200 in Uber savings on rides or eats orders in the US annually. Uber Cash and Uber VIP status is available to Basic Card Member only.
  • Get up to $300 back per calendar year on the Equinox+ digital fitness app, or eligible Equinox club memberships when you pay with your Platinum Card. Enrollment required. Learn more.
  • Breeze through security with CLEAR® lanes available at 100+ airports, stadiums, and entertainment venues and get up to $189 back per calendar year on your membership when you use your Card. Learn more.
  • $695 annual fee.
  • Terms Apply.
  • See Rates & Fees