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

Jul 14, 2020

This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.

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.

For more travel tips and news, sign up for our daily newsletter!

In This Post

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.

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 photo by Zach Griff/The Points Guy

Delta SkyMiles® Platinum American Express Card

Earn 50,000 bonus miles and 5,000 Medallion® Qualification Miles (MQMs) after you spend $2,000 in purchases on your new card in your first three months of card membership. Plus, earn up to $100 back in statement credits for eligible purchases at U.S. restaurants with your card within the first 3 months of membership.

With Status Boost™, earn 10,000 Medallion Qualification Miles (MQMs) after you spend $25,000 in purchases on your Card in a calendar year, up to two times per year getting you closer to Medallion Status. Earn 3X Miles on Delta purchases and purchases made directly with hotels, 2X Miles at restaurants and at U.S. supermarkets and earn 1X Mile on all other eligible purchases. Terms Apply.

Apply Now
More Things to Know
  • Earn 50,000 bonus miles and 5,000 Medallion® Qualification Miles (MQMs) after you spend $2,000 in purchases on your new Card in your first 3 months.
  • Plus, earn up to $100 back in statement credits for eligible purchases at US restaurants with your card within the first 3 months of membership.
  • Accelerate your path to Medallion Status, with Status Boost®. Plus, in 2021 you can earn even more bonus Medallion® Qualification Miles (MQMs) to help you reach Medallion Status.
  • Earn 3X Miles on Delta purchases and purchases made directly with hotels.
  • Earn 2X Miles at restaurants worldwide, including takeout and delivery and at U.S. supermarkets.
  • Earn 1X Miles on all other eligible purchases.
  • Receive a Domestic Main Cabin round-trip companion certificate each year upon renewal of your Card. *Payment of the government imposed taxes and fees of no more than $75 for roundtrip domestic flights (for itineraries with up to four flight segments) is required. Baggage charges and other restrictions apply. See terms and conditions for details.
  • Enjoy your first checked bag free on Delta flights.
  • Fee Credit for Global Entry or TSA Pre✓®.
  • Enjoy an exclusive rate of $39 per person per visit to enter the Delta Sky Club® for you and up to two guests when traveling on a Delta flight.
  • No Foreign Transaction Fees.
  • $250 Annual Fee.
  • Terms Apply.
  • See Rates & Fees
Regular APR
15.74%-24.74% Variable
Annual Fee
$250
Balance Transfer Fee
N/A
Recommended Credit
Excellent/Good
Terms and restrictions apply. See rates & fees.

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.