Half of AA Customers Paying More to Avoid Basic Economy

On February 21, American Airlines started selling Basic Economy fares for flights starting March 1. Now that we're almost two months into the process, we're getting our first glance into how it's going. In its investment filings this morning, American Airlines President Robert Isom focuses on customer choice when announcing how this has gone so far:

While it's still early, the initial results from our new Basic and Premium Economy products are encouraging. Approximately 50 percent of customers who are presented with a choice for Basic Economy end up choosing a Main Cabin fare, showing that they understand their options and are choosing the ticket that's the right fit for their travel.

In the prepared statement, CEO Doug Parker continues to beat the "choice" drum:

We successfully launched several important commercial initiatives, including Basic Economy and Premium Economy, which are designed to provide more choice for our customers.

On the investor conference call, you could tell that management was trying to send a signal to investors about how "encouraging" this was for financial results — without outright saying how happy they are with charging customers more for the same product they were getting before. While AA hasn't yet quantified how much of an impact this has had on financial results, the airline is expecting $1 billion per year in additional revenue once Basic Economy and Premium Economy are fully rolled out.

New Routes

Since the initial launch, American Airlines has quietly added another route: New Orleans (MSY) — Tampa (TPA). But, there are many more to come. AA management told investors more routes are going to be rolled out in May and June, but they wouldn't elaborate when asked about which city pairs would be included — leading to press questions about why AA is being so "secretive."

How It's Going at the Gate

In the risks section of its financial filings, Basic Economy continues to be listed in "Changes to our business model that are designed to increase revenues may not be successful and may cause operational difficulties or decreased demand." So, how's the rollout impacting operations so far?

When asked about how the introduction of Basic Economy is going at the gate, management continued with the positive tone. So far, the airline is "benefiting from the tremendous amount of planning and training" and "customers understand the restrictions... and are complying." So, there have been "no issues" so far, no impact when it comes to on-time departures and flight attendants appreciate having fewer bags on board.

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Bottom Line

One thing is clear: Whether it's all about "customer choice" or just a way of raising additional revenue, Basic Economy is here and it's going to continue to expand. We are continuing to look forward to American Airlines honoring its commitment to match the low-cost carrier pricing for Basic Economy — which largely hasn't been the case so far.