Carry-on bags are back: American Airlines Basic Economy gets a little less basic

It is not much, but for many passengers it is the difference between buying a Basic Economy fare or not. American Airlines will add a carry-on bag allowance back to its basic economy fares effective 5 September 2018. The policy shift aligns with Delta Air Lines‘ basic economy offering and leaves United Airlines as the legacy holdout on this front.

The move “will make Basic Economy more competitive, allowing us to offer this low-fare product to more customers,” according to President Robert Isom. This phrasing suggests that the company saw some level of passengers booking away from the AA options as a result of the no bag policy. Because, after all, the airline’s goal in offering the Basic Economy fares is to have customers not book the product.

To make Basic Economy more competitive, American is removing the carry-on bag restriction that is currently part of its domestic and short-haul international Basic Economy fare rules. This change will be effective September 5, for tickets purchased or flown that day. Until then, current Basic Economy fare rules will continue to apply, including the allowance for only one personal item.

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In the same statement about making the product more appealing to customers Isom notes just how well Basic Economy is working as judged by the 63% of customers who choose to buy a Main Cabin fare rather than the Basic Economy option they are initially presented with.

Basic Economy fares were initially positioned in the market as a competitive response to the U/LCC carriers and their incursion on to the legacy carriers’ route networks. That ruse fell flat rather quickly as all of the “Big 3” quickly expanded the Basic Economy offering to all routes, effectively a rate hike across the systems. A large part of why that worked well for the airlines comes from those fares being harder to compare against other airlines on a like-for-like basis given the varying benefits the fares offer. As online fare search options improved, however, the ability to compare became easier. That forced American’s hand.

CEO Doug Parker expanded on that challenge during the earnings call Q&A:

We got to a point where we weren’t competitive. We’ve been very happy with the results [of Basic Economy], but for price sensitive customers there is a big airline out there that doesn’t charge for the carry-on. And there are filters out there on things like your Google search… When you get yourself in a position in the business where price sensitive customers find themselves with lower fares on truly competitive airlines you have to take that into consideration. We think the right thing to do is get in line with the competition

The company expects that the Basic Economy upsell will now only see a 50% take rate but also that more customers will see the option as it will no longer be excluded from search results on various online sites. Ultimately the hope is this increases total revenue for the company.

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Behold the power of the Product Attribute

Isom also referenced the online fare search landscape in the call, noting that American finds itself “uncompetitive from a product attribute perspective.” That is just a rephrasing of Parker’s comments but also calls out a very specific term – product attribute – that helps define how the fare search world is rapidly evolving. Historically travel options were presented to passengers as a fare and schedule. Any knowledge beyond that of product, loyalty program or other benefits of a particular carrier required significant depth of experience on the part of the consumer.

Thanks to companies like RouteHappy by ATPCO that better expose the underlying product attributes associated with any given flight segment, passengers now have easy access to more data than ever about what services and amenities they’ll experience once on board. Indeed, RouteHappy pushed the “Universal Product Attribute” nomenclature over the past several years. And it is critical to removing the commoditization of the industry. Airlines are adopting the idea of product attributes to highlight the differences in the passenger experience. Online search sites are adopting product attributes to help drive stickiness among travelers searching for the best value, not just the lowest fares. And passengers are finally starting to act in a manner belying the old adage that price and schedule are the only factors that matter.

Indeed, today it seems that carry-on bag allowance, price and schedule drive sales.