Basic Economy goes global on Delta

Passengers across the globe will be paying more for less by the end of 2018 if Delta Air Lines has its way. The company confirmed today in an investor analyst briefing that its Basic Economy product will be available system-wide by the end of 2018. That means higher fares or more fees for things like advance seat assignments, checked bags and more. The Basic Economy option is already on sale for more than 50% of flights across the Atlantic today, with JV partners Air France and KLM expected to introduce a similar product shortly.

Basic Economy is one component of Delta’s drive to hit $2.7 billion in “segmentation” revenue by 2019. The company expects $1.8bn this year and $2.2bn in 2018. And with international revenue growth leading the company’s current outlook according to CEO Ed Bastian the ability to incrementally drive revenue on that front is critical for Delta to continue to meet Wall Street’s ever increasing expectations.

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The Branded Fares initiative is big in Basic Economy but Premium Economy also represents a significant opportunity for the company. In Summer 2018 Delta will fly domestic configuration aircraft to multiple European destinations for the first time. The “first class” seats on those flights will be sold as the Premium Select product rather than as business class. That decision opens up an important market segment and does so without requiring a massive fleet investment by the carrier.

Getting more premium economy seats across the Atlantic is a critical competitive play in the effort to hold off LCC incursions into the market. Just today Norwegian announced flights from JFK to Amsterdam and Madrid. While Delta is unlikely to use a domestic configuration to battle in those markets it can use aircraft without a flat-bed business class to support smaller cities in the United Kingdom or Ireland. And the potential for those services will grow early in the next decade as the new A321neo fleet begins to arrive. Those aircraft will have increased range compared to the domestic configuration planes Delta flies today and a good mix of seating layouts to challenge in some Continental European markets. When XL Airways talks about doing a similar thing – A321neos from smaller French cities to NYC – it is useful for Delta to be able to respond in kind.

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Read More: Long-haul LCC comes to the USA: World Airways poised for re-launch

In other global markets it is unclear how the Basic Economy push will play out. Sure, there’s the theoretical Asia/LatAm LCC play by World Airways where competition could drive others to try excluding checked bags and advance seat assignments. Arguably the LCCs coming in to Honolulu from Asia are pushing that effort already. But it is hardly pervasive like it is in the transatlantic market. And there is decent competition across the Pacific, too, with fewer joint ventures in place to help airlines collude on such policies.

The fare hike that is Basic Economy is growing and the very profitable US airline industry shows no signs of reining it in. Can’t really say I blame them, even if it does suck a bit for me.