In May United rolled out basic economy throughout almost their entire domestic network. While Delta had been offering basic economy for years, they only did so in limited markets in limited fare classes.
United took the opposite approach. In May they introduced basic economy on virtually all domestic routes for almost all economy fare classes. In June, United president Scott Kirby said that just over 30% of eligible economy passengers were booking basic economy, and was confident that within a few years they’d earn a billion dollars of incremental revenue annually by better segmenting the market.
Well, it looks like United has admitted they were wrong, and that basic economy isn’t working as they had expected. Per @e_russell on Twitter, here’s what United said about the performance of basic economy at a global transportation conference:
- Basic Economy improves ability to optimize revenue through customer choice and is a tool to more effectively compete for price sensitive customers
- New product was rolled out broadly in domestic system at the end of May
- However, we under-appreciated that incremental revenue from buy-up would be more than offset by share loss to legacy carriers without similar Basic Economy offering
- We have adjusted our approach by:
- Scaling back breadth of offering to a portion of our domestic network
- Offering Basic Economy only in the bottom five fare classes instead of entire fare ladder
- Varying buy-up levels depending on competitive landscape
So expect the buy-up costs to vary, basic economy to only be offered for the lowest fare classes, and for basic economy to be scaled back to select domestic routes.
The timing of this is especially interesting, given that American just rolled out basic economy nationwide yesterday. I’ll be curious to see if this causes United to reconsider reconsidering basic economy, or if that many people are instead booking Alaska, JetBlue, Southwest, etc.
Gosh, isn’t it gratifying for us when customer unfriendly moves like this are rolled back? I’ll be curious to see how this plays out now, especially in relation to American.