HOW UNITED “NAILED IT” WITH BASIC ECONOMY…

Depending on where you sit (especially on an airplane) — you may view this article title as positive or negative.

It’s not my intention today to pass comment more generally about the concept of Basic Economy; the devaluing of any premium brand image that United may have had left; the wisdom of engaging in a price-war with low-cost-carriers who will always have a cost-advantage; or indeed the list of everything that’s wrong with United and its MileagePlus program (and how to fix it).

Instead — I want to highlight the key strategy that United got right with its implementation of Basic Economy — a strategy that Delta got wrong.

BASIC ECONOMY — THE MYTH

Let’s get something clear right now — Basic Economy fares are NOT about cheaper fares.

United/Delta/American already match the ULCC (Ultra Low Cost Carrier) fares in most markets.

Basic Economy fares are all about creating a distinctly unappetizing product to induce customers to “buy-up” to a more-palatable regular Main Cabin fare.

These fares are about increasing revenue — not introducing a new “cheaper” set of fares.

Unfortunately — due to the poor state of journalism, reporting and commentary — this detail has been lost in the majority of reporting on this topic.

In fact — competition from Ultra Low Cost Carriers is a problem primarily of the making of United, Delta and American.

By nickel and diming passengers for years, devaluing their premium brand images and products, devaluing their frequent flyer programs, and training customers to shop purely on price — they have found themselves in a situation where approximately 50% of their passenger revenues come from customers who fly once a year or less.

The thinking of management types, such as United President Scott Kirby (who recently defected from American), is that the airline must aggressively compete for this market segment.

To do so — the Big 3 airlines have been matching ULCC pricing on competitive routes.

This means that regular economy passengers (who used to pay higher, pre-competition prices) have been benefiting from low fares.

United anticipates an additional $150 million by 2018 for passengers “buying up” to avoid Basic Economy

The airlines want these “regular passengers” to go back to paying higher prices — rather than getting the benefit of super-cheap fares designed to compete with Spirit, Allegiant and Frontier.

THE BIG STICK

To do so — Delta and United (and American’s planned version) are telling VIP frequent flyers that if they buy these fares — they’ll no longer get published benefits including:

  • Upgrades to First Class (either paid or complimentary)
  • Preferred Extra-Legroom Seating
  • Advanced Seat Selection

However — due to difficulty in implementing further restrictions — these VIP customers still receive priority check-in, security and boarding.

The problem with this approach is that these customers have already demonstrated their loyalty to the airline by flying/spending the required amounts to qualify for their elite VIP status and benefits.

These customers are specifically choosing to fly on their preferred airline as they receive these benefits when they choose to remain loyal, rather than defecting and choosing other airlines.

These customers may be high-spending business travelers during the week, but they are also economy leisure travelers on the weekend when taking their family to Disneyland or to visit Grandma for the holidays.

UNITED’S CORRECT MOVE

Instead of punishing those customers who have already demonstrated their loyalty to you — the correct approach to “not rewarding folks for flying cheap fares” is to limit or restrict VIP elite status qualification earning on these fares.

Delta currently allows frequent flyers to still earn elite qualification credits (towards elite status — nothing to do with the “miles” you use for free flights) when flying on Basic Economy.

United has decided that Basic Economy fares won’t help you to earn or keep your elite status.

This is the right way to approach it.

It is simply bad business and bad strategy to punish your most loyal customers for purchasing legal, valid fares.

But it makes perfect sense to say — if you fly on these basic bare-bones fares, it won’t help you to be a VIP.

The stick is the wrong approach and demonstrative of out-of-touch management teams that “don’t get it”.

United got it half-right at least — and they should be given credit for it.
That they achieved the result by trying to be overly-punitive rather than strategic is another discussion for another day.

As a publisher and global speaker on hotel & airline loyalty programs, David is focused on developing strategic solutions for loyalty programs, and is passionate about the critical link between loyalty strategy and the customer experience. David can be contacted here.

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