The president of American Airlines, Scott Kirby had a few choice comments during their recent earnings conference call that frequent fliers need to pay attention to.
From those comments, it’s pretty clear that American Airlines is planning to introduce new fares that will strip out some of the current benefits included. What benefits? Well, consider things like seat selection and AAdvantage miles, for starters. More restrictive change/cancellation policies and the inability for elite members to upgrade are things that could be in the mix as well.
Keep in mind this only for non-stop routes. If I’m flying IAD-DFW-DEN and AA offers a bargain basement fare to compete with Frontier or Spirit on DFW-DEN, that shouldn’t affect me as a connecting passenger. I likely never see that fare displayed at AA or through a GDS.
It’s also worth noting that I’m a top-tier Executive Platinum member of the American Airlines program, and that might inject some bias here. But, I do think I’m looking at this from the perspective of the airline on how best to balance cost of these benefits and “stickiness” of loyal customers.
Delta offers a stripped down product now, called “Basic Economy”. Those fares award mileage to loyalty program members but don’t allow elite members to select a seat or receive an upgrade to the next class of service.
There are a whole slew of ways that American Airlines could choose to structure the product. The goal is to save money on those passengers who are flying truly on price and nothing else. Recapping the list of things they could consider changing:
- No seat selection.
- Reduced/eliminated mileage accrual, including elite-qualifying miles and points.
- More restrictive change policies.
- No upgrades for elite members.
If I were the one making the decisions, I think I would have two paths for seat selection. I would allow elite members to select a seat but would not allow non-elite customers to select a seat without paying.
I wouldn’t touch regular mileage accrual. Even for those customers that fly the airline once a year, issuing them miles is a winning proposition. If they don’t redeem the miles, the cost to award them was very close to zero (they’ll expire after 18 months of inactivity).
But, if they do influence the customer to book with AA then they were well worth the effort. Plus, AA gets to send them a few e-mails along the way telling them they’re miles are getting ready to expire. I thought about the possibility of awarding miles only to elite members, but in the end the risk/reward is very favorable for the airline here given the price of unredeemed miles.
I would also consider eliminating elite-qualifying points (EQPs) for these fares. EQPs are all about spending a bunch with the airline. AA already awards only 50% EQPS on deep discounted fares, so I don’t think it’s a big stretch to award none here. I also don’t think this affects a ton of customers.
Ticket flexibility is an interesting one. There are quite a few different ways to impact customer behavior here:
- Change fee
- Cancellation fee
- Standby policy
- Routing changes
If you’re not a frequent flier, these aren’t likely to be big motivators. You’re likely taking the trip unless something catastrophic happens, in which case changes fees or cancellation penalties are the least of your worries.
I think this is one of the areas that American could use to create fences around these new fares to prevent business travelers from buying these ultra-cheap fares. The argument to the business traveler is, “Look, if you want to take advantage of this really cheap fare we have, we really need to know you’re going to fill that seat.”
I think trying to mess with things like standby policies and routing changes are messier since they involve the training of airport personnel to a much larger degree. While increased change/cancellation fees need to be clarified for gate agents, the point of pain (clarification of the fee at time of change) is more likely to occur via phone or website than a standby situation.
Lastly, we have upgrades. I file this under the same heading as awarding mileage for flights. Unless AA is bad at yield management, a complimentary upgrade on a domestic US flight is infrequently getting handed to someone instead of a passenger willing to pay the right price for it. There’s certainly a timing issue here in matching buyers (AA) to sellers (customer), but I think AA does a good job holding seats for last-minute passengers willing to pay for first class. I think they could get better at selling upgrades cheaply, though I’m personally not wild about them doing so too cheaply.
Free upgrades are one of the cheapest carrots the airlines can offer to elite members. Specifically barring members from upgrades on these cheap fares isn’t the issue. I’ve seen plenty of items where I view the airlines as having solid communication available to members but many members are still oblivious on details. A big warning message about the inability to cancel a flight is likely to be more memorable than the potential for an upgrade in the future.
Besides, creating these stripped down fares is supposed to save the airlines money, but shouldn’t just be a stick (in the “carrot and stick” methodology) to force loyal customers elsewhere. There’s a balance where you want to trim some expenses while still keeping your loyal customers, well….loyal.
Where does that leave us?
I would give elite members the ability to select a seat on these new stripped down fares.
I would offer a product with elite-qualifying miles but no EQPs. If American had a spending threshold like DL and UA, I would count the dollars towards the spending required to achieve elite status, but wouldn’t award any EQPs.
I would severely restrict the ability to change or cancel those flights but leave the standby policy alone. In the case of American Airlines, I would consider not allowing confirmed standby, but potentially just “plain ‘ol standby”.
I would allow elite members to receive complimentary upgrades on these fares. I guess you could prioritize members on these fares at the bottom of the list for upgrades in their elite status category, but I think that’s just window dressing.
And then, I would sit back and observe. I strongly believe AA has the metrics to figure out how many elite members are buying these fares and model how much it potentially impacts the company. And, my suggestions above don’t touch on the ability of AA to dynamically control the fare buckets so these fares aren’t offered in large quantity when they’re competing with Spirit, Frontier, etc.
When AA came out with their choice fare packages a while back, they were quick to make changes. Those changes ultimately made the product significantly less appealing. But, I’d guess some folks still buy them. While I’d recommend making better choices than the ones with choice fare bundles, I’d apply the same methodology of testing customer behavior. In short, I would test by making the product progressively worse for customers, rather than cutting to the bone and having to backtrack to a more beneficial solution (see New Coke).
Would you buy these fares? What would you do?