Delta Air Lines and United have both indicated they will unbundle elements of their business class products, will American Airlines follow suit?
Basic Business Class Is Coming, Whether We Like It Or Not
Delta first indicated that it would look to unbundle business class benefits from the seat itself. This has already been done in economy with Basic Economy fares and ancillary revenue first removing included meals from most flights and selling them instead, then checked luggage, included seat assignments, etc.
I have extolled the virtues of further segmentation first in 2020 and again about 10 months ago.
“All of these attributes of traditional Business Class I am willing to relinquish has to come at a cost savings to be relevant, not just for me but for the airline. Delta has indicated it has a desire to further segment the market, that is to say it would like to capture a segment of the market that might buy Business Class tickets if the price were lower. They only capture that element if the price is materially better. In the case of Basic Economy fares, the airlines truly followed the ULCCs into unbundled fares and it’s been successful for them.” – Live And Let’s Fly
Basic Economy has been a huge success for United, allowing them to keep the market they already have but compete with discounters too. Why not follow that model into future growth and profit opportunities.
In some cases, it’s already here. Gate upgrade sales come without lounge access (as they are sold or auctioned at the gate just before departure), additional checked bags, and sometimes without a business class meal if catering cannot be adjusted in time. Air France/KLM charges for seat assignments, British Airways too. Many carriers are already enhancing bulkhead business class seats that already have additional space by nature of their cabin position, so that it can charge more for these specific seats in business class.
And as I have said in the past, there are a number of use cases for a Basic Business class ticket that make sense especially for business flyers or families. There’s no stopping it, so it’s better to embrace the movement.
An Industry With Little Distinction, Innovation
The three US flag carriers generally follow each other down the same paths whether it aligns with their broader mission or not. United introduced Polaris following Delta One. Polaris lounges are among the best in the US, but now Delta and American have both tried to follow suit, increasing their efforts to match what United has accomplished. Delta announced closed door suites, United and American followed. One moves to dynamic award charts, the others follow. Between the three carriers, with revenue in the range of $150bn last year combined, to the unsuspecting eye, they are different designs of the same product.
It’s only a matter of time before American follows the lead of United and Delta even before they know whether it will be successful.
American Airlines Needs It The Most
The least profitable of the three flag carriers (and many years, of other competitors far smaller in size) is American Airlines. The company continues its knee jerk reaction that only long-standing loyalists might recall. More room in coach? That was dashed by the current America West crew following the US Airways-American Airlines merger. Instead, it became the only carrier taking inflight screens out of the headrest instead of enhancing them. After cutting and reducing service, it’s turned a new leaf focused on premium products… because obviously the last plan hadn’t worked.
There are two reasons why American Airlines needs this market segmentation more than Delta or United. First, American needs to find profit opportunities wherever they may be. There are some markets in which American could do well by giving travelers another option to secure space in premium cabins. It also runs nearly shuttle service from New York to London and while they fly full in the front often enough, any opportunity to fill absolutely every premium seat without giving it away is ideal.
The second to get more customers to buy and try its new premium focus. The carrier is investing (and rolling out) new seats with doors (that will someday close), what better way to sell someone on buying it than giving them an opportunity to try it for themselves. But as a trial at business class that some do not usually purchase, it could move them to buy it more often. Additionally, if the segment moves well, fewer Basic Business class fares will be available and those who liked the product and can’t stomach the short walk back to Premium Economy will pony up the extra money for higher fared tickets in the front of the plane. With the carrier introducing its 787-9 Premium (78P) with even more seats in business class, it stands to reason that the carrier could potentially benefit more than its peers with the model.
CONCLUSION
American Airlines has to tread a thin line. Its messaging is that the carrier has turned its focus to delivering a more premium experience and anything that looks like nickel-and-diming the customers or devaluing the premium it’s trying to build could detract from that mission. However, American badly needs to find loose change wherever it can, and what better way than to showcase your brand new product to buyers who might have held business class just out of reach, but with a little modification, can find themselves buying it again and again.
What do you think?
I thought American was already basic business? You get a lie flat seat but no service.
@rjkb – Perhaps for the higher priced tickets they will find ways to increase service?
A brave reply considering you’re talking about the airline offers the same meals in first class as in business as well as amenity kits on long haul but doesn’t offer pajamas in either cabin let alone both.
Any time I see an inane take on this blog I don’t even have to check to know Kyle wrote it. Everybody knows that this segmentation will result in the current lowest fares losing lounge access, changeability, etc., a clear strategy of increasing prices for services already included in tickets.
Maybe Kyle can write his next piece on why wolves are actually good for sheep, or on why the traditional paradigm of keeping foxes out of henhouses actually hurts chickens.
@Connor – It’s always great to meet a fan.
Yes.
What AA needs is a productive relationship with Citi. The Delta/Amex and United/Chase relationships are a big part of the story for those carriers. While nothing official yet, if the best Citi is looking to do is the Strata Elite, they have bigger problems than whether or not they introduce a basic business fare. Lots of room for upside for AA, but turning the ship around is going to be slow going.
@Peter – Delta is far away the winner in this category, but Citi and even the Barclays/Citi split for American were leagues ahead of the Chase relationship with United. I’d agree that Citi and American need to find more innovative ways to offer products and benefits than they have done in the past, and with this renewed partnership (and shelving Barclays), I believe we will. United just revised its offering (I cancelled mine as I said I would) but Citi has a number of shortcomings related both to the product and to its approach to the business model. You’re not wrong that Citi/American needs work, but Chase and United are in a distant third and Delta’s lead is substantial in first place.
Sure but it’s a big part of United’s story – there is both a halo effect and a practical impact of United being associated with Chase. United may not like that Chase doesn’t pay them enough for their miles. But consumers sure like banking with Chase. They also like earning Chase membership reward points that can be transferred to United. And they like Chase lounges. United may not like that their credit cards feel like an afterthought to the CSR (and let’s be honest, the new CSR giving Southwest perks speaks volumes about the level of love between United and Chase), but I’ll bet that United customers don’t really care about United’s level of profit from that relationship. I presume United is going to put Chase into a bake-off with Capital One and others when their deal with Chase is up, that will sure be interesting.
AA has the opposite problem – its credit cards are somewhat better than the Citi cards (at least the ones on offer today). Citi has no lounges to complement AA’s. Strata Elite looks… meh? I’d rather have the AA Exec card than a Strata Elite. Real question is if AA will open its points ecosystem to Strata Elite holders – if not, really nothing to see here.
@ Kyle — American IS basic business class. They are the low man on the pole. They need to have something better to offer to sell anything above basic.
@Gene – I don’t entirely disagree on this front, but the aspects the other carriers have suggested they’d unbundle are commodities. The two checked bags you get with American are the same weight and dimensions as Delta and United. Seat selection is not down to quality of product nor is earning miles and status for your trip – though in this regard, American actually excels far past United and Delta in both value and the ease of achieving it.
American is adding doors just as United and Delta are. They have expressed they endeavor to improve catering, the result of which remains to be seen. All three have a mix of great service and poor service. American and United’s equipment is newer, Delta is more likely to run on time. But operations are unaffected by a new fare class with alternative pricing and options.
All true, but AA just plain sucks when anything goes wrong (which is about half the time).
AA needs to roll out new planes to have a shot at taking back JFK-LAX market share. The 321T’s are falling apart. Who wants to pretend to provide good service when your workplace is a maintenance nightmare.
Across the Atlantic they have a perfectly competitive business class. Soho Lounge is perfectly nice, albeit not at the level of the new D1 Lounge. Seats are reverse herringbone and comfortable. 789P looks nice. Food is not world class but it’s perfectly fine – had the fish the other night, was tasty. The ice cream sundae tastes good. If they can staff their planes a bit better, would also help service.
Not sure what the expectation is here – Delta, United and American are never going to have catering as good as ME or Asian airlines. Heck, the BA Club Europe breakfast I had this morning was delicious!
Anyway, I think we all have our issues with AA, but I don’t think it’s fair to say that AA widebody business class is basic business class. Just not true.
It’s a little tough to take this seriously when some of the underlying facts aren’t even correct to present the case that AA copies everyone.
1. “Polaris lounges are among the best in the US, but now Delta and American have both tried to follow suit, increasing their efforts to match what United has accomplished. ” AA and Delta followed United with Polaris clubs? No. Flagship lounges were first and Polaris was a copy (some may argue an improved copy) of that. Delta has arguably raised the bar with their new lounges now, per reviews
2. “More room in coach? That was dashed by the current America West crew following the US Airways-American Airlines merger.” No, More room in Coach was done away with by AMR in 2004 roughly but the phase out started in 2003. I’ll give you this though, the AA “Oasis” was a copy of Delta’s fleet densification project and legroom for their airbus fleet though AA kept more seat pitch than Delta in first class with Oasis
3. “United introduced Polaris following Delta One.” Polaris launched in 2016. Delta One started in 2017. AA had branded business and First class under the “flagship” name for decades, even the term for that branded usage is trademarked
Facts don’t matter to this grifter. I think 90% of us here would be ok with no posts on Sunday to give Matt the day off. But for what I assume are view optimization he needs to carry Kyle along.
Personally a few weekly stories by a traveling readers would be more interesting.
I mean… I was just correcting three items, I don’t want to be a jerk to the guy.
I do agree though that many readers would have some great trips. Flying into LHR on a prop with FlyBe was a good time for me. The approach into ZQN…
@Dave … Wry .
I call it The Delta Effect: charge more, deliver less, or wherever possible both.
We didn’t need even more proof that there’s been far too much consolidation in the U.S. airline industry but we got that proof here nonetheless. Remember when The American Way was to offer a better product at the same or lower cost to entice business rather than trying find new ways to f—- over your customers? I suppose I’m just a product of my upbringing in this context but I truly despise companies who so obviously hate their customers but survive or even thrive due to a lack of competition.
@Christian … wise observations .
Let’s be honest they’ll just unbundle and charge what they do now for less perks. I don’t recall the prices of J on BA, KL/AF going down when they started charging for seat assignments etc. Instead the price remained the same and BA want at least £100pp per one way flight if not more just to pick a seat (if you wish of course, but this used to be free)
Sincere question for the crowd – I’ve purchased multiple J seats on Air France and never been charged for seat assignments. I’ve selected my seat way in advance. Only restriction is being able to select the bulkhead on the new A350, I still need to wait for the 72 hour mark for that. Am I special and I didn’t know it? Because I keep on reading about Air France charging for seat assignments and that is not my lived experience.
Kyle, you and I both know what’s going to happen. The existing “discounted business” fare buckets will be rebranded “basic” with all the perks stripped out and with reduced redeemable miles/elite qualifying earnings. Want what you got before? Prepare to pay up. In other words, exactly as the ME3 have done with their “Business Light” fares. You’ll deny it, just as you deny this is what happened when Economy Minus was rolled out, but it doesn’t make it any less true. I for one have no intention of embracing the trend.
If the Big 3 were truly creative, they’d come up with an Air Asia X-style option where you could buy up to only the seat for a premium over PE, but at a significant discount to standard J. But let’s not kid ourselves, it’ll be “Business Minus” at the same price you pay today. Maybe we’ll get lucky and the “minus” part will only be one bag instead of two and a change fee, but I’m not giving the Big 3 any benefit of the doubt here.
This is a good article thank you Kyle
American will follow Delta into the pit of hell itself. That’s what American does best…. follow Delta