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?