Airlines race to the bottom

A race to the bottom is rarely an attractive concept, particularly in a submarine or an airplane. And yet the airline industry seems to be dead set on racing to the bottom. Case in point: United announced the addition of a new “Basic Economy” fare tier. This tier does not permit use of the overhead bins and does not assign seats until the day of departure.

The cynical (and perhaps correct) view is that this is an opportunity to raise prices on tickets people would actually want to buy while keeping the “as low as!” price the same. But it’s also an attempt to compete with budget airlines like Spirit and Frontier, according to an industry source. Being able to match the low fares is “absolutely non-negotiable.”

I don’t have the benefits of seeing the financial models for this, but from an outside perspective, this seems like a bad move. Not all customers are created equal and it damages your brand to go after the wrong market. Some customers will buy based solely on price, and if that’s who you want to go after, do it. But someone buying solely on price probably won’t be that loyal, so the minute your competitor drops prices, you’ve lost them.

Itemizing everything enables the customer to pay for exactly what they want. It also gives the impression they’re being nickeled and dimed. It’s much easier to just have the price than to add up all the line items. I find it amusing that no-frills carrier Southwest is the holdout for free checked luggage. (As an aside, I’ll probably never fly Frontier again because the notion of paying $40 to check a single bag insulting.)

I’m also curious to see how this affects behavior. By adopting checked bag fees, airlines incentivize passengers to push the limits of carry-ons. This slows down the boarding and deplaning process. Will this Basic Economy tier get people to shove everything into their personal item that’s just barely wedged under the seat in front of them? Will it lead to upset customers who didn’t pay attention trying to use an overhead bin they’re not entitled to?

Most likely, we’ll grumble about it and then end up buying the cheapest ticket anyway. That seems to be the pattern, so I suppose it makes sense for airlines to follow the customer. But maybe there’s room for one or two airlines to buck that trend.