Delta: 'Basic Economy' fare strategy pays off, will expand
The new no-frills “Basic Economy” fares that Delta rolled to battle discount carriers are paying dividends, the carrier said during its first-quarter earnings call on Thursday. In fact, the fares are doing so well that Delta plans to expand the option to more U.S. markets.
Delta said it got $20 million in extra revenue during the January-to-March quarter from selling those cheaper “Basic Economy” fares, which are aimed at the most price-sensitive fliers. The fares are cheaper than Delta’s other coach-class offerings, but don’t permit advance seat assignments or changes of any kind. Fliers buying Basic Economy tickets also aren’t eligible for full frequent-flier benefits.
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Delta debuted Basic Economy last year, part of an effort to compete against “ultra-low cost carriers” that advertise rock-bottom fares but charge extra for nearly everything beyond an unassigned seat.
Glen Hauenstein, Delta’s incoming president, told investors branded-fare initiatives grew 30% during the quarter. Basic Economy is one of those options, aimed at competing against carriers such as Sprint, Frontier and Allegiant on specific routes for customers shopping entirely based on price.
For example, a Thursday afternoon search showed Delta’s cheapest “Main Cabin” economy fare to be $206.20 for a July 13-25 round-trip between Chicago O’Hare and Atlanta. That fare allows advance seat assignments and full frequent-flier benefits, including early boarding and upgrade eligibility.
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A thriftier flier could book the same flights in “Basic Economy” for $166.20, but he would not be able to select seats in advance and would be among the last to board the plane. The fares also are not eligible for upgrades or changes of any kind, even with a fee.
“I think our value proposition relative to the ultra-low cost carriers is very, very strong,” Hauenstein said. “We have great customer service, great operational reliability, great baggage delivery.”
So far, Delta’s Basic Economy option is available only in about 500 of the 20,000 domestic “city pairs” it sells tickets on. Hauenstein said the plan is to expand to more markets during the next weeks and months.
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“We already have a lot of things that on other ultra-low cost carriers are not free,” Hauenstein said. “We don’t charge for space in overhead bins. If you’re shopping for just solely price, we want to have a product that can compete effectively and provide the best services against carriers that are providing a much lower quality of service.”
American and United – Delta’s two big “traditional” rivals – have since followed with announcements that they intend to introduce their own versions of a Basic Economy fare.
Asked about such competition, Hauenstein said Delta would continue to strive to be best in class.
He disputed that $20 million might become a high-water mark for Basic Economy once more traditional airlines starting expanding out their own fares for price-sensitive fliers.
“I don’t think that’s the case,” he said. “It might be the opposite.”