“Not everybody wants the full experience.”
Executives at two U.S.-based legacy carriers have hinted that a lower-fare international business class fare could be in the works.
In the quarterly earnings call for Delta Air Lines, the company’s president Glen William Hauestein teased that the world would learn more about Delta’s plans to unbundle its premium cabin products at the airline’s upcoming investor day.
Just days later, United’s chief commercial officer Andrew Nocella had similar comments about bundled business class pricing.
“Not everybody wants the full experience,” he told call attendees. “Some people want other experiences. And so, the value to United as an airline and to that of our customers has been proven by the segmentation of revenues that we’ve done. And we look forward to continuing to diversify our revenue base and segment it in the appropriate way, and I’ll leave it at that.”
In decades past, airline fares were “bundled,” meaning that all parts of the experience—from checked bags to onboard food and drink to seat assignments—were included in the fare. In the years following 9/11, when airlines faced cash crunches, they experimented with adding fees for many services. Some—like charging for onboard beverages, or for meals on long-haul flights—didn’t stick, while others like bag fees (which most airlines introduced after 2008) have endured.
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In the early 2010s, legacy airlines introduced “basic economy” fares with more restrictions and fewer inclusions than regular Economy tickets to compete with ultra low-cost carriers such as Spirit and Frontier. The concept has also been spread to international routes outside the United States, but so far, for American legacy carriers, unbundling and basic fares have mainly applied to the economy cabin. First and business class fares, by comparison, continue to largely include generous benefits.
An unbundled or “basic” business class fare could introduce charges for amenities like checked bags, seat assignments, or lounge access in exchange for a lower base fare for passengers who don’t need those products. Some airlines, like British Airways and Lufthansa, already charge some business class passengers for seat assignments, while Emirates has special business class fares that do not include seat assignments, lounge access, or chauffeur car transfers to the airport, along with fewer mileage points, more restrictive fees, and ineligibility for upgrades to first class. A recent check of fares found a savings of around $600 on a New York to Dubai nonstop.
Many passengers, including business travelers who like to arrive at the airport as late as possible before a departing flight and don’t check baggage, could see benefits from a more restricted business class product in exchange for a lower fare—particularly if the fare savings are substantial. Fares without included lounge access could also provide much-needed relief to overcrowded airline lounges.
But instead of shifting fares lower, offering discounts to business class passengers buying more restrictive fares, they could instead hide fare increases, making the current, unbundled business class fares the new basic business fare, while increasing the standard fares with more perks. Airlines that tie mileage award redemptions to fare categories could also use a basic business product to force through increases in mileage redemptions for business class.
Neither United nor Delta has offered any specifics, including whether any unbundled premium cabin fares would be directed at domestic or international flying, but further unbundling to premium cabins would be consistent with airlines’ efforts to offer a wider variety of products than they had in the past.
Many U.S. legacy carriers offer four basic product types: premium cabin, premium economy, economy, and basic economy, and further segmentation would allow them to offer their passengers fare products that reflect the exact experience they want to have during their journey, reducing the possibility of passengers paying for products they don’t value or won’t use.
If United and Delta ultimately introduce further segmented fare products, competitors like American Airlines and Alaska Airlines are likely to follow.