World Class Faculty & Research / November 22, 2016

No-Frills, Not Even a Carry-On: Would You Fly Basic Class?

SMITH BRAIN TRUST — Standard coach class might soon feel downright luxurious. United Airlines is the latest major U.S. airline to unveil a new price point for budget travelers — basic economy — a flight with so few perks its critics have dubbed it the "misery class." You’ll pay a reduced fare — basic economy is aimed at helping United steal back share from low-cost competitors — but, in exchange, you’ll be the last passengers to board, you’ll agree to whatever automated seat assignment you’re given at check-in (even if it means not sitting with your travel companions), and you won’t dare use the overhead storage compartments.

Delta Air Lines, American Airlines and other carriers have unveiled similar strategies, but United has taken basic one step further by restricting the size of bags you can bring onto the flight. The rules allow for one small personal item on board, the airline says, such as “a shoulder bag, backpack or laptop bag” as long as it isn’t larger than 9-by-10-by-17-inches. Checked bags are allowed, for a fee.

Still, basic economy might be just the ticket for flexible travelers whose chief concern is price, says Roland Rust, distinguished professor and David Bruce Smith chair of marketing at the University of Maryland’s Robert H. Smith School of Business. Rust is the editor of the International Journal of Research in Marketing (IJRM) and has consulted for many major companies worldwide, including American Airlines.

“For other people who are tired of waiting around — waiting for the other passengers to get done stuffing their bags in the overhead bins — this might be favorable,” says Martin Dresner, professor and chair of the logistics, business and public policy department at the Smith School. “These passengers aren’t going to have any bags to stuff into the overhead bins.”

That may be good for United, as well, which might be able to load and unload passengers more quickly, he says, potentially creating more efficiency at the gate and improving its on-time performance. For airlines, it’s the latest strategy to appeal to passengers from the well-heeled, first-class end of the price spectrum to the most price-sensitive end. And it does it all on one aircraft.

“These major carriers for a long time have tried to figure out how to compete with the low-cost carriers," Dresner says. "A number of years ago, they started to come out with their discount airline brands, but those didn’t do well.”

Basic economy offers another advantage to the major carriers: A chance to rise to the top of the search results on travel websites, which typically sort by price. If basic economy’s low base fares seem misleading to some consumers, given the seating restrictions and added fees for checked luggage, Dresner says they will likely soon get over it, as long as the fares are low.

“Look, people hate Spirit Airlines, too. Or at least they claim they hate Spirit Airlines. But Spirit has been pretty successful,” he says. “People fly Spirit, even though they can’t stand the service and they hate getting nickel-and-dimed for extras.”

Fees are simply the new reality, Rust says. More and more industries are adopting fees-for-perks pricing, for example, retail banking, where fees comprise an increasing percentage of overall revenue. Rust describes the concept as akin to: “Here's your new car. Now, would you like tires with that?”

Dresner does caution, however, that United and its peers should be careful about their brands as they seek to straddle the worlds of the luxury shoppers and the bargain hunters. “On one hand,” he says, “United is really trying to upgrade its business-class offerings and brand those business-class seats as a luxury offering, saying you get pampered when you fly this carrier.” On the other hand, he says, there’s this new, low price offering that is antithetical to that luxury and specialized treatment. “In some ways United is trying to be both Saks and the Dollar Store at the same time,” he says.



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About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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