Seat 2B By Joe Brancatelli
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The Chimera of Cheap
October 29, 2015 -- Thought buying a coach ticket and flying at the back of the bus couldn't possibly get any worse? Guess again. The airline industry is rushing to take even more away from you. But here's the twist: This time you'll have a choice. You can say no — and, as at least one airline is learning, it's very profitable when two thirds of us do say no once presented with the worst-flight-imaginable scenario. When American Airlines met security analysts last week to announce a record quarterly profit of $2 billion, it also offered up something less surprising. Now that it had successfully completed the most difficult tranche of its slow-walk merger with US Airways, American was turning its attention unbundling even more small "perks" from its cheapest coach fares. The reason? Robust competition from Spirit, Frontier and other low-fare/high fee airlines that advertise a cheap ticket price and then hit you with costly buy-ups for everything from a seat assignment to a boarding position. To hear American tell it, the challenge from the Spirit brigade is stronger than many thought. American president Scott Kirby says the carrier competes with Spirit Airlines on 25 nonstops routes from American's Dallas-Fort Worth hometown hub and 24 nonstop routes from Chicago, where American maintains a hub at O'Hare Airport. "They are larger than either Delta or United" as a competitive force, Kirby insists. "In Chicago, they're the number-three competitor. They're larger than Delta in Chicago. On those 25 routes in Dallas that Spirit flies, they have 20 percent market share, huge market share." Kirby also dropped this nugget: 87 percent of American's customers fly the airline just once a year and they contribute about half of its annual revenue of about $42 billion. The unmistakable conclusion: Nearly nine out of 10 of American's customers have no loyalty to American, buy the least-expensive fare they can find and are the most susceptible to the chimera of cheap projected by Spirit Airlines. Until now, American has responded with the airline equivalent of a blunt instrument: low walk-up fares that allow everyone from American's frequent business flyers to the once-a-year types to pay less and get more than they'd get from Spirit. Next year, however, American expects to roll out an entirely new weapon: low fares stripped of everything but basic transportation. In other words, a tit-for-tat response to Spirit. If you buy cheap, you'll get cheap and either pay through the proverbial nose for extras or, maybe, not get extras at all even if you're willing to pay for them. Other than naming the concept — "disaggregating the product" — Kirby had no specifics about the new American buy-super-cheap, get-nothing-much strategy. But we know what Spirit-fighting fares look and act like because Delta Air Lines already has them. First introduced in 2012 on a few routes from its Detroit hub, Delta (NYSE: DAL) dubbed the fares Basic Economy and made no secret of their purpose. They were inserted into the already complicated fare structure as a way to help Delta look competitive with those entry-level Spirit prices. They were so successful, at least from Delta's point of view, that the airline rolled them out more or less nationally last year. Basic Economy fares are just that: bare-bones transportation with nothing else to recommend them. The list of what they don't offer is daunting:
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