Airline passengers are getting fewer perks for the same price

Key Points
  • Basic economy fares are the lowest fares on the plane.
  • Passengers can't use overhead bins and they board last.
  • Passengers considering basic economy often book a more expensive ticket.
A file photo of the main cabin on an American Airlines' Boeing 777-300ER airplane.
Mary Altaffer | AP

A success of American Airlines' new, no-frills service is that passengers are willing to pay up to avoid it.

The airline launched no-frills basic economy class earlier this year. In exchange for the lowest fares on the flight, basic economy passengers cannot use overhead bins, board last and give up other perks like seat selection.

But instead of slashing fares for the lowest rung of service, American Airlines instead charges a premium for a seat in regular economy class, the next step up.

"Basic economy is not a price cut," American Airlines' president Robert Isom said during an investor and media day presentation on Thursday.

Large carriers such as American and its competitors Delta and United introduced these basic economy fares to better compete with low-cost carriers such as Spirit Airlines, which also charge passengers for services that for decades used to be included in the cost of a ticket.

Passengers who long for the days when seat selection and overhead bin use were included in a ticket have to pay a higher fare, and they are, according to American's Isom.

"When customers are offered a basic economy fare and also see the main cabin product, 50 percent are buying up from that offering," he told investors.

While airlines try to offer fewer benefits to lower-paying passengers, they're also investing in those willing to shell out more. American and its competitors have introduced premium economy class, which offers wider seats with more legroom and special meals.

At the same time, they have designed new business class cabins that offer pods or small suites for top-paying passengers.