With discount airlines expanding and competing on more of their routes, how can legacy carriers stay competitive? Their latest bid to stay ahead of discount airlines is to lower fares, including the controversial Basic Economy fares, and price-matching competitors.
American Airlines CEO Doug Parker said in a meeting this week with multiple reporters that his airline is “absolutely, positively” going to match prices from discount airlines, without specifying exactly how a customer goes about getting an airline price match.
He may have misunderstood the question, having pointed out that the airlines are trying to keep up with each other, not match individual published fares. “We price our product to match the competition,” he told reporters during a recent conference.
The main difference between established carriers and newer discount carriers is that the legacy airlines have long-standing hubs, and are able to transport people between more cities.
The need to compete against discount airlines is one of the reasons why the three remaining large carriers have started to offer Basic Economy fares, a new and crappy class of service where customers board last and on some airlines (including American) have no access to overhead bins to stow a second carry-on, forcing them to pay extra fees at the gate.
Customers buying through travel aggregation sites have discovered that they bought the discounted fares by accident. Parker, however, says that the large airlines and discounters have reached “equilibrium” on the routes where these new fares compete with discount airlines.
“There is a market for ultra low-cost carriers and their product,” Parker told reporters. “They’ve proven that. Their financial performance on a margin basis is a lot stronger than ours. But we have an enormous advantage in and out of our hubs.”