Major US airlines happy with results of slicing and dicing their economy products

Segmentation of customers and products was a focus of distribution discussions during the major US airlines’ second-quarter earnings calls.

The carriers, which are in the process of dividing economy class into three segments – economy, basic economy and premium economy – like what they see in terms of upsell rates.

Delta Air Lines said Branded Fares – its collective term for its economy segments — drove 40% of the improvement in passenger revenues in the quarter.

As it expands into more markets, it improves Delta’s distribution and makes its products easier to buy, the carrier said.

American Airlines said its new basic economy product gives it the opportunity to match any fare that is introduced in its markets.

The price difference between basic and regular economy is $20; it rises to $40 for last-minute purchases.

But while the low fares may lure customers onto American’s website, they aren’t necessarily what customers are buying. About 50% of the customers who are offered basic economy opt for regular economy in the end.

Basic economy will be available in all domestic markets by the end of September. Adoption of Premium Economy, which carries an average premium of $400, has been gratifying, American said.

The company expects to retrofit most of its wide-body aircraft that serve international routes with Premium Economy by the end of 2018.

United, which expects a $1 billion contribution from segmentation by 2020, has rolled out its basic economy product throughout its domestic mainland system.

Passengers who buy the fare are allowed to carry on only one item that must fit under the seat, and United said it is now dealing with fewer gate-checked bags.

The carrier continues to tinker with the pricing of basic economy, and it will get some help on that front when it rolls out the first phase of its new Gemini yield management system in late August.

The other major distribution story of the second quarter was Southwest Airlines’ migration to the Amadeus Altéa passenger services system.

Southwest is working out a few minor kinks in the transition, related to three areas: Business Select, which allows passengers to claim one of the first 15 boarding positions; upgraded boardings at the gate, and the handling of groups of 10 or more.

The group issue is the thorniest; if group members cancel, it is difficult to identify which seats to resell.

The issues will be resolved by the end of the year, the carrier said, and they do not detract from the “elegance” of the system or its “flawless” deployment.

Next up for a PSS integration will be Alaska Airlines and Virgin America.

They originally expected to transition to a single PSS in the fourth quarter of 2018, but have moved it up to early in the second quarter.

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