United Airlines’ new “basic economy” fares, a no-frills ticket strategy aimed at luring thrifty fliers, could heap more riches on Warren Buffett, the superwealthy investor who recently bought stock in the carrier.
OK, that may be an overstatement. But one of the world’s savviest financiers does stand to make a tidy profit should United, and other airlines in which Buffett recently invested, succeed in their quest to sell enough customers the cheapest seats on their flights.
Yet despite Buffett’s investor karma, there’s always a chance this emerging strategy could backfire and become just another troubling example of the airline industry’s often confusing and exasperating ticket-buying and traveling experience.
Indeed, anyone who has purchased airline tickets online knows how tempestuous the booking and buying process can become. Fares posted on computer reservation systems can vary quickly, within seconds, even as confused customers try to click and buy, travel experts say.
While airfare transparency is problematic, the airlines clearly want to “upsell” customers at the point of ticket purchase and while on the plane, piling on added service costs, upgrades and anything else to boost the basic selling price.
Obviously, the days of only flying first-class or coach are long gone. Instead of savoring an extra cocktail or tasty dessert, travelers now get to pony up for basic human comfort and services.
Want a little extra leg room? Care to sit toward the front of coach? Like the wider aisle seat near the emergency exit door? Need a pillow or blanket? Have to change a reservation? Care to bring an extra bag?
Name it and then prepare to dole out extra bucks for what was once baked into our commercial flying experience.
Hey, what about a surcharge for air conditioning or heat? Sorry, I didn’t mean to give anybody any ideas.
I guarantee, airline upselling is just getting off the ground.
The major carriers are promising investors they’ll keep finding additional ways to divvy up the airliner cabin space to squeeze out more incremental revenue.
Still, the airlines also see opportunities with their new bare-bones approach.
United is among the latest airlines offering a cheap-seat alternative. It says these fares are part of a larger strategy that will generate $4.8 billion in new earnings by 2020.
Delta Air Lines has a similar effort and American Airlines said its version is in the wings.
Typically, basic economy fares can’t be changed or refunded and passengers can’t select a seat in advance. When you buy one of these ducats, expect to be sitting way back in the plane or in a cozy middle seat. If you are part of a family traveling together, you’ll likely be sitting apart from each other.
United’s plan goes a step further. It prohibits many customers from bringing carry-on luggage that can be stored in the overheads. Only a personal bag that can be slid under a seat is allowed.
It may not sound like a big deal, but travel and airline experts say it is. Chances are basic economy fliers will not be aware of this restriction, which could mean paying extra to check a bag or engaging in some uncomfortable exchanges at the boarding gate.
“Many people who picked the lowest fares are going to get a big surprise,” said Jeff Klee, CEO of CheapAir.com, a Los Angeles-based online travel agency that tracks thousands of airfares, searching for customer deals.
As you’d expect, the airlines don’t agree that these are callous characterizations.
Air carriers contend fare fluctuations are based on real-time supply and demand, and their reservation systems are transparent to consumers.
Ticket prices are “affordable and accessible” says Vaughn Jennings, managing director with Airlines for America, a Washington, D.C. -based lobbying group. Moreover, the group’s data show that a majority of passengers prefer “a la carte pricing” instead of the traditional “bundled” ticket prices, he added.
By the way, no one expected superinvestor Buffett to re-emerge as an airline industry backer.
Having been burned in 1989 on a US Airways investment, Buffett called the sector a bottomless pit and vowed never to plow money into it again. Yet his investment firm Berkshire Hathaway recently bought significant shares in United Continental Holdings, parent of United, as well as stakes in American, Delta and Southwest.
Something changed his mind.
It could be the brisk industry profits, growing revenues and contained costs – especially for fuel – that this highly merged industry sector is currently enjoying.
Or maybe the Oracle of Omaha, known for his personal frugality, wants to take a flier on those basic economy fares.
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