Delta's New Sub-Economy Ploy

If you like sitting in middle seats and having your travel party split up, you'll love Delta Air Lines' new Basic Economy class. In exchange for paying Delta's lowest fares—below its usual baseline economy fares—you get:

  • A ticket that you cannot exchange or refund, period. You buy it; you own it.
  • Your seat assignment only at the airport before the flight you're ready to board, meaning that your odds are very good (1) you'll be stuck in a middle seat and (2) you won't be seated next to your traveling companion.

Of course, noted Delta, you can do better if you buy a "trip extras" package. And all you give up with this fare is ticket change and seat selection: You still earn frequent-flyer miles, and elite members still qualify for their level of upgrade options and other perks. Currently, Delta is testing that new option on flights linking Detroit with Ft. Lauderdale, Ft. Myers, Orlando, and Tampa.

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Delta's plan for Basic Economy is that it will show up as the lowest in any fare comparison. My take is that Delta is engaged in a bit of wishful thinking. When I checked Detroit/Orlando last week, both AirTran and Spirit had already matched Delta to the dollar, and Southwest was almost $100 cheaper with one-stop itineraries. But matching isn't consistent: On Detroit/Tampa, for example, AirTran isn't matching and only US Airways is within a few dollars with a one-stop itinerary.

Overall, airline history provides several lessons:

  • Competitors almost never allow one line to be substantially cheaper on any important route for more than a few days. The big lines were stunned by the sudden rise of, first, PSA, later Southwest, and since then they have seldom allowed themselves to be undercut.
  • The big airlines generally don't allow a competitor to undercut fares even with a product of substantially lower quality. Instead, they wait to determine the market response and then, in the short term, either (1) offer a directly competitive product with competitive pricing or (2) retain their usual product quality and hope travelers recognize enough difference to shift market share. In the long run, the ultimate outcome is usually that all the players lower their product quality. This sort of "Gresham's law," an economic principle that states "Bad money drives out good," is one of the reasons today's economy product is so bad—and remains so bad.

This move illustrates some other fascinating aspects to airline service:

  • Although airlines generally treat seats as a commodity, they really aren't all the same. Travelers recognize that middle seats in economy are the worst of the worst, and that gives airlines at least some rationale for pricing them below aisle and window seats.
  • Also, for years, some travelers—even consumer advocates—have questioned the whole idea of refunds and changes. "Once you buy a theater ticket," they reason, "you can't change the dates or refund it, so why not airline tickets?" But a truly consumer-friendly market based on the theater ticket principle would allow consumers to resell unwanted tickets to others—and airlines are staunchly opposed to any secondary market, with some good reasons.

One way or another, Delta's move will certainly draw responses from its major competitors. Meanwhile, as travelers, when Delta is an option for a trip, you have two choices:

  • If getting the lowest fare is paramount to you—and if Delta's Basic Economy is, in fact, the lowest—buy it, with the knowledge that it is totally inflexible and that you'll probably wind up in a middle seat.
  • If some other line matches Delta's fare, give it a close look as a potentially better value.

And if there is any chance that you might want or have to change your plans, buy whatever is the best-buy ticket that does allow changes—whether on Delta or a competitor.

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Ed Perkins on Travel is copyright (c) 2012 Tribune Media Services, Inc.

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