American Airlines will drop unpopular carry-on bag restrictions from its cheap no-frills fares in September, calling the rules "uncompetitive" in the market.
The Fort Worth-based carrier will allow passengers booked in basic economy to bring carry-on bags that go in the overhead bin from 5 September, it says today. It expects this to increase the number of travellers who see the fares, thus increasing the opportunities to sell them a higher fare or other ancillary products.
"There's a big airline out there who doesn't charge for the carry ons," says Doug Parker, chairman and chief executive of American, during a quarterly earnings call today. "We think the right thing to do is in get in line with the competition."
American introduced the carry-on bag restriction on its basic economy fares along with United Airlines in 2017. Delta Air Lines, which was the first US mainline carrier to offer a no-frills fare in 2015, does not restrict carry-on bags.
United will be the only mainline carrier restricting passengers booked in basic economy from bringing a large carry-on onboard flights.
The Chicago-based carrier declines to comment on whether it is considering rolling back these restrictions, saying only that they "continuously review our fare offerings to give customers options that best fit their personal travel needs". It says the restrictions have helped improve the boarding process and its operations.
United took a $100 million hit to revenue in the third quarter of 2017 due to what executives said was a too-aggressive roll out of the no-frills fare ahead of American. At the time, it was United that called their basic economy offering uncompetitive.
The US mainline carriers claim that basic economy allows them to better compete with ultra low-cost carriers, like Frontier Airlines and Spirit Airlines. However, they the fares are also critical parts of each airlines' programme to boost revenues through segmentation.
American aims to generate around $1 billion in additional revenue from segmentation, which also includes things like its new premium economy cabin on widebody aircraft, by 2020.
Roughly 63% of passengers who view basic economy fares today buy a higher fare class, says Don Casey, senior vice-president of revenue management at American, on the call. The airline hopes to reduce the level of buy-up to around 50%, which in turn will drive additional ancillary revenue opportunities.
"We believe this will increase the scope of coverage of the product," says Casey, adding that American forecasts a roughly $100 million annual benefit as a result of the change.
American expects to realise the benefits of the changes to its basic economy fares in 2019, executives say.
Source: Cirium Dashboard