United Airlines Toys With "Bare Fare" Concept

Fortunately, United's "bare fare" concept won't involve passengers flying nude (although less weight in clothes means less fuel used by the aircraft). Instead, United is considering offering more amenities a la carte, where passengers would pay extra for seat assignments, frequent flyer miles, and possibly checked luggage. United's management believes that there is a market for customers who desire basic transportation, and nothing more, and that United is losing this market because it offers a higher level of service aimed at business travelers. Customers who would utilize bare fares would likely be leisure travelers who plan travel well in advance and don't want to pay for checked luggage, seat assignments, or frequent flyer miles. United is struggling against low-cost competitors, particularly Southwest and Frontier that routinely offer lower fares than United's. Because United offers a higher level of service than most legacy airlines, let alone most low-cost airlines, United typically offers higher fares and has struggled recently to maintain load factors on routes where United directly competes with low-cost airlines. United has struggled in part because their fares appear higher on United's reservation system, and customers who use sites such as Kayak or Sidestep that check most airline Web sites see United's fare as higher than fares at other airlines. So in order to keep United's fares competitive with other airlines, United wants to offer low bare fares online, and offer options (such as accruing frequent flyer miles, assigned seats, and checked luggage) for customers to "upgrade" their travel. That way, United can advertise low fares, and allow customers to pay for what they use.

One interesting aspect of the bare fare concept is that it demonstrates how unsuccessful United's Ted experiment has been. Ted is United's "airline within an airline" that supposedly offers lower costs and fewer amenities for leisure travelers. Ted augments United service to some leisure destinations in the United States and Mexico such as Las Vegas, Fort Lauderdale, or Puerto Vallarta. Ted has a dedicated fleet of A-320 aircraft that offer 156 seats and sparse amenities, but enough to appear hip, a la JetBlue or Delta's failed airline within an airline, Song. Ted makes no sense from a cost perspective; having a fleet of aircraft separate from United's mainline fleet increases costs, since these fleets are essentially mutually exclusive, and can't be used on flights that are operated by the other brand. Moreover, United offers a configuration of 156 seats on Ted's A320s, which forces the airline to add a fourth flight attendant, United should either add more seats to increase revenues and offset the cost of an additional flight attendant, or remove a row of seats to give Ted aircraft 150 seats, the maximum they could have while only using three flight attendants. This move appears to make sense from a cost perspective, as JetBlue, which currently has 156 seats on their A-320s plans to reduce the number of seats to 150 in order to cut the number of flight attendants onboard. From a branding perspective, Ted also makes no sense for United as United has a more upscale brand targeting business travelers that Ted detracts from. Many of United's loyal customers are confused about the relationship between United and Ted. From a cost perspective, Ted makes no sense; it adds cost by having an exclusive fleet of aircraft that are configured in such a way that maximizes cost due to additional flight attendants. United's bare fare concept will try to capture the same market that Ted tried to, leisure travelers, but hopefully in a more cost-effective and flexible manner.

While United's bare fare concept is a good idea, United may not be the best carrier to implement it. United already has a strong brand and doesn't need to denigrate it with a Ryanair-like product that treats travelers like impulsive cattle. A carrier that has already chosen to cut service and amenities more than United, one that has already taken significant cost-cutting measures would be a better carrier to implement the bare fare strategy. The most logical choice out of the six major legacy carriers in the United States would be Northwest. For years, Northwest has offered mediocre service and amenities, nothing spectacular, but certainly not the worst in the industry. However, after entering bankruptcy, Northwest began cutting costs wildly, making flight attendants and pilots unhappier by cutting wages and making passengers unhappier by cutting free snacks, even peanuts. Northwest has already taken steps that would allow it to transition to bare fares more easily than other carriers. For example, Northwest doesn't have any inflight entertainment on domestic flights which adds cost for the airline and Northwest already charges for some seat assignments through their Coach Choice program. Charging for other things like frequent flyer mile accrual or checked baggage wouldn't denigrate Northwest's brand significantly, since many passengers expect Northwest to head this route. United still has a reputation that would suffer tremendously if a bare fare program was implemented. Other airlines that have less of a business traveler bent such as Delta and US Airways that are trying to cut costs may find bare fares attractive because they allow passengers to pay for services that cost both airlines a lot of money and bare fares allow both carriers to compete with rabid low-cost competitors on the East Coast.

While the bare fare concept makes sense for domestic flights, there are further complications for intercontinental travel. On most intercontinental fights, meals are served free of charge to all passengers. Will bare fare passengers still need to pay for meals on intercontinental flights? Moreover, on domestic flights it's easy for many passengers to fit all of his or her belongings into a carry-on bag, but on an international flight where travelers are typically gone for longer periods of time, it's harder to avoid checking bags, especially in light of the latest security hysteria. Will bare fare passengers on intercontinental flights receive a free checked luggage allowance? United may compromise and offer a smaller checked luggage allowance than regular economy passengers receive for bare fare passengers. Also, on longer flights, many travelers find it necessary to be seated next to any traveling companions. On shorter flights it typically makes less of a difference for couples or families. If they purchase a bare fare and don't receive seats next to each other, they could be very upset at the airline for seating them apart and make them think twice about purchasing another bare fare.

Another question that might be raised by United's bare fare plan is whether it would be adopted by low-cost airlines in the United States. Ryanair and EasyJet in Europe already have adopted all of the bare fare amenity cuts and more in a bid to cut costs, but low-cost airlines in the United States have been hesitant to cut costs drastically. Most low-cost airlines in this country take their cues from Southwest, and try to avoid offering a standard of service that is no lower than what most customers are accustomed to from the world's oldest low-cost airline. Some airlines (JetBlue and Frontier, for example) have even tried to best Southwest in their amenity offerings and service. However, given a renewed effort by airlines to cut costs, some airlines may be willing to offer even lower fares if passengers don't use certain services. AirTran has something close to bare fares for standby travel. If you're between 18 and 22 years old, you can fly standby using AirTran's X-fares program. X-fares passengers aren't guaranteed a seat (since it's standby travel, so AirTran will assign an available seat to an X-Fares customer just prior to boarding), aren't permitted to check luggage, or earn AirTran A+ Reward credits. But while there are those restrictions, the fares are also very attractive for those 18-22 years of age, at $69 per segment or $89 for long-haul segments (excluding taxes and fees). If AirTran were to offer a product similar to X-fares for travelers of any age and for travel booked in advance, it could be a big hit and help AirTran raise its dismal load factors. The fares probably wouldn't be as low as X-fares, since AirTran is simply trying to fill seats with X-fares that would otherwise go empty, but a ticket with benefits similar to X-fares could take up a seat by a more expensive fare-paying customer if booked well in advance, so AirTran would have to limit the number of seats with an X-fares-like product. AirTran would likely sell these seats at a significant discount compared to regular fares with full amenities since checked luggage, frequent flyer miles, and even seat assignments cost the airline more money than you might think. An AirTran bare fares-like product could seat customers in coach with passengers who paid regular fares and not in a separate section, though most customers would likely be seated towards the rear of the aircraft where the noise is greatest on AirTran's 717s. AirTran bare fares customers could still receive free soda, snacks, and XM Satellite Radio. AirTran is trying to become the lowest-cost provider of air travel in the industry, and to do that AirTran needs to raise load factors. The X-fares program is one way to do that, but an expanded bare fares-like product would allow the airline to fill seats, but allow customers who want to pay for checked luggage and other amenities to pay a nominal fee for them. A bare fares-like product that required a 14- or 21-day advance purchase would also allow AirTran to maintain seats at the last minute for full-fare business travelers while still allowing 18-22 year olds to travel standby at the last minute on X-fares.

Right now, the airline industry in the United States is undergoing a period of great change. Airlines are feeling pressure to join the merger bandwagon in order to consolidate seats, lower costs, and hopefully raise fares. However in the interim, airlines need to start finding ways of cutting costs, and a bare fares-like product at certain airlines that already have lower service standards would allow those airlines to cut costs, give the appearance of lowering fares, and increase load factors. While many customers may hesitate jumping for bare fares, it will allow many customers to pay less and only use what they paid for, which is transportation, nothing more. Some airlines that have more dignified brands including United, Continental, and JetBlue should steer clear of these types of products, because a bare fares-like product doesn't target their core customer base. But at other airlines, introducing bare fares-like products could be a way to grow their companies, particularly in leisure markets and add much-needed revenue to their bottom lines.