If you haven’t booked any air travel recently, you might encounter something new to you the next time you schedule a trip: A new class of travel called “basic economy.” In exchange for lower fares, travelers in the basic economy section board last, can’t upgrade, and don’t have access to overhead bins. This sounds fair, but these flights may not be the great deals that they seem.
Here’s the thing, though: Bloomberg Pursuits notes that at the same time that basic economy fares became a thing, the price of regular economy seats went up. Why is that? Blame a well-known price anchoring trick.
Most people don’t know a lot about wine, and when given a menu, will simply pick the second-cheapest variety offered. Not the cheapest, because they don’t want the server or their dining companions to think they’re cheap, and the cheapest wine on the menu might be junk anyway. The second-cheapest is respectable, yet good enough.
American Airlines found that in test markets for the Basic Economy fare, it was able to raise the prices for regular economy fares. Customers were willing to pay more for a regular economy seat if there were something worse available. Like Basic Economy.
Fare increases in the airline industry generally don’t work, adding something worse than economy-class travel apparently does work. United Airlines president Scott Kirby recently said at an investor conference that its version of Basic Economy is working out great…in upselling travelers to other classes of travel.