United has announced a “new tier” of ticket, as the company calls it. The airline’s cheapest flights will now be called Basic Economy, and if you want to store something in the overhead bin, that’ll cost you extra. Passengers will be able to bring a carry-on that fits underneath the seat in front of them. But don’t even think about putting something above you. That’s for people who paid more.
Of course, the airline is positioning this move as providing “more options” for customers. But it seems like providing more “choice” always comes with a fee for something customers used to get for free.
“Customers have told us that they want more choice and Basic Economy delivers just that,” Julia Haywood, executive vice president at United said in a hilarious news release. “By offering low fares while also offering the experience of traveling on our outstanding network, with a variety of onboard amenities and great customer service, we are giving our customers an additional travel option from what United offers today.”
Want to hear another fun aspect of “choice” that Basic Economy provides? Passengers won’t get an assigned seat until the day they depart.
I don't have access to the actual numbers, of course, but as a former marketing guy, I strongly suspect that real money here is not coming from that 20 bucks or so you pay to put a carry-on bag in the overhead compartment. Instead, it comes from the way that policies like this screw with consumers' decision-making ability.
This works on at least three levels:
1. Fees make pricing more opaque. Sometimes, additional costs may be completely unexpected – you go to pay your bill and find its much larger than what you thought you had agreed to – but even when you know something is coming, those fees make it difficult to know exactly how much you will be handing over.
2. These policies greatly complicate the calculations consumers need to perform. Despite what you might occasionally hear from some freshwater economist, the human brain has finite computing power. If the computations required to determine the optimal purchase get too long and involved, people are more likely to resort to shortcuts or simply start making mistakes.
3. A crappy product is the first step in the road to upgrade riches. This is not all that different from classic bait-and-switch scam we are all familiar with, but the potential payoff is much greater. Tiered systems offer enormous potential for convincing people to pay way too much money for things they don't particularly want. By making that bottom level product sufficiently unattractive, you can get a lot of customers into the upgrade habit. Just ask your local cable company.