American Airlines announced Wednesday that it's introducing a no-frills basic economy fare that offers the lowest prices at the cost of amenities like carry-on bags and advance seat assignments.
The company said it will begin selling basic economy fares in 10 markets in February and expand to other markets later this year. American did not disclose the launch markets or routes.
The new type of fare is designed to compete with ultra-low-cost carriers like Spirit and Frontier airlines, which often offer the lowest ticket prices around but charge fees for nearly everything else.
Those airlines have been popular with budget-conscious travelers who prioritize price over nearly everything else when buying tickets. An American executive said last year that about half of the company's revenue comes from 87 percent of passengers who fly the airline infrequently.
"Why are we doing this? To compete. We know that some of our customers don't fly very often and they care more about price than about features," American President Robert Isom wrote in a message to employees. "Some of our customers will only fly first class and some simply want a seat from point A to point B. We need products for both types of customers, and everyone in between."
Even though ultra-low cost carriers make up a small fraction of the market, they exert an outsize downward pull on fares. Spirit in particular has been flying more routes between major cities.
"Aircraft orders at Spirit and other (ultra-low-cost carriers) show that their growth is not slowing," Isom said. "Competing aggressively against these airlines is not optional."
American's basic economy fare will be lower than its regular coach fares, but it will come with several trade-offs.
The most noticeable will be the loss of overhead bin space. Basic economy passengers will be limited to carrying on a single personal item that can fit under their seats. Any other luggage must be checked, with fees starting at $25 for the first bag.
