Personal Finance

American Airlines Follows United, Bans Carry-On Suitcases for Cheapest Tickets

Full-service airlines have fewer perks than ever for travelers flying in coach. However, one thing that had remained sacred in recent years was the right to bring a carry-on suitcase and put it in the overhead bin for free.

Even this is no longer true across the board. Late last year, United Continental (NYSE: UAL) announced plans to introduce a new " Basic Economy " fare that doesn't allow the purchaser to bring a full size carry-on bag. (It also doesn't include advance seat selection.)

Last week, American Airlines (NASDAQ: AAL) followed suit. It will also introduce basic economy fares on certain routes in the coming months, and it is adopting most of the same policies as United.

American Airlines has announced its version of basic economy fares. Image source: American Airlines.

The next step in unbundling airfares

In the past decade, "unbundling" has become a key theme in the airline industry. Numerous perks that used to be included with every ticket have become extras that require an additional fee.

To some observers, unbundling is good for everyone, because it allows airlines to hold down airfares despite rising costs (especially for labor). Customers can then choose to add on only those extra services that they actually need. Other pundits and consumer advocates see the move toward unbundling as a cynical ploy by airlines to pad their profits.

The latest evolution in unbundling involves adding new fare types. Instead of removing perks from their standard coach fares, full-service airlines are creating a new, lower tier of bare-bones fares. Customers still have the option to pay somewhat more for a traditional coach ticket if they don't want to deal with the restrictions of these new basic economy fares.

American Airlines follows United closely

American Airlines' basic economy fares will have very similar restrictions relative to what United announced in November. Most notably, basic economy fares don't have a carry-on bag allowance.

You're still permitted to bring a personal item that fits beneath the seat in front of you, but any larger bags must be checked. The checked baggage fees are the same as for standard coach fares: $25 for the first checked bag and $35 for the second. Customers who buy a basic economy fare and bring a full-size carry-on will have to check it at the gate and pay a $25 penalty on top of the usual fee.

Another common feature of basic economy fares at American and United is that it won't be possible to choose your seat in advance. Additionally, basic economy ticketholders will be the last to board at both carriers. Finally, American and United won't allow refunds, changes, or upgrades if you buy a basic economy fare.

United and American have adopted similar policies for basic economy. Image source: The Motley Fool.

Both American Airlines and United Airlines will exempt elite frequent fliers and holders of their co-branded credit cards from many of the restrictions of basic economy tickets. For example, these customers will be allowed to board early and bring a carry-on bag even if they buy a basic economy fare.

A kinder, gentler version of basic economy?

American and United both emphasize in their marketing materials that basic economy fares still entitle you to the same onboard service, like free soft drinks, snacks (in some cases), and inflight entertainment.

However, American Airlines is going a step further in order to appear more humane. When it announced the new basic economy product, American said that it would be possible to pay extra for a seat assignment starting 48 hours before the flight. By contrast, United Airlines doesn't offer any alternative to having your seat assigned by the airline.

More importantly, American says that for families traveling with children under age 13, it will attempt to seat each child next to an adult. United clearly states that families will not be able to sit together.

Yet it's not clear how American Airlines would pull this off. On most flights, customers who buy regular coach fares would be likely to snap up all of the window and aisle seats, leaving just middle seats for basic economy ticketholders. Unless American is reserving some seats for families traveling in basic economy, it won't be able to seat families together very often.

This is the new normal

Over the past decade, budget airlines have dramatically increased their share of the U.S. airline industry, undercutting the legacy carriers on price. As a result, executives at full-service airlines recognize that many of their customers are not loyal -- they just want the lowest price possible.

Basic economy fares will help American Airlines and United Continental compete with budget carriers for these travelers without instituting costly across-the-board price cuts. It's another annoyance for the traveling public. However, it may be necessary to ensure that all three legacy carriers can stay in business in the long run.

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Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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