NEW YORK--United Continental Holdings Inc took a leaf out of its low-cost competitors' playbook on Tuesday by unveiling a new low fare that limits customers to one carry-on bag that fits under a seat, part of a broader plan to boost profit over the next four years.
Chicago-based United is the first major U.S. carrier to make such a move for carry-ons, which it hopes will attract some new customers and push some of its regular flyers toward higher fares. Combined with better flight connections and revamped pricing algorithms, the airline said at its investor day that it aims to add $4.8 billion to yearly operating income by 2020, excluding the effect of rising wages.
The new fare class, known as 'Basic Economy,' risks frustrating flyers who already feel burdened with airline travel restrictions and fees, but could push some customers - especially those with large luggage - toward higher-priced fares. The No. 3 U.S. airline by passenger traffic will begin selling the no-frills fares in the first quarter of 2017 for travel starting in the second quarter. Prices will be comparable to low fares it now charges for the economy cabin, but with more restrictions.
United said Basic Economy customers would not be assigned seats until the day of departure, meaning people on the same ticket may be split apart. "Flights do run pretty full today. You're probably going to get a middle seat," United's President Scott Kirby said in an interview.
Survey data indicated travelers and employees do not like scrambling to stow carry-ons when overhead bin space is limited, Kirby said. United believes the new fare creates more options for customers, and should not provoke a backlash.
Charlie Leocha, chairman of consumer advocacy group Travelers United, took a different view. "This action clearly shows how airline consolidation is eliminating choice," he said in an email. A single carrier's decision now means more customers are impacted.
Those who book Basic Economy on United will be barred from carrying on bags that can only fit in overhead bins, and they will not accrue miles toward elite status. Fare initiatives will account for $1 billion of United's income target, as more customers pay to check bags or select higher fares that give them two "free" carry-ons. And airlines still have ample room to invent fare packages they can sell to customers, Kirby said.
"It is ridiculous that we will sell a seat for $49 and a seat next to it for $800, and we treat them exactly the same, just because they book later in the process. There's no other industry in the world I can think of that does something like that," he said.
United shares closed up nearly 5 percent. Part of the rise may be from billionaire Warren Buffett's Berkshire Hathaway Inc, which disclosed stakes in four U.S. airlines including United on Monday, boosting investor confidence in the sector.
