American Airlines Relents on Allowing Carry-on Bag With Discount Airfare

(Bloomberg) -- American Airlines Group Inc. is ending the carry-on bag fee for customers of its “basic economy” discount fare, caving in to pressure from competitors’ more generous policies.

The change, which applies to domestic and short-haul international flights, takes effect Sept. 5, Fort Worth, Texas-based American said Thursday as it announced second-quarter financial results.

“It got to the point we weren’t competitive,” American Chief Executive Officer Doug Parker said. “When you get yourself in a position where a price-sensitive customer finds lower fares on truly competitive airlines, we have to take that under consideration. I think the right thing to do is get in line with the competition.”

Delta Air Lines Inc.’s version of basic economy allows a carry-on bag that fits in the overhead bin for no charge, in addition to a personal item that fits under the aircraft seat. Southwest Airlines Co., the largest discounter, lets passengers check two pieces of luggage with no fee, in addition to carrying on a personal item and one other bag.

Buying Up

Airlines value the basic economy offering because many passengers who consider the fare end up buying a higher-price ticket. At American, that rate is about 63 percent. United Continental Holdings Inc. has the same bag restrictions as American for basic economy.

“The scope wasn’t as large as we had originally anticipated,” Don Casey, American’s senior vice president for revenue management, said on a conference call. The baggage charge made American’s prices higher than rivals for passengers searching for fares online, and dropped the carrier to the bottom of websites displaying multiple airline fares.

American expects the change to improve basic economy results by about $100 million, Casey said. Although the “buy up” rate will drop to about 50 percent after the change, it’s expected that higher sales will more than make up for the difference, he said.

The discount fares generally don’t allow for early seat selection, aren’t eligible for upgrade and require boarding in the last group.

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