People are freaking out about American Airlines' new 'basic economy' tickets - but it may not be as bad as it seems

These days, few terms engender such strong and visceral reactions from US airline passengers than "basic economy".

Even though the term has made its way into the lexicon of many travelers, the idea of basic economy remains enveloped by a fog of mystery and misinformation.

Over the past year, America's three remaining full-service legacy carriers - American, Delta, and United - have all introduced some version of a basic economy fare class that offers a lower priced ticket in exchange for fewer frills and more restrictions.

What is basic economy?

So what does basic economy entail?

Basic economy is a discount fare class that exists within an airline's economy cabin. As a result, the in-flight service and experience will be the same for basic economy as it will be for someone who purchased a pricier main cabin economy ticket. This means passengers who go the basic economy route will sit in the same seats, enjoy the same in-flight perks and amenities as everyone else in coach.

However, there are restrictions placed upon the passengers prior to boarding the aircraft that separate basic economy from other fare classes. The most obvious restriction involves carry-on luggage. All three airlines allow basic economy passengers to bring on board one personal item/bag that will fit underneath the seat. However, American and United prohibits any luggage that will require the use of an overhead bin. Delta's basic economy luggage policy is the same as its traditional main cabin which allows for a personal item as well as one complimentary carry-on bag.

The most obvious restriction involves carry-on luggage. All three airlines allow basic economy passengers to bring on board one personal item/bag that will fit underneath the seat. However, American and United prohibits any luggage that will require the use of an overhead bin. Delta's basic economy luggage policy is the same as its traditional main cabin which allows for a personal item as well as one complimentary carry-on bag.

American and United both recommend its basic economy passengers check their bags at the counter upon arrival at the airport. Those basic economy passengers who bring their luggage to the boarding area will have their bags gate checked and will be assessed the standard checked bag fee along with a $25 gate handling fee. (Expect to pay at least $50 for this.)

To reduce the likelihood of confusion, United will make online check-in available only to passengers who qualify for free carry-on bags or have paid to check their luggage.

In addition, basic economy ticket holders will not be able to pre-select seats at the time of purchase and will be assigned a seat at check-in. Furthermore, any post-purchase refunds and changes to a ticket are prohibited as are paid upgrades for priority boarding and premium cabin access.

Finally, basic economy fare holders will also be the last passengers to board the aircraft.

American will begin offering basic economy fares on February 10, while United's basic economy will enter service in the second quarter. Only Delta's less-restrictive basic economy is already up and running.

When booking on Delta's website, those who select basic economy are presented with a pop-up outlining the differences and restrictions of the fare class. The customer cannot complete the transaction without acknowledging that he or she has read the disclaimer.

Why are airlines doing this?

From an industry perspective, basic economy allows the legacy carriers to address the growing presence of low-cost and ultra-low-cost carriers such as Frontier and Spirit Airlines.

Over the past few years, these low-cost carriers have shown impressive growth and now pose a threat to American, Delta, and United in several key markets such as Denver, Chicago, and Dallas.

In a bid to broaden its customer base, the legacy carriers have unbundled their main coach cabin and segmented it into very specific product offerings and services. For instance, those coach passengers who want more legroom can pay to upgrade to an exit seat. Those who want aisle access can pony up the dough for an aisle seat. While those who want a bit more luxury, but can't afford business class, have the option to pay for premium economy. And those who are primarily concerned with price, but are unconcerned by where they sit and don't have any luggage can opt for basic economy seats.

In general, basic economy seats are aimed at passengers who may be enticed by the rock-bottom prices and a la carte buying options presented by these alternative airlines. Even though the restrictions placed upon basic economy may be a bit much for most people, they are on par with the standard baggage and ticketing policies of these low-cost airlines.

The legacy carriers believe the advantage of flying basic economy over a low-cost alternative is more legroom, better in-flight service, more flights, more destinations, and a broader set of amenities such as free streaming in-flight entertainment.

For the legacies, this level of segmentation allows them to better cater to the needs of specific customers while maximizing revenue. After all, an airline is a moneymaking venture.

With that said, the vast majority of passengers will remain main cabin customers and be charged in the same fare class as they are today.

In Europe and Asia, there is a clear delineation between full-service and low-cost carriers. Airlines such as Ryan Air, Easyjet, Norwegian, and AirAsia dominate the low-cost market. The mainline international carriers have generally refrained from introducing discount cabin products aimed directly these low-cost competitors.

The higher overhead of a full-service carrier and the risk of brand dilution make the implementation of a basic economy-type product unfeasible for most international airlines.

Instead, airlines such as Air Canada, Singapore, and Qantas have created separate budget airlines such as Rouge, Scoot, Tigerair, and Jetstar that operate under different business models with lower overhead to address the low-cost carrier threat.

America's three legacy carriers also happen to be the three largest airlines in the world- each operating anywhere between 720 and 950 mainline aircraft. In addition, they have the benefit of an absolutely massive and relatively captive domestic market that doesn't really exist anywhere else - apart from perhaps, China. As a result, the sheer size of their operations and high demand for domestic travel creates such economies of scale that negates much of the concern over brand dilution and overhead.

However, this doesn't mean America's legacy carriers have tried this strategy as well. Two of the best examples happened in the last 15 years. In 2002, Delta launched Song - a low-cost boutique carrier aimed directly at JetBlue. However, high fuel prices, a drop in demand post 9/11, the cost of maintaining a separate brand, and Delta's own bankruptcy forced the airline to shutter Song in 2006.

In 2004, United Airlines introduced a low-cost brand called Ted. The Denver-based operation was designed to compete against Frontier. But high fuel prices and low demand due to the financial crisis forced United to put an end to Ted in 2009.

Whether basic economy proves to be a success for American, Delta, and United remains to be seen. From some, it's an attempt to reach a broader spectrum of customers. For other, basic economy is an affront to human decency and represents an attack on the flying public's dignity.

Ultimately, whether basic economy succeeds or fails is based on consumer choice. It's up to the flying public to vote with our pocketbooks. Few industries put as much weight on customer metrics as the airline industry. Even though American, Delta, and United are three of the largest and most profitable airlines in the world, they will notice.