Delta Air Lines President Glen Hauenstein spoke at the Morgan Stanley 12th Annual Laguna Conference and shared that they are going to add premium seats to planes.
[T]he biggest money-losing cabin [used] to be the premium cabins. And after years of reengineering and years of changing policies and moving distribution, improving distribution, now those are the most profitable cabins on the airplane. And we always said that our first line of defense was to maximize pricing, maximize — but then we always say at the end, we could always change the LOPA if demand exceeds supply.
Delta’s plan should be announced at their November Investor Day. We know that this will include unbundling premium cabin fares, a.k.a. “basic business” or Delta (Less Than) One. Adding seats and introduce basic business are linked.
- British Airways charges for advance seat assignments in business class, unless you have status or are on a full fare ticket.
- Emirates started selling ‘basic business class’ fares in 2020. Qatar Airways followed, restricting access to lounges and to advance seat selection on the cheapest business class tickets.
- Finnair’s 2021 entry into this space was absolutely brutal: pay to check bags; pay for seat assignments; lounge access not included; no business class check-in, priority boarding, or premium security; no changes or cancellations.
Under the Finnair model, you might buy a business class ticket from Europe to Asia in business class, have to check in with economy passengers, get turned away at the lounge and pay for checked bags. Delta thinks that doing this will allow them to:
- Charge current premium customers more via a la carte pricing
- Add seats to their cabins, and fill excess seats with basic business passengers
Currently Delta will sell business class upgrades to coach passengers for as little as $299 if they think seats will go out empty. But they don’t want to cannibalize premium fare paying customers who might choose to buy a ticket, wait for a cheap upgrade offer, and if it doesn’t come then rebook into the higher-priced fare. So they want these to be different products.
While the concept of Basic Business – the need to segregate high fare passengers from low fare ones in order to discount available seats without cannibalizing revenue (allowing people who would pay more to get their tickets for less) – is an intriguing one, no one has come up with a way yet to make it really work.
Furthermore, much of the benefit of unbundling domestic economy is driven by the tax code. U.S. airlines save the 7.5% federal excise tax on airfare when part of the ticket cost is moved out of the fare and into fees. But that benefit doesn’t apply to international, and there aren’t as many premium passengers so it doesn’t scale as well domestically.
Delta has been on a decade-long quest to monetize first class. They used to upgrade passengers into 90% of first class seats. They thought they could eliminate first class upgrades altogether by 2018. CEO Ed Bastian has said that upgrading passengers into premium seats is stupid.
Eliminating first class domestic upgrades didn’t quite happen, but it’s also the reason they started treating extra legroom coach seating as an ‘upgrade’ so they could trick customers into thinking that was the same thing (they also moved top elite confirmed upgrades to premium economy versus business class).
Premium seats, of course, now include those extra legroom Comfort+ seats that they sell. So aircraft reconfiguration can include both the addition of first class and Comfort+, as well as premium economy on their international fleet. Delta sees itself as a premium airlines, for premium customers, who should pay them more money. Whether or not this market niche and opportunity continues to grow will be worth watching. Investor Day will be interesting.
I think this would backfire on Delta. All your basically getting now is a lay flat seat in D1. I can’t access the lounges half the time due to lines and the last time I flew my luggage tagged Sky Priority was among the last to exit the plane on a full 350. The only reason I book it is for the seat and I would book a basic ticket in business in a heartbeat.
Once again, Delta shows how out of touch it is. They’re literally shitting on their customers. Elites denied lounge access for flying economy with their family on an international leisure trip. Shafting customers who fly the most for customers who fly on expense tickets using other people’s money. I could go on and on. Internationally, Delta reduced the size of business-class from 48 seats on the 747 to 32 seats on the A350. That was foolish. By comparison, United has 40+ seats on the 787 and 50+ seats on the 777. On the 767, Delta has something like 26 seats whereas United has 40+. Clearly, 32 seats on the A350 was inadequate. Now, Delta is going to spend millions retrofitting long-haul planes to add new seats only 7 years into the lifespan of the A350.
Let’s say the price of business-class drops from $5,000 for a ticket with all the traditional inclusions of business-class to an unbundled fare $3,000 excludes lounge access, excludes changes or refunds, limits advance seat selection, perhaps restricts frequent flyer miles, and perhaps comes without a meal. How many people are going to purchase that? Wouldn’t that erode into premium-economy, which Delta has invested heavily in?
Delta should just add seats internationally and also domestically. I think domestically on most mainline routes, Delta could add one or two rows.
The issue domestically becauses regional jets and some secondary mainline routes. There are very few people buying first-class for Atlanta to Baton Rouge, Detroit to Memphis, or Salt Lake to Phoenix.
Typo. The issue domestically BECOMES, not becauses.
Upgrades on regional jets and secondary mainline routes or mainline routes that are 1 hour or 90 minutes makes sense because an empty first-class seat sends the message that buying first-class isn’t worth the money. That’s why Delta boards first-class first and, ideally, gets them a pre-departure beverage as economy boards. It’s subtle selling of an elevated experience to folks in steerage. I can’t tell you how many times I’ve heard a wife or girlfriend in economy tell the husband or boyfriend that next time he has to buy first-class for them.
Shifting to a spend-based Sky Miles program but stripping perks and inclusions from the very customers who should be rewarded for spending the most money is bonkers. Delta should
get raked over the coals by investors.
Thank god I don’t fly Delta. What a horrible airline. Thanks to these changes, they just nailed the coffin shut. Will never fly Delta, ever. Way to go guys!! So much for providing a compelling customer product to sway customers to patronize your business. There is freedom of choice in air travel and I hope Delta suffers immensely.
This is great. The only thing I want is the better seat. I have no checked luggage, their lounges stink, I don’t want their slop that pass for food, nor do I care about boarding early.
Ed also says upgrading non-rev BFF’s to transatlantic business is stupid, unless it’s in the middle of an operational meltdown and media blackout…
Sounds like DL is borrowing a page from the AA playbook. Times must not be that rich and good in ole’ ATL.
Watch your backs—this must be at the point which the blade is already in; DL now twisting!
Unbundling is actually drip-pricing to maximize the fleecing of consumers by undermining the ability of consumers/travel service purchasers to as easily, quickly and accurately compare the actual cost of travel across possible service providers in the markets of relevance.
When the airlines came after economy class passengers in this way, too many people supported it by saying the “cheap” passengers get what they deserve and other such customer-unfriendly comments. Now they are doing it more and more against the premium cabin passengers too.
If Delta follows through expect UA and AA to quickly follow so these add on fees in business class will become the standard like it already is on many international carriers.
Add a tax to all airline and hotel fees that is double the tax on the actual fare or room rate.
…And the beating goes on. When I signed up for Skymiles predecessor, an upgrade from coach to business was 2,500 miles domestic and no more than 15,000 for international.
When Delta finished absorbing Northwest, it was clear that costs were going up, and the value of miles was going down.
A year ago when Delta announced that Million Milers were going to get nothing for their loyalty, it was clear that they were not interested in customer service, they backed off, only because those customers were a major source of revenue.
Now it looks like upgrades will be sold, and and that upgrades will be few and far between. Status may not be worth having.
@doug houseman – upgrades have been sold for years. DL was the leader but both UA and AA quickly followed. I frankly love it since lifetime Platinum on both AA and DL but almost never high on upgrade list. I just look at the upgrade offers and if worth it I jump on that to have a better seat. Flying CLT-DFW on AA this week and booked using miles (with web special so only like 18,000 miles r/t). Got offers both ways to upgrade for around $150 so for $300 I locked in first class seats both ways. Easy decision and would otherwise never get upgraded.
Another reason not to fly Delta. They seem to initiate all the worst ideas. I avoid them like the plague.
Walk your talk, flyers. Spend your hard earned money elsewhere.
for years, Delta has had fewer business class seats on its aircraft than other airlines and esp. United. If Delta says its business class didn’t make money then, it is likely that was true for other airlines – and so DL shrunk its previously large business class cabins successfully where many of their aircraft including the A350-900s have less than 35 business class seats – which is pretty low.
The new A350-900s have 40 business class seats – 8 more than the current fleet – but they are reducing Premium Select by 8 seats, also to 40. Given how well premium economy has done for all airlines, DL is clearly expecting they can get thousands more revenue per seat in business class even considering that Delta One seats take up a whole lot more space. It isn’t clear if DL is going to convert all of its existing A350s to the same configuration and then start on the 330s but DL’s widebody fleet will still have fairly small business cabins compared to the competition. In contrast, DL’s premium select cabins are, on average, larger than the competition.
if AA and UA match, they will risk diluting their own revenue much more than DL will because they have much bigger business cabins and AA is shifting even more so in that direction as they eliminate first and try to get more range out of their 787s and 77Ws.
I would bet there will be very few of these unbundled business class seats sold and then on off-peak days; this is as much about marketing as a great deal of new discount seats.
The bigger risk is to AA and UA who have upgraded their loyalty program members to business on int’l flights much more so than DL.
I suspect this move is as much competitive as it is to create a whole bunch of new lower priced business class seats on DL.
While I understand the apparent need for airlines to maximize revenue, it seems to me that they are more focused on saving a few dollars on each individual sale rather then developing loyalty.
As others have noted here, their loyalty programs (and their competitions’) are failing many potential loyal customers, and ensuring that they try other carriers while feeling no obligation to undergo the monthly chastising and downgrading antagonism they get from their previously loyal legacy carrier.
Smallest intl biz class cabins, another reason to avoid Delta and spend your money elsewhere
Delta claims its business-class product internationally and its first-class product domestically is so good that they regularly sell-out forward cabins and no longer have to give seats away as “free” upgrades for elite status customers. Delta also claims its newish premium-economy product is hugely profitable and very popular.
It doesn’t make any sense to remove premium-economy for additional business-class seats that will be sold with little to no amenities, benefits, or inclusions. It does, however, make sense to remove economy seats and add more premium economy seats. Delta has been nudging its elites to buy premium or business outright. For example, they made it virtually impossible to redeem a global upgrade certificate for business if you book economy. They also removed Sky Club lounge access for elites flying economy on Delta but still allow elites from other Sky Team airlines who fly economy into the Sky Club lounges.
And yet, if this happens, Delta seems to be now saying that it can only fill its cabins in business-class if it has a deeply discounted business airfare that includes virtually nothing beyond a seat.
I don’t think all of these things can be true at the same time.
As a 2MM on Delta I have been utterly devoted but now that I am retired I am delighted to be a free agent and have burned half my SMs already. I suspect that Business Lite will become the new J while current J will be a premium price. I have seen Premium Select already going for $3-4k for different overseas trips with J at staggering amounts and expect the same here. Combine this with 50% or something of front line staff being new hires post pandemic leads to a mediocre in flight experience regardless of what Ed may say or be told about a premium experience.
FNT,
first, tell me how many AA and UA fleet types have 40 or more premium economy seats. DL probably put more than they needed.
next, DL probably had too few Delta One seats – but if you look at the price they are asking for D1 vs. PS on most routes, there is a huge difference.
DL probably believes they can sell a very small handful of discounted D1 seats for a greater profit so is willing to do that.
also, remember that DL carries the most corporate traffic and is in a unique position of being in a position to receive far more new aircraft than AA and UA in 2024 and likely into the future due to Boeing’s problems, and so will be expanding internationally. Having some deeper discounted business class passengers will help win over passengers that are shopping for value but want the best experience; loyalty becomes far less important if DL can win over some new customers esp. to Asia where DL’s Pacific network has been reduced for the past 5 years.
I believe this is more competitive because AA and UA will have to match and will alienate their own high value customers if AA and UA start giving away discount business class seats but AA and UA know they can get more money for a discounted business class seat than for an upgrade. DL all of a sudden looks like a better alternative for some of those customers.
The A350s are where this strategy is most likely to play out and they are heavily used on the Pacific; if DL starts renovating their 330 fleets, then they clearly see a monumental opportunity to shift higher value share and create more new premium customers than its competitors.
As you well know, once we have flown in a premium cabin, it’s hard to go back to something “lesser” DL could be making a prudent step in growing a long-term premium customer base even as it expands its international network
I’ve never seen airline pay the 7.5% excuse fee without passing the fee along to me. It does make the overall fare the passenger pays look smaller if they compare costs between embedded services and ancillary, but I’m not sure how the airline saves money by not having to pay the excise fee on ancillary charges.
It’s only a matter of time before airlines begin to do what they did to coach to the premium cabin. Want to reserve a specific seat? That will be $25. Want a hot meal? Another $25 (hopefully it would at least improve the quality).
Upgrades will likely never go away unless the airlines decide to just fly with empty premium seats. Albeit airlines will likely become even more aggressive with cash upgrades meaning complimentary upgrades will become even fewer and not a realistic perk to mid and lower elite levels. Most of those people in Groups 8 or 9 just don’t have an extra $50 to $100 to spend.
I am guessing that Delta or partner elite status will override any lite fare restrictions? Similar to Finnair, where OW or Finnair Plus status overrides the biz lite check-in, bag, seat selection, and lounge restrictions.
Gary, you scared me when I read your comments on Finnair as I’m flying Business class from Thailand – Helsinki – Dallas in the next few months. So I went and looked at their polices on checked bags (I have 2), Finnair lounges and check-ins. It’s not as bad as you report, at least when your flying long-haul. I used miles and get 2 free bags checked and lounge access. I can’t speak to short intra Europe flights.
From Finnair’s website:
There were changes in the baggage allowance for Business Class travellers. All Business Class tickets include one small bag and one carry-on bag that can weigh up to 12kg together. On European flights, Business Classic and Flex tickets also include one checked bag. On our long-haul flights, the Business Class Classic and Flex tickets purchased between 1 June and 10 December 2023 include one checked bag, and the tickets purchased on or after 11 December 2023 include two checked bags.
Access the lounge free of charge:
Finnair Business Lounge on the non-Schengen side
Business Classic, Flex and Saver* ticket holders
Finnair Plus Gold members + 1 guest + children under 18 years of age
Finnair Plus Platinum members + 1 guest + children under 18 years of age
Finnair Plus Platinum Lumo members + 4 guests + children under 18 years of age
oneworld Emerald and Sapphire cardholders + 1 guest
Oh also, my Finnair Business class ticket is refundable. Couldn’t care less about boarding early if that’s the case for business but I doubt it.
The great news is DL is taking a page from BA on the race to the bottom and working hard to damage their brand – I think their new tag line is keep digging
It’s so fun watching the mighty fall – they will regret the day they put Ed in charge just like the day they let Tim get away
And Delta goes the Ryanair way.
Nice to see Ed is down with adding an additional business class product to compete its current offering.
Sounds like Delta will continue to sell 75%+ of a available/open seat upgrades from coach to business class on the A350s and A330s. SkyMiles status still means little or nothing for automatic upgrades.
Just purchase basic business fares strictly on price and use the Centurion lounge instead of waiting in line for SkyClub access.