The Airline Revenue Economics blog argues that there’s a market for international first class, airlines are just selling it wrong. The claim that ‘business has gotten better so there’s not much difference’, he says, is wrong. And there’s a bigger market for the product than there used to be, not a smaller one, for an airline that wanted to approach it the right way.
Airlines have been eliminating or scaling back first class.
- The only U.S. airline that still offers an international first class cabin is American. United dropped theirs as they rolled out a new business, and Delta got rid of its first class decades ago.
- Even British Airways, Lufthansa, and Air France have reduced the size of first class cabins.
- Whether there’ll be a first class at Thai Airways remains in doubt. It’s gone at Asiana, and scaling back heavily at Korean Air. Qantas only has it on their Airbus A380.
- In the Gulf, Qatar Airways has it on the A380 only which doesn’t fly to the U.S. and it’s an older first class without doors (QSuites business class offers less personal space but more privacy). Etihad has been shedding aircraft which had first class, leaving only a handful of planes with the cabin, and its new planes entering the fleet won’t offer first class.
Cathay Pacific First Class
Yet first class really is – or at least can and should be – a differentiated product. Business class may be lie flat and even have doors for privacy, but a lot less personal space, less personal service, inferior food and beverage offerings and a lot more passengers packed into the cabin. First class can be luxurious both in terms of its soft product and spaciousness but also in its privacy.
First class sells the luxury of not being surrounded by so many people, which I find tense – I’m exhausted after flying long haul business class and look forward to getting off the aircraft, while after a long haul first class flight I’m rested and relaxed. It’s genuinely enjoyable.
Singapore Airlines Dom Perignon
So what is the market for this (beyond frequent flyers burning their miles at exceptional value)?
- Oliver Ranson points out that there are more millionaires than ever before, by a wide margin, and first class is a luxury good – and should be marketed as one (focusing on benefits, not features).
- While he points out that billionaires fly private, I’d argue that there’s a middle ground of multimillionaires that might fly private for short haul but where they’d trade down for long haul. Private gets far more expensive for transatlantic, doubly so for transpacific.
- And that’s on top of the limited market for senior executive business travelers flying long haul doing major deals where the airfare is a rounding error and the risk and cost of being at anything other than truly top of game is far greater than the incremental cost of a first class ticket.
The market, then, is long haul between the most major centers of entertainment and commerce. In the U.S. it can be from New York, Los Angeles, and San Francisco, maybe Miami. In Europe it’s London Heathrow and Paris. In Asia it’s Tokyo, Shanghai and Singapore, maybe Sydney. And it’s in the Gulf.
First class is costly because it takes up more space per passenger, because the seats are expensive (and higher maintenance), and because it involves a differentiated service and more staff on board potentially.
But first class is also a revenue generator,
- It adds incremental ticket revenue from those that would buy up
- It adds ticket revenue from competitors by offering a better product high end customers choose
- It adds ticket revenue from those choosing not to fly private
- It helps generate a revenue premium for tickets in other cabins because of the halo affect demonstrating the quality an airline can offer and burnishing its overall reputation – Emirates sees this, it has a great reputation because of an over-the-top first class experience so people choose to fly the brand even though their business class product is inferior.
- Even frequent flyers making once in a lifetime redemptions add value, it may be a loss leader but drives aspirational earning of rewards through cobrand credit cards – which are the single biggest driver of high margin revenue for many airlines, with the cobrand partner being the single largest buyer of travel
Etihad Salmon Biryani
To do this, though, means more than just selling a $100 wine rather than a $30 one – that’s not worth thousands of dollars more. It means selling the difference between being truly relaxed and refreshed after a flight rather than beaten down and muddling through the day even after an overnight in a flat seat. It means selling that air travel is part of the travel experience and part of celebrating life.
Any airline with the resources can buy a large flat seat and pay for good catering. Creating a true lifestyle brand experience creates a moat against competition – the opposite of the commodity mindset that most airlines have adopted. Rather than being unprofitable, first class therefore carries the potential to be the most profitable since it’s the most de-commoditized. And in a world where so few do it, it’s easy to get a head start.
Cathay Pacific Caviar and Balik Salmon
By the way American Airlines could offer a really great international first class product though I do not expect that they will.