Airlines Are Putting Money into Premium Seats — Why?
At a time of €Occupying Wall Street,€ type of protests seen around the world, it is interesting timing to take a look how airlines are creating a larger difference between low class (economy), upper class (first/business class) and middle class (economy plus).
Many American airlines have been suffering since 9/11, but have more recently started making profit again. Others have also been distracted with mergers (America West & US Airways, Delta & Northwest and still United & Continental), which has left many premium products (especially domestic ones) aging. Recently, airlines have started putting money into their premium products, while cutting options on economy, but why?
* Premium products, especially internationally, are very profitable
Scott Mayerowitz writing for the AP points out that, €first-class and business-class passengers make up only 8 percent of international travelers but account for 27 percent of revenue.€ Why wouldn't an airline go for where the money is at? At the end of the day, airlines are a business and they are meant to make profit. Now that they have money to make investments into products, does it not make sense to give passengers what they want? The wealthy want a better product and most of the non-wealthy want cheaper tickets.
* Legacy carriers need to keep their frequent fliers
Newer airlines, like Virgin America, have been shaking things up with-in the US. They provide superior first class and economy product and might make some of the frequent fliers on legacy carriers think twice. Take away points and rewards and what would you rather fly? On an old MD-80 aircraft (still flown by American and Delta) or a newer cabin on Virgin America's new Airbus A320s?
* It is cheaper to keep a current customer versus the money to get a new one
It is basic Business 101. Companies will spend much more money trying to attract new customers than just trying to keep the ones they already have. It makes long-term financial sense to improve first class.
* Rich people want nice things, less rich want to get there as cheap as possible
It comes down to market demand. Those that do not have the money, normally want to get from point A to point B as cheap as possible. When comparing prices, they might see that it will cost $20 more for one airline, but would rather save that $20 (or $80 if a family of four) for their trip. However, this doesn't stop the person from complaining about the lack of service and amenities.
Those that can afford the extra costs or have earned enough rewards to be upgraded, care more about the amenities offered. They are more willing to shell out some extra money for a higher level of service.
As Mayerowitz points out, €Most of the 3.4 million Americans expected to fly this holiday week won't get anything close to that treatment. They've paid a little under $400 for their round-trip tickets. And it's a cutthroat business. To save $5, passengers are likely to choose another airline.€
* There are some things given to economy, but most cost money
Just because economy passengers are not seeing the royal treatment, doesn't mean they are not getting anything. Many airlines have been installing Wi-Fi onto their planes and are offering some pretty decent food options €" but you have to pay for both. This allows airlines to offer rock bottom prices and additional add-ons that passengers can pay more to increase their level of service. This seems to be working for most airlines, since they are making record profits on the additional options in economy.
Many American airlines have been suffering since 9/11, but have more recently started making profit again. Others have also been distracted with mergers (America West & US Airways, Delta & Northwest and still United & Continental), which has left many premium products (especially domestic ones) aging. Recently, airlines have started putting money into their premium products, while cutting options on economy, but why?
* Premium products, especially internationally, are very profitable
Scott Mayerowitz writing for the AP points out that, €first-class and business-class passengers make up only 8 percent of international travelers but account for 27 percent of revenue.€ Why wouldn't an airline go for where the money is at? At the end of the day, airlines are a business and they are meant to make profit. Now that they have money to make investments into products, does it not make sense to give passengers what they want? The wealthy want a better product and most of the non-wealthy want cheaper tickets.
* Legacy carriers need to keep their frequent fliers
Newer airlines, like Virgin America, have been shaking things up with-in the US. They provide superior first class and economy product and might make some of the frequent fliers on legacy carriers think twice. Take away points and rewards and what would you rather fly? On an old MD-80 aircraft (still flown by American and Delta) or a newer cabin on Virgin America's new Airbus A320s?
* It is cheaper to keep a current customer versus the money to get a new one
It is basic Business 101. Companies will spend much more money trying to attract new customers than just trying to keep the ones they already have. It makes long-term financial sense to improve first class.
* Rich people want nice things, less rich want to get there as cheap as possible
It comes down to market demand. Those that do not have the money, normally want to get from point A to point B as cheap as possible. When comparing prices, they might see that it will cost $20 more for one airline, but would rather save that $20 (or $80 if a family of four) for their trip. However, this doesn't stop the person from complaining about the lack of service and amenities.
Those that can afford the extra costs or have earned enough rewards to be upgraded, care more about the amenities offered. They are more willing to shell out some extra money for a higher level of service.
As Mayerowitz points out, €Most of the 3.4 million Americans expected to fly this holiday week won't get anything close to that treatment. They've paid a little under $400 for their round-trip tickets. And it's a cutthroat business. To save $5, passengers are likely to choose another airline.€
* There are some things given to economy, but most cost money
Just because economy passengers are not seeing the royal treatment, doesn't mean they are not getting anything. Many airlines have been installing Wi-Fi onto their planes and are offering some pretty decent food options €" but you have to pay for both. This allows airlines to offer rock bottom prices and additional add-ons that passengers can pay more to increase their level of service. This seems to be working for most airlines, since they are making record profits on the additional options in economy.
