Premium economy is becoming the hot ticket for post-pandemic travel

The highly-profitable ‘middle class’ is enjoying a surge of appeal as travellers look to avoid crowded economy cabins.

By Bloomberg News, October 4 2021
Premium economy is becoming the hot ticket for post-pandemic travel

For decades, ferrying tourists to vacation destinations has helped major airlines cover basic costs, but the front of the plane is where they’ve racked up the bulk of their profits.

So when the pandemic whacked business travel, carriers were left looking for another way to pad the bottom line.

Increasingly they’re finding it in premium economy, where travelers can avoid the cattle-car aesthetics of coach without spending thousands of dollars for the expansive digs of business class.

And with Covid-19, growing numbers of leisure travelers are willing to splash out for a bit of extra elbow room at fares that are frequently more than double the cheapest economy seats.

United Airlines' premium economy offering.
United Airlines' premium economy offering.

“People are desperate to take charge of their lives now, and airlines can no longer force them into just one or two categories,” says Juha Jarvinen, chief commercial officer at Virgin Atlantic, which pioneered the service in 1992.

The trend was already on an upswing before the pandemic, with installations of premium economy seats – not including the “plus” sections of economy, which offer extra legroom – growing 5% annually in the three years before the coronavirus hit.

Researcher Counterpoint Market Intelligence predicts that pace will accelerate as more carriers embrace the idea of a separate cabin on long-haul flights featuring slightly wider seats, several extra inches of legroom, a deeper recline, bigger screens, and marginally better food and drink.

Who’s backing the middle class?

The three largest U.S. carriers – American, United, and Delta – have been installing the class across their widebody fleets.

British Airways, Qantas, Cathay Pacific, Singapore Airlines, Lufthansa and Emirates are among the premium economy stalwarts and recent converts, while other carriers such as Qatar Airways and Etihad Airways continue to resist the in-between class.

Emirates introduced its first premium economy offering this year on some Airbus A380 double-deckers, and plans to add it to 777X planes on order from Boeing.

Emirates' new premium economy seats debuted this year on some Airbus A380s.
Emirates' new premium economy seats debuted this year on some Airbus A380s.

Finnair, which specializes in flights linking Europe with East Asia via its Helsinki hub, next year will start adding the service on all 27 of its widebodies.

“The investment has been an easy decision for us,” says Topi Manner, Finnair’s chief executive officer. “Premium economy is the most profitable real estate on the aircraft, and the pandemic is reinforcing that.”

Seats in the premium cabin occupy barely 10% more space than economy, whereas a business class berth typically requires three times as much room.

Fears of business class cannibalisation

Lufthansa says premium economy generates 33% more revenue per square foot than economy and 6% more than business – and is 40% more profitable than the latter because it’s cheaper to install.

The German carrier has premium economy cabins on all 102 of its long-haul aircraft and is considering stripping out more business class seats to expand the sections.

Initially, Lufthansa was concerned that the service would cannibalize its business bookings, but most passengers upgrade from economy.

“Premium economy is the area we’re focusing on the most,” says Heike Birlenbach, head of customer experience.

For your consideration: a new staggered premium economy design from seat marker HAECO.
For your consideration: a new staggered premium economy design from seat marker HAECO.

Some in the industry caution that the cost could be an issue for airlines just recovering from the financial devastation of the pandemic.

An actual premium economy seat costs US$8,000 to US$20,000, a fraction of the US$75,000 to US$250,000 price tag for a lie-flat pod in business class.

But it’s still about five times what carriers pay for a coach berth, and Quentin Munier, strategy chief at seat-maker Safran, says some carriers are struggling to scrape together the funds needed to make the change. “Many are in wait-and-see mode,” he says.

New premium economy is the ‘old’ business class 

Lufthansa Technik, a unit of the German carrier that specializes in cabin makeovers, says it’s had several inquiries from other airlines about adding premium economy and shrinking business – with some (un-named) Asian carriers reportedly considering eliminating business class altogether.

And it takes only about five days to install the berths and rewire the cabin, says Niels Dose, product sales manager with Lufthansa Technik. “It’s a pretty simple engineering operation,” he says.

Cathay Pacific's Boeing 777 premium economy.
Cathay Pacific's Boeing 777 premium economy.

Today’s premium economy is similar to the business class that airlines introduced in the 1970s – a marginal increase in comfort at a substantial increase in price.

But carriers in recent years have deemphasized first class, making business the key differentiator for their brands, with lie-flat seats and sumptuous service.

A recent design study envisions flat berths in premium, though carriers haven’t jumped at the idea.

Premium economy's compromised sleeping position makes it less likely to see 'downgrades' from business class.
Premium economy's compromised sleeping position makes it less likely to see 'downgrades' from business class.

Surveys show the most important feature of business class is the ability to get a good night’s sleep on red-eye flights, so such an offering would likely spur more business passengers to take a step down rather than encourage economy class flyers to upgrade, says Ben Bettell, a consultant with Counterpoint.

That means for the foreseeable future, aside from a few extra inches of space, the principal appeal of premium economy may still be that warm, fuzzy feeling you get when you know you’re not sitting in the worst seat on the plane.

“Premium economy offers an affordable escape out of economy,” Bettell says, “and perhaps more importantly an opportunity for coach passengers to improve their status.”

This article is published under license from Bloomberg Media: the original article can be viewed here

Bloomberg News

Bloomberg News is one of the world's largest and most respected international news agencies; its content is published on Executive Traveller under a licensed syndication arrangement.

Thai Airways International - Royal Orchid Plus

15 Jan 2013

Total posts 373

Yes Please.I would consider it if the option was there.maybe 15% above economy fares and I would be happy.I have done the business class thing and once you have done that it's hard to go back to Economy.

31 Mar 2014

Total posts 374

15% higher than economy? Surely you're having a laugh

Premium economy won't ever be just 15% more than economy, unless maybe if you are comparing the most expensive Economy Flex fare with the cheapest Premium Economy Sale fare, and that's during a mark-down PE sale. As a rule of thumb I'd say it should be around 50% more than comparable economy but still far enough below business to make PE a clear 'in between', and an achievable upsell from economy. The product difference between premium economy and business class is enough to stop business class flyers downgrading to PE, except for when it's their company travel policy which forces the upgrade, eg some Australian companies say that flights of less than 8-10 hours can't be in business class, which was intended to ensure that most of Asian becomes premium economy by default.

Qantas - Qantas Frequent Flyer

05 Jun 2014

Total posts 210

No great surprise really. Business class has become so good and so much more expensive than economy that the PE segment will likely keep increasing. Funnily enough with First Class mostly disappearing except on select aircraft we've almost ended up with a rebranding exercise where most aircraft still only carry 2-3 classes.

AT
AT

Qantas - Qantas Frequent Flyer

14 Sep 2012

Total posts 363

Done well, Premium Economy has so many pros versus cons it really is a great product for both leisure and (some) business travellers. I really like that closing comment "Premium economy offer an affordable escape out of economy". 

QF

11 Jul 2014

Total posts 697

I’m actually wondering if there will be a point where someone release a premium, business class plane with no economy seats? 

06 Feb 2021

Total posts 37

Already exists.  SQ have an A350-900ULR that will commence operating non-stop flights between Singapore and New York from October 11. It has 67 business class seats and 94 in premium economy, no cattle class, and will be the longest non-stop flight anywhere, being 16,700km's and will take 19 hours.   

QF

11 Jul 2014

Total posts 697

@Ian J. I forgot about that one, over the last 4 months I've been selling my wife on going Sydney-Singapore-New York, New York - Cancun, Cancun - Texas(somewhere) - Sydney for Xmas 2022.

Qantas - Qantas Frequent Flyer

07 Feb 2015

Total posts 154

Singapore Airlines have the A350 ULR fitted with Business & Premium only, they were used on the Singapore-New York non-stop route pre-covid, but they're all in storage at the moment. When SQ relaunched the non-stop route late last year, they opted for the regular 3-class A350 to run the 19 hour marathon (with caps on passengers in order to lighten the load). Hopefully the 2-class A350s will be back in the air soon. 

01 Jul 2021

Total posts 17

Singapore Airlines has done that with there A350ULRs

As mentioned by others, SQ did that with their ultra-long range A350s, and before that with the A340s which originally flew the same route from Singapore to New York, except in those old days it was called something like 'Executive Economy', but same differences between that and business class.

I'm actually okay with premium economy on daytime flights between Australia and Asia, well more like back from Asia to Australia compared to Qantas which has only overnight flights on SIN-SYD and HKG-SYD. That's one reason I swapped to Cathay Pacific for my HK travel, not just the three daytime flights from Sydney to Hong Kong for flexibility against my own timetable but I could easily survive in premium economy on a daytime return leg. But no way would I fly premium economy on any flight with a proper overnight leg, well certainly not for work and ideally not for holidays.

29 Sep 2021

Total posts 24

across the Pacific you can upgrade straight to business class from any economy fare.

eg. if you get a cheap economy fare of $999 return in January, on Fiji Airways SYD/LAX direct (via Fiji) on their new A350s, you can bid to upgrade on any of the 4 sectors. Most people upgrade on NAN/LAX &/or LAX/NAN. The minimum bid to upgrade was $865 & business class on their A350s must be the best around.

08 May 2020

Total posts 69

looking at various flight options for Autumn March /April to Europe. I realised how few Airlines do offer Premium Economy.  But it seems it is not what Airlines want to offer. It is my preferred option suiting my budget and serves the comfort I like. I rather save the other $4500.00 which is needed to upgrade to Bus Class seat from Prem. Econ.

China Airlines - Dynasty Flyer

22 Sep 2012

Total posts 77

Since about 2016 our family has only ever flown in premium economy or business class on any flight over 6 hrs long. 

CI has a pretty good premium economy product which often sells to Asia for around 1400 to 1600 Australian dollars per adult. On a rare occasion you might get it lower than 1300Aud return. So for me if i compare it to the economy mid range priced fares (around 900 to 1100 Aud) I am happy to pay 30% to 50% more for premium economy. Doluble the price is when it is a bit steep.

Usually it is the sale or mid range priced premium economy but it is great for getting the required miles needed for renewal.

And it allows us to upgrade into premiun business class far more often.

Unfortuantely not much chance of flying overseas until June 2022 due to the continuing covid zero policy here (PRC).

Cathay Pacific - The Marco Polo Club

01 Oct 2021

Total posts 3

I am pretty sure EVA pioneered eco plus not virgin


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