Premium Economics - Part 1
When Tim Clark joined the founding team of Dubai-based airline Emirates in 1985, most carriers offered two cabins – pricey first class and economy. Business class emerged in the 1980s and offered flat beds as standard by 2010, which is today the benchmark for comfy travel.
Emirates of course followed the trend and pre-COVID was, along with British Airways, the world’s largest first class operator by capacity. Meanwhile Emirates business and economy seats carried passengers safely to, from and through Dubai. But there was one thing that Emirates did not offer – while European, Asian and American airlines were achieving great success with premium economy, Emirates left it uninstalled.
This is the first of two articles about premium economy, which I shall call “premium” for convenience. Today we are busting five common myths about the cabin. On Wednesday we will explain the revenue management principles behind the cabin’s success. Together the two articles show why Emirates was “absolutely shocked” when they finally made premium available.
Mythbusting
There are five common myths about premium economy, which I will call “premium” for convenience:
1. Premium is the same as business class 20 years ago
2. Premium is the same as economy class 40 years ago
3. Premium is the same as single-aisle business class
4. Premium only works on longhaul
5. Premium must be a separate cabin
Premium is the same as business/economy class 20/40 years ago
To dispel the first two myths, that premium is the same as other cabins 20/40 years ago, here is a table showing some statistics about typical seating arrangements on widebody aircraft like the Airbus 350 and 330, Boeing 777 and 787, and Comac 929:
Pitch = distance from a point on one seat to a same seat on the seat in front
2020’s business class seats come in all manner of interesting designs so are not included – it is safe to say though that they are all much better than premium.
Premium offers passengers 44% more space than today’s economy seats, 29% more space than economy 40 years ago and 31% less space than business class 20 years ago. Myth busted!
Premium is the same as single-aisle business class
Now let’s take a look at myth 3 to see why premium is not the same as single aisle business class (branded first class in some cases, like United States domestic). The table below shows typical data for Airbus 320 family, Boeing 737 and Comac 919 outside Europe:
Premium offers 10% more space than economy but only 65% of the space enjoyed by business class. Notice also that these business class products are still more spacious than longhaul premium. Airlines like Delta, Vistara and China Southern offer three-cabin products like these while many airlines, including British Airways, Qantas and Qatar Airways do not offer premium and only offer two such cabins on short flights.
Within Europe things are a little different, as business class is configured with a movable curtain that allows an airline to increase or reduce seats accordingly to an individual flight’s demand. European airlines do not offer a shorthaul premium product. Their business class seats are identical to economy but have extra space at the side, often occupied by a convenient table. Here are the relevant statistics:
The tables show that neither wide-body nor single-aisle premium matches up to single-aisle business class in any market. Myth busted!
Premium only works on longhaul
Delta, Vistara and China Southern all offer premium on shorthaul flights. There are five reasons for this:
1. Passengers connecting to longhaul premium take the higher cabin all the way, offering extra demand which the airline can convert into more sales and higher fares
2. Replacing the premium seats with standard economy does not normally make room for any more seats – to see this, consider that five inches extra pitch times five rows is less than the space needed for just one row more at 29” or 31” economy pitch
3. When premium is in high demand it can be sold for a higher fare than economy, normally without any significant cost increase
4. When premium is in low demand the space can be used to upgrade frequent flyers as an incentive or as room for upgrades when economy is overbooked
5. Extra economy seats will always be sold at the low fares – to see this, consider that if it were not true, the airline would sell it’s existing economy seats at a higher fare
Myth busted!
Premium must be a separate cabin
Finally, premium need not be a separate cabin. AirAsia, easyJet, SunExpress and others sell exit seats and front row seats for an additional charge. On easyJet a row 1 seat might typically be priced at £20 to £50 and seats in the next five rows or so £10 to £30. Airlines can clearly monetise the most popular economy class seats, even if they do not have a formal premium cabin. Myth busted!