Why does Aer Lingus not offer premium economy?
The Irish carrier’s special position in IAG requires an interesting strategy
Sometimes this blog can be rather predictable. Our standard prescription for revenue growth comes in three parts.
First, airlines should embrace new technology. NFT tickets (see article), virtual reality (see article) and Internet of Things (see article) can all help turn aircraft into revenue generating platforms.
Second, they should take action on commercial ideas rather than just building bigger and more complex platforms. Level 5 certification for NDC, a communications standard supposed to help airlines become retailers, means nothing if airlines do not actually sell products and services that people want (see article).
The third part is to consider cabin services carefully. First class is under-deployed because airlines struggle to sell it, not due to lack of demand (see article). Premium economy is almost always a winner (see article). Even successful carriers like Ethiopian Airlines could double their profits by installing the plus-sized seats (see article).
But sometimes the exception proves the rule. Recently industry veteran Patrick Edmond and I were discussing why Irish carrier Aer Lingus does not offer premium economy.
At first glance, it looks like they should – longhaul network, check; access to prosperous markets with middle class travellers, check; good business class, check.
But in fact Aer Lingus only has two cabins – business and economy – and we reckon that this makes sense. Why? Read on…
Your favourite Airline Revenue Economist has written about Aer Lingus and it’s place as a part of International Consolidated Airlines Group (IAG) before (see article). It is one of six carriers:
1. BA – linking London and Europe with North America plus a few other bits
2. Iberia – linking Europe with Latin America
3. Aer Lingus – serving Ireland & providing low-cost links to North America
4. Vueling – the airline of Barcelona
5. Level – low-cost long-haul
(6. IAG Cargo)
Here are some maps from the last article about IAG showing how all the networks fit together. There have been a few changes since then, but nothing major.
(All maps generated by the Great Circle Mapper)
To properly understand IAG we need to understand the role that each airline fills within the group. But we also need to consider the extent to which they compete with and steal revenue from each other, an idea known as “revenue abstraction”. This is said to occur when one brand captures revenue from one other without growing the market.
Level and Vueling do not abstract revenue from each other or from other airlines in IAG. They capture market share from other non-IAG competitors but also grow the market by attracting people who would not otherwise buy tickets.
BA, Iberia and AerLingus do have potential to abstract revenue from each other though. Imagine you are based in Switzerland and need to get to New York. All three longhaul IAG airlines serve both Geneva and Zurich as well as New York. Aer Lingus serves Bern and both BA and Iberia serve Basel. Given roughly equal connection times you would take the cheapest.
IAG’s revenue management wonks know all about this and take care to ensure pricing is consistent across the group. They may consider it acceptable to drive traffic to under-sold flights but they will be unlikely to allow any of their airlines to compete with each other.
The boffins in network planning have designed their networks carefully to complement each other too. Notice how comparatively few destinations in North America are served by Iberia and how few in Latin America (excluding the Caribbean) are served by BA. Iberia also rarely flies eastwards – see how many destinations in the eastern hemisphere are only served by BA.
This network design helps stop the airlines abstracting revenue from each other.
The three airlines also think differently about the different cabins.
BA and Iberia are IAG’s premium brands. They are intended to attract the corporate and premium leisure markets and could not care less about economy, which simply fills the rest of the plane.
Aer Lingus on the other hand is interested in economy. Specifically, their role in IAG is to capture market share from people who might otherwise fly Big Lufthansa or Air France-KLM. So Aer Lingus’s economy fares are low. Their business class fares are intended to attract people to IAG who would otherwise fly Big Lufty or Air France-KLM too.
Notice how Aer Lingus is not in the oneworld alliance. Passengers can earn valuable Avios flying the Irish carrier, as they can on Vueling. But what they cannot earn is the desirable shiny gold and silver status cards which grant lounge access and special privileges.
This all helps explain why Aer Lingus do not offer premium economy. That is simply not their job within IAG. Premium economy flyers are expected by IAG to fly on BA or Iberia. Or, to a limited number of North American destinations, they can upgrade to business class for not much more money with a flight on Aer Lingus.
oliver AT ransonpricing DOT com
