CAPA Live: Business or pleasure? Premium Economy seems to offer the answer for airlines

20 July, 2021

We all enjoy any frills when flying. From more comfortable seats that are both wider and provide increased recline, enhanced hand and hold luggage allowances, improved food and beverage offerings, added flexibility, the list has become longer and longer as budget airlines have diluted the business offer.

But it has not become all about less. Some airlines lead the market thanks to the quality of product they offer - in terms of onboard amenities, entertainment and service. One trend that is becoming clear is that premium economy will have a more important place in the airline product mix in the post-pandemic environment. In fact, CAPA - Centre for Aviation's Aircraft Interiors Database shows that approaching a third of all widebodies (30%) feature premium economy cabins.

Right now a number of these aircraft remain inactive as COVID-19-related government restrictions continue to heavily dampen medium- and long-haul travel. But they will soon return to the air in increasing numbers as vaccinations help to open up international air travel.

Premium economy was already in vogue before COVID-19's arrival. Research from metasearch engine and travel agency, Skyscanner, has revealed that travellers have been increasingly looking at more premium flying options. Analysis of its search and booking data for its website and mobile app in 2019 revealed a growing interest in premium economy for long haul.

Skyscanner said in its Global Travel Trends 2020 report that when looking at flight travel specifically, 2019 saw an increase in premium economy with bookings on long haul flights growing by +8.33% year-over-year revealing that when travellers are taking longer flights, they are willing to stretch their budget for those extra comforts.

"Passengers become slightly more conscious of price on long haul flights and business class is losing its position to premium economy which provides lots of extras and makes a journey more comfortable at a lower price than traditional business," said the travel technology specialist. Skyscanner's data shows that alongside the +8.33% rise in premium economy long haul searches and bookings, first class bookings fell -0.27%, business class -1.59% and economy -0.02% year-on-year in this category.

Speaking at the latest CAPA Live, CAPA - Centre for Aviation chairman emeritus, Peter Harbison, noted that premium economy cabins will offer an alternative revenue stream, especially while business travel remains weak. The traditional premium cabins - first and business - obviously generate a much stronger yield for airlines. Moving forward premium economy will increasingly fulfil the current rise in premium leisure demand, while also supporting future lower cost corporate requirements.

"When we're looking at the difficulty with business travel and the effect that that's having, where airlines will start to look for someone who's going to pay premium prices, which is the premium leisure market they're hoping for, but also a much more cost conscious business market. So premium economy seems to be where people are looking," said Mr Harbison during the monthly conference.

As the data in CAPA's Aircraft Interiors Database shows, some recent developments in seats offer a glimpse into the potential nature of a post-pandemic airline marketplace. Airline strategies are already showing that "premium economy can potentially offer the perfect middle market solution" for both the premium leisure and cost-conscious business travel, according to CAPA.

Delta recently revealed plans to install only premium economy on its A330ceos and 767-300ERs, while leaving business class untouched in what CAPA describes as "a risk-averse approach". Emirates is also doubling down on Premium Economy, announcing plans to install the seat type on its existing A380s, in addition to just the factory-new ones (here's the report on its initial debut: 'Emirates debuts its new premium economy cabin, but it is currently only deployed on one Dubai - London rotation as an upgrade option')

CTC - Corporate Travel Community reported earlier this month on the planned roll-out of premium economy cabins across the Boeing 777-300ER fleet of European carrier Swiss (see 'SWISS opens bookings for new premium economy product offering 'greater privacy and enhanced inflight comfort' for passengers'), and KLM will follow in 2022. Lufthansa also announced earlier in 2021 that it is considering decreasing the number of business class seats to make room for Premium Economy; Japan Airlines made a similar announcement for its A350-1000.

While many airlines are taking a wait-and-see approach for products at both ends of the aircraft, it now seems very clear that the trend towards investment is in the "middle". That means that the 30% of the world's fleet that now has some form of premium economy offer is only set to rise through the pandemic recovery phase.

A form of premium economy is also increasingly being seen in narrowbody aircraft too as airlines debut dual-economy seating products, an indication of the way some airlines are perhaps anticipating the profile of the post-2021 marketplace.

According to CAPA's Aircraft Interiors Database, KLM recently became the latest airline to embrace a dual-economy class seat model solution, offering a more comfortable product with thicker padding and more recline for the first few rows of Economy. These seats can also be converted to EuroBusiness. The remaining rows use a product with less padding and recline. TAP Air Portugal, an early adapter of dual-model economy class, has also recently rolled out an new version 2 of the concept.

This all seems to suggest airlines have realised the importance of product differentiation, not just with fare types, but also with the actual hard product. In a report based on research from the CAPA Aircraft Interiors Database, CAPA identifies both dual-economy seating products and the rise of premium economy as identifiable trends alongside airlines introducing sub-fleets with different seating configurations.