Is First class airline travel dead? Premium perks, the new marketing tool

20 December, 2017

Aviation companies are continually seeking efficiency and pragmatism, while structurally shifting from being an airline company to a brand relevant in businesses beyond travel.

That means airlines increasingly need to make candid decisions about first class. Some traditional outcomes are already evident: United is doing away with long haul first class, and Lufthansa will not feature it on its forthcoming 777X fleet.

First class has become more important for marketing than revenue

At top-end full service airlines, premium (first and business class) revenue can be of the order of 30-40% of total passenger revenue. The vast majority of this comes from business class. First class typically contributes a low single digit share of total revenue. (Commercially successful airlines should gain the best return per unit of cabin space in premium economy.)

So first class mostly exists not for direct revenue contribution, but for marketing, or the "halo effect" first class has on other cabins and the wider airline brand. The luxury of first class makes the airline and the rest of the plane seem better. Etihad is often now associated with the Residence, which appears only on the A380, of which Etihad has 10. Thus the 10 Residences across all of the Etihad fleet drive more image than the 30,000 other seats across the company.

In a similar way, airlines with special aircraft entrance designs (Qatar Airways' domed ceilings) or other elements (Virgin Atlantic's bar) also attract outsized attention, and elevate the overall perception of the brand.

Revenue first class passengers are decreasing

Although marketing factors have been a reason for the persistence of first class, paid first class passengers have been part of the equation.

But such passenger numbers are typically diminishing. Corporate and government travel policies are changing, and rarely allow first class travel, even for the most senior executives – perhaps only a handful of people in the company/government. This change has intensified, first since the tech bubble burst at the turn of the century and then intensified since the global financial crisis. As bankers feel the cold winds of change this is a trend not expected to reverse.

Hardware: innovation has made today's business class yesterday's first class

It is increasingly difficult to differentiate "first" and "business" class in any significant way, at least on long haul services.

Seating innovation has meant today's typical business class seat is lie-flat, often with direct aisle access, previously the main characteristics of traditional first class. First class seats can be bigger, with greater soft amenities and more exclusive off-aircraft experiences, but on the aircraft itself there is not as clear a divide any more.

At least, that applies to the level of seating comfort, food and IFE. One differentiator is however: space and privacy, qualities much appreciated by those able to access this part of the aircraft.

Airlines have the opportunity to extend their brand on the ground (it is cheaper, too)

First class is seen as the pinnacle of travel, with some exceptions – such as Etihad's Residence, or invitation-only perks (Qantas' Chairman Lounge), or frequent flyer levels (American Airlines Concierge Key).

In the future, successful airlines cannot focus solely on the flying element of travel. Indeed, they will not be airlines: they will be companies with a high profile flying business that is part of a wider platform that extends the brand to activities well beyond flying and travel. The top reward and greatest aspiration will then move out of the cabin environment and into everyday life. Even conservative Japan Airlines is thinking differently, sponsoring a local techno music festival.

Instead of offering a passenger a first class seat that is replicated hundreds of times a day, there is an opportunity for the top rewards to embrace unique experiences. This could be an evening networking event with senior management, or a half hour in an aircraft simulator.

The greatest opportunities could be cultural: Qantas has a lounge for top-tier frequent flyers at Sydney's Museum of Contemporary Art. Singapore Airlines invites customers to the orchestra.

Yet we are in the very early days of airlines transforming to this new role, instead to becoming a company brand that is part of everyday life.

Connecting to passengers beyond travel is important. It offers an opportunity to differentiate top perks; cabin environments are too confining. And for airlines, besides achieving greater rewards and increasing customer satisfaction, moving away from first class saves money. The first hurdle for them to digest is recognising the need for change.