Premium economy: the new (old) business class

Who’d have guessed? The airline bean-counters are working out that their biggest money-spinner isn’t first class with its showers and private bathrooms or business class with its lie-flat beds, which has led to the abolition of first class for many of them because it is so lavish.

No, in an industry where “yield” is measured in square centimetres, the airline accountants are in a lather about premium economy class.

If you’re over 30 years of age, you may remember seeing it on your first trip on a plane with your parents. In the 1980s, it was that quiet little space at the front of the plane they called business class: 38 to 40 inches (96 centimetres to 102 cms) forward space between seat rows and a slightly wider seat and better meals.

“Premium economy is kind of the new business class,” Kent Craver, a Boeing direct of cabin experience and revenue analysis at Boeing, told the Wall Street Journal last week.

That’s because it is virtually identical to the business class of the 1980s and 1990s in both comfort and price pitched at twice to four times the best discount economy fare compared to up seven times the best discount economy rate for today’s business class.

The fact that there is now such a price chasm between the premium passenger experience and the increasingly squeezed and torturous cattle class down the back was destined to cause more creaking in the airline revenue model as the flying business searches for elusive profits.

One of the biggest holdouts against premium economy as an affordable compromise between a bed and a sardine seat finally folded last week when Euro giant Lufthansa decided it was going to finally bite the bullet.

Like Qantas before it, Lufthansa was worried that premium economy would simply cannibalise its business class market.

According to the Wall Street Journal, the latest was Lufthansa’s third internal attempt to justify a premium economy class after twice previously concluding that it would simply encourage its existing business class customers to spend less on the cheaper option.

The Wall Street Journal reports that, only after Lufthansa in 2012 began upgrading its business class to lie-flat beds from almost-flat ones was it confident of not cannibalising its own premium traffic.

“You ask yourself: isn’t there a down-sell risk?” says Lufthansa’s chief commercial officer Jens Bischof. “I see the upsell potential as significantly higher.”

Lufthansa premium economy (96 cms per seat row) will be installed between October this year and the northern summer of 2015. An estimated 10 per cent of Lufthansa’s long-haul seats will be premium economy.

It’s strictly a mathematical equation: Lufthansa’s new premium economy seats occupy 50 per cent more floorspace than standard economy, but can be sold for multiples more. Even allowing for the value-added perks like china meal service, amenity kit and an extra checked bag, the airline is way in front.

“It will be a very profitable product,” says Bischof.

Who could forget Qantas’s decade-long equivocation about what traditional airline people regarded as a radical departure from the set-in-stone rules of airline passenger class division?

As publisher Geoff Thomas reminded us recently, Qantas chief executive James Strong was adamant in 1997 that he “couldn’t make a case for” premium economy.

It wasn’t until after Qantas’s then-partner British Airways had made a smash hit of premium economy that Qantas CEO Geoff Dixon finally gave the green light in 2008, not long before he left the airline and Alan Joyce took over.

Premium economy is well-entrenched in our part of the world, with Qantas, Virgin Australia and Air New Zealand among the true believers. But significantly Singapore Airlines is holding out, as are the three big Gulf carriers, Emirates, Etihad and Qatar, and the US carriers flying to Australia, United and Delta, although a number of US carriers offer varying standards of premium economy domestically.

Do you consider premium economy value for money? Have you used it in your recent travels? What was your verdict? Post your comments below.