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If you’ve bought an airplane ticket recently, you may have noticed that there are a lot more options to choose from — and a lot more line items to pay for. It’s all part of airlines’ strategy of “premiumization.” And it’s why the front of the plane is getting cushier, while coach can feel like a low-cost shakedown.
On today’s Big Take podcast, Bloomberg Businessweek senior reporter Amanda Mull joins host Sarah Holder to discuss how airlines are rethinking their pricing — and what it means for airline revenue and your flight experience.
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Terminal clients: click here to subscribe.Here is a lightly edited transcript of the conversation:
Sarah Holder: In the US and around the world, we’re in the midst of the busiest travel time in the year. A record 31 million airline passengers are expected to take to the skies by the end of the Thanksgiving season. That’s 31 million people dragging suitcases through airports, waiting in security lines, and vying for space in crowded overhead bins. And if you are one of those millions of holiday travelers or if you’ve just bought an airplane ticket recently, you might have noticed something new at checkout. There are a lot more ticket options to choose from and a lot more line items to pay for. For those looking for an upgraded experience, you can get your typical first class or business class seat, like always. But now there’s also…
Amanda Mull: Premium economy, Economy Plus, which are different things, which is very confusing.
Holder: Comfort Plus.
Mull: Yes. Comfort Plus is the way Delta brands their Economy Plus. And usually what comes with the Plus is a little bit extra leg room, maybe a better snack, maybe a free alcoholic beverage.
Holder: Amanda Mull is a senior reporter at Businessweek covering consumer culture. She says on top of convincing some customers to pay for slightly *better seats – airlines are also filling more of the *cheap seats. And these tactics: from creative names for sections of a plane, to things that used to be standard now billed as perks, paint a broader picture of how airlines are monetizing the modern flight experience.
Mull: The airlines have gotten really good at giving you a multitude of ways to talk yourself into spending a little bit more money.
Holder: This is the Big Take from Bloomberg News. I’m Sarah Holder. Today on the show: the growing divide between the front of the plane and the back of the plane — and what it means for airline revenue and for your flight experience.
Holder: So Amanda, you’re an experienced flier and you’ve written this amazing piece about airline travel these days. And you raise this really provocative question: is flying getting better or is it getting worse? Which is it?
Mull: It depends on what kind of ticket you’re looking to buy. It depends on where you want to sit on the plane. It depends on how much money you want to spend, what kind of credit card you have, where you are in that particular airline’s loyalty program. There’s a lot of variables that determine exactly how good or bad your experience is going to be.
Holder: First class, premium seats, preferred seats. It didn’t always used to be this way, right? How did we get here? Walk me through the history of the premiumization of airline travel.
Mull: Once upon a time, all of the seats on the flights were the same. After World War II, you have this burgeoning middle class, you have a burgeoning interest in air travel, in leisure travel, and you have airlines that are at the time, centrally managed by the federal government. So you have a board that sets airline flight prices, they set them, federally across airlines. So airlines can’t really compete with each other on price. And at that point, all the seats on a particular airlines’ planes were the same.
Holder: But they were also like, kind of lux though, right? I remember, like, the carving stations or the champagne and dressing up for flights.
Mull: Yeah, because if you can’t compete on price and your margins are guaranteed and your prices are fixed, then what you do as an airline in order to attract new customers is to compete on perks.
Archival: Welcome aboard. Welcome aboard the spacious cabin. Attractively decorated, air conditioned, but draft free. Roominess extends even to the powder rooms, which look like those in a private home.
Mull: A lot of air travel in that period was undertaken by business travelers. There’s a lot of men in a lot of fedoras smoking a lot of cigarettes. It’s very Mad Men. So, like, what did that type of traveler want? They wanted cocktails. They wanted carving stations. They wanted, like, a nightclub on the second floor of the plane. And then, over time, this began to change a little bit, and it changed most notably in the late 1970s. That is when the Carter administration deregulated the airline industry, in certain ways that meant there was suddenly a lot of competition. So you get all of these, airlines flooding into a market where the prices are no longer centrally set. So you get an influx of small upstart airlines and a lot of them are super, super cheap. You also got a lot of people who were interested in leisure travel for the first time. This sort of explosion in competition brought prices down enough that, if you were going to drive from Ohio to like the Gulf Coast normally for your family vacation, maybe you fly instead. So, suddenly, the proportion of Mad Men guys has plummeted. And the proportion of people who are taking their kids to the beach has risen.
Holder: And the legroom is smaller.
Mull: Yes, the legroom is smaller. Suddenly, you’re getting more seats, the lavatories are getting smaller, you’re not having cocktail lounges on the plane anymore. So, you get airplanes that feel a little bit more like riding a bus. And then that’s where you start thinking about what kind of revenue mix you want on your airplane?
Holder: When it comes to revenue, business travelers are really important for airlines because they travel a lot. Way more than people who just hop on a flight a couple times a year for vacation or to see family. So to keep those business travelers from going to competitors, airlines created loyalty programs. American Airlines had the first one back in 1981, and Delta and United quickly followed.
Mull: So if you were a customer that constituted a disproportionate amount of an airline’s revenue, you could suddenly, like, gain points or miles in this case to access better features, better perks. Part of that is the airport lounge. Part of that is the free upgrade. At that point, first class tickets, you’ve always been able to buy first class tickets for cash, as long as they’ve existed, but during this era, they became a really important loyalty bargaining chip.Holder: And this era being like the 80s, the 90s?
Mull: Yes, the 80s, in particular, into the 90s. Status is something that you build up over time, so it is a really effective way for an airline or any type of consumer business to pull a really high value customer into their ecosystem and make the cost of switching to a competitor really really high.
Holder: You don’t want to start from zero miles again.
Mull: Right, you don’t want to start from zero. You don’t want to have zero miles. You want to be able to buy a $300 plane ticket and feel reasonably sure that you will get upgraded to a ticket that would have cost $700. So first class tickets became these really useful bargaining chips. But, as the math of airlines gets more complicated, all of this premium, high dollar, high margin inventory, airlines start to look at it a little differently, eventually.
Holder: And that brings us to today. What’s different now?
Mull: Airlines are selling those good tickets for cash. Well they’re still giving out some, but airlines that have a really robust premium offering, and a really robust premium strategy in the United States, Delta is usually cited as the best example of this. They are finding ways to effectively market those seats to leisure customers, to people who would not traditionally just get a freebie and sit first class.
Holder: They’re selling them and people are buying them.
Mull: Yes. Delta, over the course of a little over a decade went from selling annually a percentage of their premium tickets that was like in the teens to selling like about three quarters of them for cash.
Holder: Wow.
Holder: Just to emphasize those stats: In 2011, Delta Air Lines sold only 14 percent of its first-class fares for cash. By 2023, it was selling 74 percent of its first-class seats for cash. That was definitely one of the things that piqued my interest because people suddenly being willing to open their wallets in that way is really, a profound difference.
Holder: Coming up after the break: what made all these passengers willing to open their wallets for first class seats? Plus, why airlines like Delta and United are taking a page out of budget carriers’ books.
Holder: Amanda Mull, a senior reporter at Businessweek, says the airline industry has been changing lately, in a profound way. Part of that is more and more customers are willing to pay cash for premium seats in first class – the kind of seats that used to go to loyalty program members for free. So I asked her – what’s changed that’s made more people willing to pay?
Mull: Part of it was COVID. When business travel in particular shut down, and those really valuable customers stopped buying tickets, the airlines had all of these really high value tickets and like nobody to buy them. So what they did, a lot of them is go, “OK, we need to encourage people who are flying for leisure, or who are not traditional business travelers to upgrade.” So what a lot of them did is, slash prices on their premium offerings. They figured out how to talk to leisure travelers about premium seats. They figured out how to get those messages onto booking sites, onto their own website to articulate a more detailed list of reasons you might like to fly first class. It’s not just expensive, or maybe it’s not as expensive as you thought it was, and you get all these wonderful perks.
Holder: And does premium just mean first class in this situation? Like, I know you can buy a little extra legroom, or premium economy, which is an interesting moniker. How did airlines think about gradients of premiumization?
Mull: Yeah, this is one of those things that also started before the pandemic, but was really accelerated by it is that for a long time, there was, like, a premium class and a regular class that like you sorted into one or the other. Over the years, starting as much as 25 years ago, airlines started saying, “OK, is there a middle ground here? Is there a way to create like a quasi-premium or an entry level premium or, gradations of premiumization that you might be able to more easily sell to a leisure traveler or somebody who’s a little aspirational feeling like they want to travel like somebody rich and famous, but doesn’t really have the cash for that. And a lot of times those are like $50 to $100 more for a domestic route. And they often they come with a checked bag. They come with like stuff that used to be included in a coach fair, which is part of all of this. So you have airlines who had been tinkering with these strategies of creating something in between first class and coach and they are now putting in the work to retrofit all of their fleet. Somebody told me in the reporting on this story that retrofitting a single airline cabin to reconfigure like how the seats are meted out depending on the cabin costs like eight figures per aircraft. So it is a really huge capital investment and it’s a very slow one.Holder: Is this kind of investment worth it for the airlines? What are you seeing in the earnings reports? How is this all playing out for them?
Mull: Yeah, it is absolutely worth it. If you can get it done in a way that is pretty efficient and that doesn’t take too many of your airplanes out of commission for too long, it is definitely worth it. The revenue that you get from premium customers is huge compared to what a similar customer in the back of the plane would be giving you. But the major American airlines want all of these customers. They want as many premium customers as they can have. But they also want the customers who might have bought a Spirit ticket or a Frontier ticket. So the story of premiumization is the story of the front of the airlines getting nicer and the front of the airplanes, to a certain extent, also getting bigger and taking up more and more of the space within the airplane. But it’s also a story of the back of the airplane getting even more unbundled as it were.
Holder: What does that mean? What does it mean to unbundle?
Mull: What happens at the back of the airplane on the full-size carriers now are tactics that are almost entirely cribbed from the low-cost carriers. You pay for a glass of water, pay to select a seat, pay to carry on a bag, that you put in the overhead bin in a lot of cases now. So the low-cost carriers came about and came on really strong in the early 2000s and proved at the existence of people who were willing to pay for nothing, willing to pay to enter the airplane, and that’s about it. If they can save 20 bucks by not watching the in-flight entertainment, if they can save 20 bucks by shoving everything in a backpack, they are willing to do that. They are willing to sit in the middle seat on a 10 hour flight to save 40 bucks or 50 bucks. And that has been, like, great for the airlines because until relatively recently, if you flew like a popular domestic route in the US, and if you flew it on a coach fare, it was pretty likely that you were gonna get to sit next to an empty seat. Nobody wants to buy those middle seats. Nobody wants to sit next to the bathroom, nobody wants those. The airline said, what about if we make those cheaper? If there’s no market for that fare at $250, what if we find a way to make it $169?
Holder: Mmm. So at the same time as they’re creating these gradients of higher classes, they’re also creating gradients of lower classes, below economy, basic economy.
Mull: Yes. But that means those seats get filled up. You get 160, 170 bucks out of them and that is great for airlines because they’re flying that flight anyway. And if you can do that across 10 or 15 seats across like thousands of flights, like that is meaningful money. You’ve just found more pockets of revenue on each and every flight that you operate, which is profoundly good for airlines pocketbooks.
Holder: What about for flyers?
Mull: For flyers, it’s more mixed. If you are one of those people who wants to fly everywhere for the least amount of money possible and is willing to put a week’s worth of clothes in a backpack and you’ll figure it out, this has been pretty good for you because there’s a lot more opportunities to do that. If you are just a regular coach flier, this has probably been enormously frustrating and antagonizing because if you were flying before things started to get unbundled in the back of the plane, you remember when you bought a $250 fare and you could check two bags. They’re weren’t really a whole lot of extra fees that you were going to have to pay on top of that initial outlay, and the seat in front of you was probably a few inches further forward than it is now.
Holder: What do you see as the future of premiumization? Is this front of the plane, back of the plane divide only going to get larger?
Mull: The analysts and experts that I spoke to were all sort of like, the sales of these premium tickets can’t be infinite, and I think several of them expected it to shake out a little bit even because post-pandemic travel is still like normalizing a little bit. But I think that most of them look at this and go, “OK, some of these people who have experimented with upgrading, some of them are just going to become premium customers.” Because once you have done a long haul flight in first class or just premium economy, it is very, very hard to then conceptualize doing it in regular coach. Once you’re used to it, once you’ve experienced the alternative it is very hard to go, all right, time to find my middle seat in front of the bathroom.
Holder: Thank you so much Amanda.
Mull: Thank you so much for having me.
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