There is an urgent need in the industry for airlines to reconsider their cabin strategy, beyond antiquated class divides and to offer a truly differentiated product, tailored to the needs of modern passengers, according to their traveler profile and preferred in-flight activities.
This special-insights report covers the why, how, when, and for whom of one facet of this differentiation: the true Premium Economy product.
It will take about 15 minutes of your life to read it, but I tried to make it well worth your time.
Some airlines get how differentiate brand with cabin product. Many don’t.
Others do get it, but believe they can fool the consumer into thinking they got more protein in their burger when it’s only heavy with fat.
Maybe they can fool consumers for a while. But the consumers airlines should be targeting with a middle-market product are smarter than that.
Delta More or Less
With other major carriers, Delta Airlines has gone down the path of creating a cabin crunch in standard Economy which allows it to compete with Low-Cost carriers on key routes, and undersell traditional carriers in markets that it wishes to dominate.
That is a smart business strategy, which involves unbundling of product to nothing beyond the right to board the aircraft and sit down, then charging extra for anything above the cost of an electronic boarding pass and somewhere to plant your bottom.
Add the high profit margins on extras, pray for fuel to stay cheap, and you’re in the black. Simples.
Airlines that have gone down this path have seen their bottom lines return to health as a result. This is to be celebrated.
Without profits airlines go broke and then where would you be?
If you’re in the U.S., and you’re American, Delta, or United, you’d probably be in “too big to fail” territory, but that’s a story for another day.
The trouble comes in Premium losses.
As a result of this retail survival dynamic, and in lieu of taking the risk on brand differentiation and target customer positioning, airlines have created conditions uncomfortable enough at the back of the plane that they can force some middle-market passengers to pay for a somewhat less horrible cabin.
This slightly improved cabin product is sold at fares which are, in fairness, still very low, possibly too low to be sustainable or to give any claim to a ‘Premium’ category credibility.
Taking zero-footprint perks, such as food and beverage, entertainment, mileage and boarding priority out of the equation, the hard product differentiation on these “plus” offerings is barely perceptible.
To address the issue of perception Delta has recently announced that it plans to make the product divide more obvious, by installing (drumroll, ca-ching!) cabin dividers, Bloomberg reports.
The airline has not yet decided the look of this divider, but we might suggest a transparent material, as those can now be certified and would prove a good fit.
Nothing is probably best.
Inching Towards Something or Other
An expert quoted in the Bloomberg article I link to above refers to this move as “inching closer to the ‘premium economy’ cabins found on foreign carriers including British Airways and Virgin Atlantic.”
With respect, this is a laughable claim. This game of inches is still miles away from a Premium Economy product.
Installation of dividers is, in fact, over-complicating what European carriers have successfully resolved on their equivalent ‘plus’ offerings on domestic economy routes.
These ‘plus’ products are segmented by a simple little cardboard sign (sometimes they buy up to plastic) attached to the back of the seat with velcro, so that it can easily be moved up or back according to the seats allocated to this service on a particular flight. Sometimes they’re only marked with antimacassars. Whatever works.
There’s a beauty to this simplicity.
It avoids the hassle and costs of certifying and installing a new divider, and it acknowledges the: “Who are we kidding? You’re only paying a little extra so you’re getting a little extra” part of the equation.
Brand honesty is always good. Adding a hard divide so people “can’t see” that they’ve paid up to almost the same thing in the back is not brand honest.
The costs of full divider installations should also be considered carefully. Any change to the cabin design costs a bundle. An airline as focused on keeping a healthy financial sheet as Delta is shouldn’t throw good money after bad.
And the hollow “plusy” “premiumy” product is bad money.
The aircraft cabin is a limited space. In bad times (and bad times always come) keeping it full is a challenge. Making every inch of the aircraft pay for itself is a greater challenge.
High revenue passengers keep airlines flying. They justify airlines’ existence. But high revenue passengers ain’t worth a dime today for the nickel they were worth twenty years ago.
To attract really high revenue flyers (top execs and the hilariously rich) away from easily booked on-demand private jets, airlines need to offer a superior premium product. Ask Warren Buffet why there’s a future in NetJets, but not in airlines.
Competing for budget passengers is a game of utter desperation which involves downgrading and discounting. Even the Peanuts which started it all have evolved beyond this phase.
What’s in the middle? Everybody else.
Forget fat corporate contracts of yesteryear. Corporations are getting smarter. They’ll squeeze middle management and lower ranks in the back without a second’s thought.
There may be a shrinking middle class, but professionally, it’s growing. The shape of today’s disrupted workplace will keep it growing for many years to come.
Woe betide any airline brand who crushes the entrepreneur, earning their resentment and disfavour!
(I know I’m sounding my late 40s now by speaking in such dramatic terms of doom and destruction, but I mean it. Seriously.)
We have entered the age (and I’ll keep making this point until I’m JetBlue in the face) of the new Low-Cost LUX model. Those airlines, like JetBlue and Virgin America in the U.S., stand ready to eat the lunch of anyone who ignores the weary middle-market passenger.
I’ll toast to that with some reasonably priced sparkling wine!
Because, frankly folks, this disruption has been long in coming.
The Sow’s Ear
Some airlines, for fear of getting the product positioning wrong, avoid a true Premium Economy. Others, to appease weary Economy passengers crushed at the back, put silk trim on an Economy sow’s ear and retail a ham hock as Premium.
But anything short of a discernible product differentiation is a marketing compromise. Its long-term success is as arbitrary as its haphazard product configuration.
The Dons of the World are Fading Fast. Good Riddance.
(If your name is Don, this isn’t about you. It’s about this other Don. OK?)
The fault is inherent in the improvements made to woo the shrinking profile of the average white male executive with wise greying hair, in a conservative suit and silk tie, who kisses his wife on the cheek as she cooks up the bacon, takes his coffee black, hot, in a hurry, and with tobacco, ruffles Donny’s hair, walks out the door with purpose, briefcase in one hand, newspaper neatly rolled up under his other arm, and heads out to brave the world of Big Business so that Molly has something to fry up for tomorrow.
Sometimes, Don takes a plane, his needs catered to by a friendly but overly coiffed ‘air hostess’ in an impractical outfit–for someone who might have to rush Don out of a burning plane. She makes Don forget Molly for a few hours.
(Shed a tear, people. The Golden Age was beautiful in Technicolor, but the black and white part really hit you in the gut.)
Sure. There are plenty of guys out there who still think this is the world they live in. Most of them are airline CEOs.
Airlines have been wooing Don for 100 years. And Don never was a particularly faithful guy. Plus, he always stuck someone else with the bill.
Even so, airlines chase his shadow, as Donny grows up to fill his father’s Florsheim’s, because it’s easy. Because it’s familiar. Because the people who make the decisions (with very few quite remarkable and brilliant exceptions) know all the Dons out there, are Dons themselves, and, therefore, can relate to a Don-shaped world.
But the world has moved on from Don. Aviation has not.
As I recently said to a colleague, change in aviation takes 20 years, and it takes 40 years for aviation to realise it’s happened.
Mind the Gap, You Could Twist an Aunt
Improvements in traditional premium cabins (Business and/or First class) have been so dramatic over the past 20 years, that they have accidentally given birth to a monster.
That monster is the marked experience gap between Economy and premium products which now exists, and did not exist in years gone by.
It is this experience gap which can account for some of today’s passengers romantic notions of better days, during that long-gone and quite misrepresented Golden Age of air travel.
Pampered premium passengers of today would not give up their lavish suites for wider sofa-style chairs, even with a full carving menu wheeled by a pleasant flight attendant.
Improvements to premium cabins (Business and/or First class), coupled with a tightening of services in Economy, have been a detriment to airline brand definition.
They generate resentment among passengers who might be willing to pay higher fares, but cannot justify a full Business class ticket–either because corporate policy forbids it, or because their personal budget does not stretch that far, or because they just don’t feel right about it.
These middle market customers are, many of them, ‘invisible’ business flyers: freelancers and entrepreneurs, lost in the crowd at the back.
They’re often Don’s brilliant but under appreciated sister Daisy, who is too polite to say anything about it to your face, but has the memory of an elephant, votes with her wallet, and is really vocal on social media.
Some probably look at her funny in the lounge. Like she doesn’t belong there when, in fact, they could never fill her shoes.
(Seriously, they might trip.)
Daisy and Dave and Jim and Janet and all the other free spirits out there keeping the economy afloat are the middle market. And they’re just waiting for airlines to notice them.
They want to be tempted to spend more of their travel budget on flight, but often they can’t find anything to get too excited about.
Why throw away perfectly good cash when you can book a better hotel and be pampered at the spa when you land?
Without a right-sized product, worth their savvy dollar, they will shop fares and show airlines little brand loyalty–except for the frequency of travel forced by an airline’s route dominance.
They can only hope for frequent flyer upgrades to ease their pain, and, as airlines make those upgrades harder to get, they’ll just walk away in one of two possible directions: Ultra-Low Cost (because why spend more if you get the same level of product for next to nothing?) or Low-Cost LUX (because God bless them).
And that’s where the money goes bad.
For airlines, upgrades have been a nice loyalty boost, and frequent flyer programs have been a boon to business. Ancillary sales are through the roof. But none of these contribute to a premium revenue mix in the cabin.
They do not make the most of that limited and very expensive asset that is cabin real estate.
They rely entirely on high traffic figures. When traffic dries up, because of that unexpected blip, you’re left with a few premium seats few can afford, and loads of empty economy seats nobody wants.
To fill those seats, airlines will lower fares to even more unsustainable levels.
This extreme segmentation, developed as a result of chasing Don, wastes the profits that could be made in the middle, through good times and bad, by pleasing Daisy.
Airlines have pointed out that keeping passengers happy won’t make them rich. This is true. Give people something for free, why should they value it? Take it away and they feel cheated. Charge people for something that isn’t worth much in the first place, and they’ll hate you for it.
But this ‘giveth and taketh’ strategy airlines have adopted is unsophisticated. It cannot match the profits of a well-defined brand, or of building a strong, well-targeted, retail presence.
It is crude and, over the long-term, ineffective.
That all the Daisies and her fellows of the world aren’t reaching into their wallets to pay for today’s full premium product only highlights the need for a middle-market product to woo them.
It has to be a product that is aspirational, but not obnoxiously lavish.
As a savvy middle-market Millennial recently told me, chances are that Daisy and Dennis (et al) are embarrassed to be seen holding a full-fare Business class ticket.
They have no regrets over a Mint or Virgin America’s budget-friendly First ticket, though. They will buy a Premium Economy experience that makes flying gratifying, without breaking the bank.
Call it What You Will, But Make it Noticeably Better
It doesn’t have to be called Premium Economy. It could be called just about anything, from Economy More to Business Now. There are plenty of people in the industry skilled at making and naming these babies.
But the product has to be noticed. It has to be talked about. It has to have meat on its bones.
Whatever label it’s given, we in the industry will know it’s a Premium Economy product. But make sure that at least we can recognise it as Premium Economy in the first place. This ‘Plus’ posh-posh just won’t do in the long-haul. Old Economy, by any other name, is not getting any fresher.
The template for Premium Economy is well established: Virgin Atlantic’s original product.
That’s what bothers me most about Delta’s decision. Is this ‘Plus’ delusion contagious? For the sake of the original Rebel Red brand, I hope not.
Bricks Don’t Fly
The truly differentiated Premium Economy cabin product is a missing piece in the airline premium revenue puzzle. It is a picture within a picture, to be considered carefully and placed in just the right spot.
To treat this section of the aircraft cabin like an ordinary “fits anything” LEGO brick, only differentiated from millions of others by a subtler shade of blue, is foolhardy.
The industry could go the way of rail, and airlines could merge to grey commodity, but there’s danger in that too.
If the majority of the space in the cabin is heavily discounted, and the premium product isn’t enough to drive repeat business, the minute we reach the next hiccup, you can expect the consolidation, closure, and rescue party to start afresh.
Someone else can bring the Kool-Aid. I’m busy that Thursday.
Sugar and Pork Bellies
The problem with this (let’s call it what it is) bait and switch cabin product strategy, successful as it is in the short-term, is its long-term volatility.
Anyone can sell commodities at commodity pricing. But commodities aren’t stable markets. Discount brands and generic brands do well enough. But nobody ever over-paid for sugar and bacon.
Or have they?
What about Dixie Crystals sugar? What about Oscar Mayer bacon? What about Norton’s salt? What about sugar waters like Delta’s home-town classic Coke, or the pop of all pops Pepsi? What is truly better about King Arthur flour? (Fellow bakers: don’t get me started.)
These commodities sell at a premium because they are perceived to be superior. Perhaps they are, perhaps it’s a branding illusion, but it’s market segmentation and branding persistence that makes them successful.
This is the endless argument I had when I worked in the industry, and I’ll keep making it until airlines wake up to the power of branding and product differentiation.
We’re not there yet.
In hospitality (to a certain degree airlines are hospitality companies as much as they are transportation companies) a company may own a range of hotels which fit the needs of various market sectors, each with a carefully crafted brand, and product tiers suited to the various profiles of that market sector.
As I said, we’re not there yet.
Unbundling Isn’t the Problem, Hate-Selling Is
With proper branding, airlines can keep unbundled, turn it into personalisation, and make a healthy profit from it.
There’s room in the cabin for crush class, but there’s too much crush class using up valuable higher revenue room in the cabin.
And I’m not talking about $49 more, but serious money. The lack of brand confidence and consumer insight that leads an airline to push for only $50 more per seat in cabin space revenue recovery is appalling. Of course, the product MUST warrant a higher fare differential, but a divider that provides no discernible value to the consumer won’t cut it.
Airlines which try to serve everyone, from Don to Daisy’s iGen child Egoë, will be difficult to maintain.
Airlines that endure will pick among these various passengers, stick to one or a few, and win those people over for however long it is that forever lasts today.
Consumer changeability is more reason to take premium space revenue while it’s hot. It is the best argument for resisting that urge to fill the aircraft with inadequate seats. Deep discount pricing is either a limited time offer, or the core brand definition. You can’t have it both ways.
Why make a big brand play on a product that any airline with the proper business model to sustain it can always sell for less?
Know Yourself, or No One Else Will Have You
Brand and product differentiation are scary moves. You risk alienating a certain segment of the market.
Airlines, run by Dons, used to growing their market share to serve everyone, trying to take out all competition, wind up eating their profits and choking on the bones.
The big players are in trouble, though they can’t feel it because they’re bloated on good fuel times and recent Chapter 11 rescue measures. But they’re building their next great crisis right into the product–and the irony is that they do pay a premium for that rush build. Seats ain’t cheap.
Perhaps none of this will be resolved while Don, Rick, Rob and company lord over the board. (Different Don, Rick, and Rob not you.)
Airline brands will ultimately learn that you can please all the people some of the time, but not on a plane.
Whether they learn from good counsel, from auguring the entrails of their foes, or from the sonic boom of true disruption that ultimately collapses the soufflé, we’ll soon learn.
Long-term investors would be wise to think twice about fluff and stuff brand values. The passenger market is hungry for meat and thirsting for blood.
There. I’ve said my peace.
(Who am I kidding? I’ll be writing more about this here, there, and elsewhere.)