Delta Turns To Premium Economy As Industry Rebounds
As airlines chart their way out of the crisis, there were plenty of new lessons learned regarding revenue…
As airlines chart their way out of the crisis, there were plenty of new lessons learned regarding revenue and customer booking trends. While some pre-crisis strategies were quickly thrown out, others were accelerated amid new, and perhaps surprising, developments. Delta Air Lines, which has seen some strong revenue trends in premium cabins, is betting big on a cabin class it introduced only a few years ago: international premium economy.
Premium products performed well
A trend Delta noted during the crisis was that its premium products were strong performers. For example, in domestic and short-haul international markets, Delta said its premium revenue exceeded those of its economy class revenues by approximately ten points. Compared to 2019, Delta reported that its paid load factors in extra-legroom economy (called Comfort+) and first class cabins exceeded 2019 levels.
Glen Hauenstein, Delta’s President, noted the following on the carrier’s third-quarter earnings call about what that means:
“I think the big epiphany for us was there’s a much broader demand for [premium products] than just business travelers, and if we have to pivot to demand sets for high-end leisure to fill those seats, that is a trade-off we’ll make.”
Evidence for this is clear in Delta’s financial results. With only 40% of business travel having recovered, Delta was still able to turn a profit, even excluding government support. This is a positive result since it means the carrier has a known presence with premium leisure travelers.
Bringing this to international routes
Earlier on Sunday, Delta loaded some changes to its transatlantic schedules for 2022. One of the key takeaways is that Delta is pushing forward with rolling out premium economy to European routes – something Mr. Haunstein stated that Delta had in the works for some time.
Adding premium economy to Europe has come by retrofitting existing airplanes. The Airbus A330-900neo and A350-900s were delivered new to the airline with the airline’s new premium economy product, called Premium Select. Delta has had to retrofit its Boeing 767 and Airbus A330 fleet to include premium economy. The long-term goal was always to get its international fleet retrofitted with this class.
Previously, Delta’s goal was to bring premium economy to all international widebodies by 2021. That goal was delayed due to the crisis, and Delta even rejigged its widebody fleet, retiring the Boeing 777 and cutting some 767-300ERs. However, by next year, Delta expects to have most of its widebody fleet retrofitted with the new cabin class.
The reason this class is key on international routes is that there is no premium leisure product Delta has in this space. Premium economy finds a niche between extra-legroom economy class and business class. Delta’s cabin, branded as Premium Select, is similar to a domestic first class seat.
The revenue Delta can earn in this cabin versus an extra-legroom economy class seat is the key. But, another factor that can be seen in Delta’s revenue push is where Delta is taking away seats to fit this cabin in on an aircraft. Delta has not cut down on the number of business class seats it is flying on a widebody, but it has cut down on extra-legroom economy and economy seats on these aircraft.
The goal is certainly to offer a larger premium footprint to travelers that Delta believes are willing to pay for the upgraded product. Other airlines have added premium economy, though at the expense of some business class capacity. This cabin aims to get more people to buy up from economy, but not buy down from business class, which Delta appears to be seeing.
Delta has been making a very public push for more premium travelers. Premium economy has been a cabin that has outperformed at many airlines. This has included Emirates, Lufthansa, and Austrian Airlines. KLM is looking at adding it to its aircraft, and Finnair is still moving forward with its plans.
There is a general simplification that business travelers are generally willing to pay more for a lie-flat seat on an international flight, while leisure passengers are booking the cheapest fare possible and filling up the back of the cabin with incremental revenue. However, this is certainly not the case.
There are leisure travelers who are willing to pay more for an upgraded premium experience. Hawaii and Tahiti are examples of leisure destinations where airlines have been devoting – and filling – premium class seats using widebodies. Then, there are small- and medium-sized businesses that are more price-sensitive in their travel purchases, which would be willing to buy into a premium economy cabin, but be priced out of a business class cabin. With Premium Select alongside a large business class cabin, Delta is looking at offering options to both kinds of travelers, focusing on ensuring it has the right inventory at the right price.
What does this mean for the Boeing 757?
Delta Air Lines used to fly a fair number of Boeing 757s across the Atlantic. Next year, Reykjavik, Iceland, will be the only destination across the Atlantic that Delta will serve using this narrowbody aircraft. In recent years, Delta has flown the 757 to places like Edinburgh, Glasgow, Lisbon, Malaga, the Azores, and Shannon.
Some of these destinations have seen an upgauge of aircraft to a 767-300ER. Others have been removed from the schedule entirely. Looking at the route to Iceland, served from Minneapolis, Delta sells its recliner-style premium cabin as “Premium Select” rather than as a business class cabin.
Delta’s premium Boeing 757s feature a larger extra-legroom economy than its aircraft configured for domestic and short-haul international use. However, when it comes to product standardization, Delta wants to make sure it can offer four distinct cabin options: a lie-flat business class, premium economy, extra-legroom economy, and standard economy.
The Boeing 757s are missing the dedicated premium economy cabin. The problem with putting one on a narrowbody is that it would take up a decent amount of space, further reducing capacity onboard the aircraft, which currently have room for 168 passengers. Adding a premium economy cabin could bring that number down to the range of 150-160 seats, which might be too small to be economical for a long-haul route. The same is true on other long-haul narrowbody products out there, like the Airbus A321XLR.
Delta’s 757s will play a crucial role on domestic routes and on short- and medium-haul international ones. But, as premium economy becomes a cabin of focus, Delta does not seem keen to put these aircraft on some thinner, possibly experimental, routes, which other airlines are doing.