Retaining and Selling First Class Seats

USA Today covers something that View from the Wing readers already know — that Alaska Airlines has decided to keep its first class cabin, and USAirways has swapped planes on its shuttle routes to offer first class service.

In the case of Alaska, they realized the cutting first class would severely cut into the loyalty of their frequent flyers who generate much of their revenue. Without a first class cabin, there would be little to differentiate them from Southwest Airlines.

    “For our passengers, especially our (most frequent fliers), it’s really the foundation to the whole loyalty program,” says Tom Romary, Alaska vice president of marketing. “As we did the analysis, we realized there was a major loyalty impact if we were to remove first class.”

At the same time, they hope to generate some marginal revenue from their first class cabin.

Currently, Alaska offers what is arguably the most generous upgrade program of any domestic airline: top-level elites (who only have to fly 35,000 miles on their airline or 50,000 miles on a combination of Alaska and its partners) can upgrade any fare at the time of booking subject to availability. They even currently give their top elites (4) certificates a year to hand out to friends to let them do the same. I just helped a colleague fly from Washington-Dulles to Anchorage and back all in first class with upgrades confirmed at booking. Nice!

So what is Alaska going to do to improve revenue?

    Options include holding more seats available for last-minute purchase, setting a minimum fare eligible for upgrades, reducing first-class fares to bring them closer to full-coach fares and charging elite members a small upgrade fee, Romary says.

As for USAirways, my (unconfirmed) hunch is that introducing first class on shuttle routes has more to do with being able to share planes across its whole route network rather than offering planes just dedicated to the DC-New York-Boston corridor.

I am not an expert in the USAirways Shuttle. However, my further hunch is that in adding first class seats, legroom in coach will suffer. If my initial hypothesis is true about sharing plane throughout the fleet, the coach section would shrink to mirror what USAirways offers on the rest of its routes rather than the more generous pitch historically given on the shuttle routes.

Meanwhile, it looks like America West may be testing a hypothesis about how to generate more revenue from the first class cabin. At the same time that they’re introducing coast to coast flights they are also reducing first class fares. Currently, almost all first class seats are occupied by upgraders or award travel. Only about 10% of first class seats are actually sold. The spread between coach fares and first class is just too large. Other major airlines have been experimenting with ~$1200 fares for first class between the East Coast and Hawaii, which is only about a 50% premium from an advance purchase coach ticket. People will pay for that. And an airline may be better off if it can get $400 in incremental revenue instead of asking for $1800 in incremental revenue and in most cases getting nothing.

The ultimate effect of this will remain to be seen. If enough people buy first class tickets, America West will begin disappointing the customers who used to upgrade for free. Maybe they’ll lose some of those customers. But they’ll get incremental revenue from their first class cabin.

The bet is that this new revenue will outweigh any lost revenue. GIven the state of the industry, it’s certainly worth trying (even if I prefer my free upgrades).

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community Milepoint.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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