Why Are We So Afraid of Premium Economy?

I’m actually reasonably excited about yesterday’s American Airlines announcement that they’ll be adding a premium economy product to their international widebody fleet (other than their Boeing 767s which are slated for retirement).

It’s not a world-leading premium economy product. It’s a domestic first class seat with either a legrest (bulkhead) or foot bar underneath the seat in front (non-bulkhead).

But it’s a product that isn’t currently being offered by a US airline. It meets a need for more space and comfort than is offered in economy that can be had at a lower price than business class. It’s the kind of product that many, business and leisure travelers alike, would want to buy up to.

And my understanding in general is that the addition of these seats isn’t going to cause the airline to reduce the number of business class seats on their planes, although it wouldn’t surprise me if the handful of reconfigured Boeing 777-200s that were going to be reconfigured again with fewer business seats but that had put on hold ultimately do get the reduction as part of the Premium Economy reconfiguration.

From a product standpoint I applaud American for this.

The only meaningful downside, it seems to me, is the potentially bad news surrounding the unanswered question of how upgrades will work — whether the introduction of premium economy means that upgrading from economy will mean a premium economy seat, rather than a business class seat. The sections will be small (so upgrades to premium economy could be tough) and it may no longer be possible to jump from economy to business class.

It’s too early to jump to that conclusion. There are a tremendous number of variations on how they could handle upgrades.

  1. Upgrades could in fact be from economy to premium economy, and premium economy to business class, which would in effect be adding a new and non-refundable co-pay onto upgrades by requiring customers to spend more to play the upgrade lottery in the form of a premium economy seat.

  2. It could be that upgrade priority just gets sorted by fare class so that premium economy customers have priority over economy customers on the upgrade list. I love that for the most part fare class isn’t part of upgrade priority at American — that they reward loyalty with upgrades rather than a single transaction the way that Delta and United do. But changing that could allow them to keep economy to business upgrades, while moving those customers down the upgrade priority list. (Although this might not affect confirmed upgrades, so if confirmable space is available it would still be possible to buy coach and go straight into business.)

  3. It could be that systemwide upgrades will still work to upgrade economy to business class as they do now.

  4. Perhaps mileage upgrades from coach to premium economy will become cheaper than today’s upgrades to business, and upgrades from regular coach to business will become more expensive.

  5. Customers could be allowed to double upgrade (spend 2 systemwides to go from coach to business, or spend double the miles).

These are just a few of the permutations, and there are several more. So it’s too early to get worked up over it.

That said, the communication here should have been handled differently.

  • They have a new premium product, they should be touting all of the premium elements of the experience. So they should be saying more about the meals — that do look just like domestic first class meals, but which may offer more selections to choose from — as well as the amenity kits.

  • They should have been prepared to answer the question about upgrades. Their message is that it’s premature to talk about since the product isn’t even for sale yet. But their 100,000 qualifying members are the ones most concerned here. And not answering the questions about how upgrades will work turns the Premium Economy announcement from an unabashed positive into one of great consternation for the airline’s most engaged members (remember that 13% of American’s customers provide half its revenue, and the percentages are much more skewed for 100,000 mile flyers).

The reason so many American AAdvantage members and Executive Platinums in particular assume the worst, that they will no longer be able to upgrade to business class once premium economy fully rolls out, is that if American had good news, they would tell us. So it must not be good news. The assumption is we aren’t being told how it will work because they didn’t want bad news to distract from their messaging. Although the absence of information is doing just that anyway.

Which is a shame, because a US airline introducing premium economy really does mean more choice and a better product in reach of more flyers. And that’s the message that should be getting out.

If upgrade policies do eventually change, we should save our ire for that — because there’s no fundamental reason that the introduction of premium economy has to mean the end of economy to business class upgrades. That would be a separate, consumer-unfriendly move that an airline might choose to make — entirely apart from making a new premium economy product available to customers.

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 InsideFlyer.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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Comments

  1. Most carriers that have premium economy and also an upgrade program typically upgrade passengers from regular economy to premium economy. You would have to buy a premium economy ticket to qualify for an upgrade to business class. I am sure AA will follow this model. They’re not going to upgrade someone from basic economy to business class if a premium economy seat is available. It’s a good move to add the premium economy cabin but once it’s full and if you can’t buy a ticket you can forget about your upgrade to biz class.

  2. For those of us who prefer to purchase Y+ over Y and aren’t entitled to upgrades there is no downside.

  3. Wishful thinking, but maybe they will let us use the 500 mile upgrades – I’m currently sitting on 100+ of those because I primarily fly overseas.

  4. @Gary. Good luck getting an upgrade on Qantas. They now send out invitations to certain members a week before the flight to bid on the business class seats that are still available. Unless you happen to be on that list or make a successful bid you’re basically out of an upgrade. They’re trying to increase revenue and not give away upgrades. I am sure AA will be trying to generate cash for these seats if they think someone will pay for them even at a reduced rate.

  5. The best line in this entire post was that if AA had something good to say, they’d have already said it. This is an “enhancement” which benefits a small group of people whose employers will pay for this. This will also come at the cost of Economy and MCE probably getting even worse. Who knows 11-across Economy coming soon on 777s? 30 inch seat pitch?

  6. Unfortunately their comment is wrong – it is for sale and it isn’t pretty. I searched for a trip DFW LHR DFW early Nov 16 and Premium Economy was offered as a purchase option – at 5X the cost of Y! The costs available were around $900 for Y, $5K for Y+ then $8K for C. Seriously? They are going to give me a little better food, a little more room adn charge 5X for it?

    Typical AA. Haven’t they learned anything from DL? A few years ago DL re-priced their domestic F fares to be a reasonable multiplier of Y and because of that, more than 50% of Domestic F seats sell at price, not upgrades.

    Another failed attempt by the Desert Boys

  7. @davidlc3 they sell tickets on British Airways which has premium economy. American’s premium economy is not yet for sale. The first aircraft to receive the product will be the 787-9. American hasn’t taken delivery of any yet. And those planes aren’t scheduled on any routes yet.

  8. @Gary – I think you raise good points with regard to American Airlines specifically. However, I’d argue this further supports the stuffing of more seats into Economy. We’ve already seen American go 10-abreast with the 77W, adding in a Premium Economy may be seen as making adding in 10-abreast economy seating to be more palatable, yet giving passengers the choice to buy a more comfortable seat. I’ve argued that choice is a euphemism for stuffing more seats in Economy, and this announcement plays right into that argument.

  9. I never understand complimentary upgrades. I would pay a modest amount for a better seat on a space available basis. And yet a road warrior gets it for free? How does that make sense?

  10. I agree, AA will probably copy BA’s pricing model which isn’t pretty. I’m already moving on from AA. It hasn’t taken long for the US Air management to trash their service. I flew last week on a 787 from DFW to LAX in first class and all they brought me was a cookie. It was a late flight so I wasn’t expecting much but just a cookie in first class? They didn’t even make rounds taking drink orders. How difficult is it to offer a light snack service or even offer a snack basket? To be honest I was embarrassed for the airline when the flight attendant just showed up with a cookie. I even asked him if that was all they had onboard for the almost 3 hour flight. Even economy offers more if you want to buy it. If AA doesn’t want to spend the money I would rather buy premium snacks onboard rather than just be offered a cookie. Just really silly.

  11. My biggest concern is that employers will *buy down* to Premium Economy, not *buy up* from Coach. PE is a relatively new product in the US market and US carriers primarily serve US traffic flows OUT. I have a hard time seeing a lot of employers continuing to justify J fares when PE is half the price, and resembles a business class seat from 10 years ago. Consultants and bankers will get to fly in business class because they pass the costs around, and a plane ticket is relatively cheap compared to the size of the deal. But do we really think the generous 5+ and 8+ hour rules will stay in place, or will we see that become the realm of PE now?

  12. It’s really just a stealth degradation couched in marketing doublespeak.

    International business class has become the new first class – it’s where F was 10-20 years ago.
    Economy comfort, E+ (or whatever) will become the new business class – its where C was 20 years ago. Angled seats, slightly better food, high fare.
    Economy product will continue to deteriorate in order to compete with LCCs.

    Don’t be fooled, E+ is just a way to suck more money out of customers without really enhancing the product. UA E+ (and previously AA’s MRTC) were free to elites for years, but that’s gonna go bye bye now, one of the last real perks for elites.

  13. Didn’t Delta just take away the free economy comfort seats from Diamond and Platinum members? What used to be a perk is now an ‘upgrade’. I imagine AA will do something similar.

  14. AC has a premium economy cabin on some of their longhual fleet and allow their top tier members to eupgrade from mid priced economy fare V class and up, although this fare restriction was there before they even had a premium Y

  15. People are afraid because with any change, there are winners and losers—and everyone is worried about being a loser in the new equation.

    My guess is that AA will do what BA does and do upgrades from Econ to Premium Econ, and from Premium Econ to Business. My guess it that DL certainly will do the same.

    Elites have been accustomed to getting more even though they didn’t necessarily pay more for it–they just flew more miles. Now elites within these revenue systems will have paid more for it…and so they really want to get more. But now truly only those best customers who really pay the most for their tickets will get the best perks. Elites who have enjoyed the old model for so long are extremely fearful of this…while those who spend the most will love the new model, since they won’t be diluted by thousands of mileage-run hogs who simply flew long distances at a pittance for the same perks.

    Change is tough.

    I do suspect, however, that the changes to Economy are getting to the point where legal action might eventually force carriers to invest in slightly more spacious economy seating. With carriers making billions in profits and investing in so much else, not to mention the fact that there is so much less competition in the domestic market, it will be a tougher argument for major carriers to preclude an eventual Airline Passenger Bill of Rights–something that lost steam with the Great Recession but which might make a reappearance with the passage of more time.

  16. Well said, Gary. This is my perspective, too, as an EXP. I’m thrilled about AA introducing PE and am glad to see a full post providing a levelheaded perspective (the FlyerTalk thread is pretty ridiculous at this point, haha).

  17. I just wonder how this will compete with the mostly foreign carriers who offer premium economy? Like Cathay or BA for example. I know lots of people whose employers will pay for this. If the upgrade from PE is to Business, then those ExecP flyers should be really happy.

  18. As a lowly Plat who never had the chance for international upgrades, I’m excited about the new seats. They’ll make for great award redemptions between the northeast to Europe. Business class is overkill for a 7 hour flight, and Premium Economy will provide an efficient use of miles.

  19. Boraxo nailed it. Just like the rental car categories. Shrink the car size for each named category and then add new category names.

  20. Recent moves have been made explicitly to better align themselves with industry, and the general practice is not as generous as Qantas’ official practice (and Qantas loses money hand over fist, last I checked).

    My guess is they “align themselves” with either BA or Delta. We all know BA’s scheme, and odds are good that Delta’s scheme will be the same as BA’s.

    I am excited about the product, though! BA’s PE product is a real let down (pre-departure champagne, marginally more comfortable seat, and seat power outlets like AA already has at all Y seats on many planes) so to see an improved meal service is much appreciated. It only costs the airline literally a couple of dollars more but it makes a HUGE difference in my experience as a passenger.

    TLDR – Looks good! I hope to try the product, I just hope it’s not with a SWU. 🙁

  21. With respect to upgrades, if AA adopts the BA model of upgrading from Y to PE rather than to J/C, then that would represent a severe downgrade of AAdvantage as whole insofar as cabin of service upgrades on intl flight using a SWU are the top elite perk for the major US airline FF programs, by far. It distinguishes very top elites from lower elites…

    Adoption of the BA model would mean that a Y to C upgrade would be eliminated and a top AAdvantage elite would have to pay a lot more (the cost of a PE ticket) than they would pay currently to fly in an intl business class by applying a SWU, effectively eliminating the claim that AA’s “SWU can be used on any fare.” The minimum SWUable fare would become that required to fly in PE, which would cost a lot more than UA’s lowest GPUable Y fare (W) to fly in intl J/C.

    Given the option of either purchasing a W fare on UA with the potential for an upgrade to business (UA’s BusinessFirst) using a GPU or purchasing any Y fare for the potential for an upgrade to AA’s intl PE using a SWU, the UA option would be much more valuable, IME. To get an equivalent upgrade (to AA intl business) using a SWU, a top AA elite would have to spend a lot more because the cost of a PE ticket would then become the cost of lowest SWUable fare with the potential for an upgrade to AA’s intl business class.

  22. After seeing the new PE on AA’s website it’s apparent to me that Premium Economy is the new business class. It will be introduced on the new 787-900’s first which won’t have both business and first so that means that PE will now replace business. I have no doubt that any upgrades from basic economy will go into PE not into their “business suites”. Upgrades from PE will most likely go into the “business suite” seats. It’s a smart way for them to get a huge up charge on an upgraded economy seat.

  23. I’m struggling to understand why some people seem to be so sure that AA PE is going to be worth the premium over Y. There seem to be a lot of people saying that they’ll happily pay for PE when (a) we don’t yet know how much it will cost and (b) we already know how, apart from the new J seat in some aircraft, the AA offerings are still way below the better industry offerings – service and food in Intl. J is as likely to be appalling as it is to be good and the less said about domestic F the better.

    Take a look at the list of “benefits” AA is trumpeting for PE and then strip out all the benefits AA elites get anyway and you’re left with not that much – bigger seat and a promise of better food (which I’ll believe when I see). Not sure how that’s a lot to be excited about.

    It will be interesting to see how AA tries to price this product. Europe-US flights for next summer have seen Y prices around $1,000- $1,300 with a lot of J prices under $2,000. And the number of sub-$2,000 J fares we see for other times of the year seems to be to be increasing too. So where do you price PE?

  24. @Boraxo,

    Exactly. This is what I’ve been thinking for some time now. Employers (outside of Hollywood maybe, and even there) won’t pay for first, so to compete for business travelers, airlines have just improved business so that it’s the same as first used to be, or even better. Now the gap between economy and business is too big so we get economy+ which is what business used to be.

    Eventually, maybe employers will stop paying for business because economy+ is “good enough”. Then there will be an arms race to improve “Plus class” (drop the “economy”), and maybe in 20 years it will be back to where business is now and they will eliminate business as they have first. Then we’ll just have economy and Plus classes and they’ll have to think up a new name for the new class to go between.

    Just an exercise in relabeling. Oh well, my job only pays coach so no biggie for me…

  25. @Ziggy obviously whether or not you’ll pay for something depends on price, but conceptually folks are saying they would pay more for coach for a better seat than coach that’s less than and not as good as business class. Perhaps business class overnight, premium economy for a day flight.

  26. @ ziggy:

    Which is basically what you get for domestic F when you strip off priority boarding and extra baggage. People still buy that. Why wouldn’t they buy this, especially on short TATL flights where you might not get much sleep anyways?

    @WhoMe:

    The soft product in J is nowhere near as good as what was in F twenty years ago. Show me a J product where you get Johnny Walker Blue, caviar and vintage champagne and I might believe you. (The closest you might get is Eva which offers a nice champagne, but it’s still a J product).

    The hard product in J is of course better, but that’s a result of technology (power, IFE and lie-flats), and some of that has trickled down to Y too.

  27. American’s first priority is to release and sell premium economy seat, not figure out how to keep the so called ‘entitled ‘ happy.
    As usual when something positive, even if its benificial travellers, as well as the airline, the greedy ‘entitled’ are more concerned how the changes will affect them, especially as they percive that other people may get somthing better (to which the elite thinks only they are entilted to). even before the product has been released. No doubt they will have sleepless nights worrying about this ‘major development”.
    There are real people out there who are happy to pay for an enhanced product, and they should always take precedent over ‘elites’ with upgrade issues.

  28. @Tony Randall “American’s first priority is to release and sell premium economy seat, not figure out how to keep the so called ‘entitled ‘ happy.”

    It would appear American’s first priority is to beat Delta to the announcement which would go someway to explaining why they managed to make an announcement with so much information left out.

    Let’s forget the elites and upgrades for a moment , how about all the other unanswered questions:
    – Where’s the info on how wide the seats are going to be?
    – Where’s the info on how many seats they’ll be putting into each plane?
    – Where’s the info on how many seat there will be in each row on the 777’s, A350 and A330s?
    – Where’s the info on whether they’ll be shrinking business class to fit these seats in?
    – Where the info on what is to become of MCE? (we know it will stay but in what guise?)

    The announcement was, apparently, put out to the media before American themselves have all the facts about their new product – otherwise why not fill us all in. Pathetic one-upmanship at it’s finest – just what you want from an airline.

  29. Looking at the variety of ideas in these posts is enough to make one throw up. We all know the only goal for the carriers is to maximize profits and to hell with the customer. They cannot wait for the first logical opportunity to make all the loyalty programs to fold up and go away. I think in the end it’s just best to buy what we can afford, or what we want and to hell with the rest of this nonsense.

  30. Moving forward I don’t think it’s wise to count on any perks. The airlines are in business to make a profit and they’re going to push as far as they can until they start to see softness in their bookings. At that point they may realize they lost a lot of the brand loyalty they had built through their mileage programs and might move back in the other direction. I always used to be brand loyal to UA & AA but now if I see a better deal or a cheaper biz class seat I’ll grab it as long as it’s a decent carrier. Even on domestic flights I never used to fly Virgin but now I tend to book them quite often. The service is good and I’m willing to pay for the better seat. If I’m not receiving any real benefit for being loyal then as a consumer I’m going to be self centered just like the airlines and make my decisions based on what’s best for me.

  31. In the last 6 months for sure, but even the last year or two, long-haul flights over 10+ hrs, PE has been less than 1/4 booked on Qantas, Jal & Cathay Pacific. I paid for one AND I checked on other flights where I was in Buisness.

    Upgrade’s from E to PE, will precisely be the next class of service. No business class for sure.

    Sadly I see the future, cause yeah, it doesn’t work in my favor (truth). But I will form a new strategy that makes it doable, so it’s worth my while.

    I am not a mileage runner.
    I am Exec Plat.
    No, my company doesn’t pay for my flights. I do.

    ** Last month I went LAX-DFW-HKG-KUL (economy ticket) and was upgraded to business on AA metal. I was surprised that at the gate in HKG before boarding on CX, they upgraded my economy tix to business. Totally skipped PE cause NO ONE WAS IN IT. Not one person.

    It will be interesting to see how this goes for AA. That’s for sure.

  32. To those who say we don’t have a good idea of how this will be priced, we do. Look at BA’s transatlantic routes where there is a JV with AA.

    I’ve seen BA’s lowest Premium Eoc fares priced much higher than Eco. I’ve seen them priced reasonably higher (a few 100s of dollars, roundtrip). I’ve even seen them priced cheaper than regular economy. Inventory can be strange and varies.

    This EXP is waiting on official word from AA on upgrades, before joining the whinging crowd. The introduction of the product itself is an improvement in my book, and I may be able to buy it under our generally Y-only travel policy. But a major part of the concern on the part of EXPs about this (and AAs silence on upgrade policy) is that making SWUs Y to W or W to Y, but not Y to J, when coupled with the 8 to 4 SWU reduction in 2016, would be a major devaluation of benefits. Both at once would be pretty difficult to swallow. And would also put AA at rather notable weak point as compared to UA (I don’t know much about the DL program), IMO.

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