How Free Meals in Coach Contribute to Airline Profit

A couple of months ago I provided the first blog report of Delta’s testing of complimentary inflight meals in economy on some premium New York – West Coast flights.

Starting March 1 Delta will offer a choice of 3 meals in economy on these flights, and even accommodate special meal requests. This replaces buy on board.

Live and Let’s Fly wonders how this can make sense for the airline.

I do think it is a curious move by Delta, but perhaps the analysts truly are wrong. We often hear a refrain something like this: consumers are primarily price conscious and will not pay more for an airline ticket with extra benefits if there is a cheaper option. That’s not totally true, as many refuse to fly ultra-low-cost-carriers like Spirit or Frontier even though it saves money. Nevertheless, consumers are not going to pay an extra $50 to fly Delta over American at approximately the same time in economy class just for a “free” meal.

I’d characterize Matthew’s analysis as falling within “the Scott Kirby spreadsheet approach.” If he cannot see incremental revenue directly tied to this investment, then the cost isn’t worthwhile. They’re wasting money unnecessarily on passengers.

When Kirby was President of US Airways, the airline was late to offer inflight internet because it was clear they weren’t going to make money on the product — but then he saw they were losing bookings directly attributable to not offering the product so they installed it quickly. As President of American the airline dropped their food investment down to US Airways levels in September 2014, only to have to eventually raise it back somewhat in August 2015.

It’s true that:

  • In general customers don’t really realize which airlines will provide snacks in economy
  • They’re making decisions for the most part on price
  • And can certainly bring their own snacks

However I believe this misses something important about branding and consumer behavior.

I had a conversation with a New York-based Delta Diamond Medallion member a few months ago that stuck with me. Her primary route is New York JFK – Los Angeles, and occasionally pays for a premium cabin seat — and always does when taking the redeye back home to New York.

  • She didn’t realize that other airlines offered flat beds between New York and Los Angeles/San Francisco
  • She didn’t realize that flat beds were limited to premium routes, so when she flew Washington National – Los Angeles compared standard domestic first on American with premium business class on Delta and concluded how much more she liked Delta. (Delta will be adding an older flat bed premium product to DC – Los Angeles in late April.)

The point is that she is loyal to Delta and doesn’t even consider other airlines unless her schedule demands it because she believes that Delta gives her a better experience.

My point is that she’s not asking “at the margin, how much is a free meal in coach worth?” She’s internalized that she prefers the experience on Delta, so goes to Delta first when she needs to travel. At some price point she’d check alternatives, and enough passengers are buying strictly on price that Delta needs to be price-competitive. But they’re able to earn a revenue premium based on schedule, reliability, and a subjective belief among customers that they’re “better.”

Delta introduced new snack choices in coach last month, inflight experience alongside reliability are key strategies for the airline. (Delta SkyMiles is not a contributor to their revenue premium.)

American Airlines used to earn a revenue premium from me because their AAdvantage program was better. I was well-treated as an elite. So when I needed to travel I went to AA.com and picked my flights. Degradation of the product, from AAdvantage to an unwillingness to improve the experience on legacy US Airways aircraft, has meant that I’ll now consider other options. In 2016 I flew Southwest, Virgin America, Delta, and even earned status on United.

Not all product investment earns customer loyalty or higher revenue. Continental stuck with inflight coach meals longer than their competitors during tough times in the industry.

They too succumbed to cutbacks. They didn’t believe customers were choosing them because of the investment.

Investment in product has to be a part of an integrated strategy at developing a more premium brand, and each offering needs to be carefully tested with customers to understand what they value and what effect it has. But inflight product and customer experience does matter for running a profitable enterprise.

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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  1. Brilliant post Gary – agree with pretty much everything you wrote. My big fear with this change though is that Delta may restrict meals for basic economy fares down the line. I don’t know how it’d work, and I doubt it would fall in line with them being a “premium” airline, especially on a premium route, but I wouldn’t put it past them. Either way, nice to see Delta making positive changes that most consumers can appreciate.

  2. I think I might be typical of a large minority segment of flyers. First, I am 55, a baby boomer with disposable income. I have Chase Sapphire Reserve, so I have access to a lot of lounges. I like to fly a reputable airline in a fair amount of comfort (E+) and with a good schedule for flights shorter than 6 hours. I like to be pampered, but I am also budget conscious.

    So, when I see AA and DL offering the same flight times, but the DL price is $10-$20 more AND includes a meal–yeah, I am going to spring for the DL ticket, despite the fact that the meal isnt worth $20. Experts in the hospitality field know this: put some upscale toiletries in the room at Hotel X, maybe hang a bathrobe in the closet, provide an aromatherapy packet in a tiny sealed pouch, and suddenly the customer thinks: “ahhhh, what an experience, it sure beats staying at Hotel Y, where they didn’t provide these amenities [because I’m not a valued guest]”.

    Market studies have shown that is the mindset of Millenials, the X gen, and basically anyone under 55. It’s all about the experience, the perks–the swag, if you will.

  3. I bet her status has as much to do with her choices as anything else. As you know, Airlines hook you with status. Once you reach a high level of status, you rarely look at other airlines until you have renewed that level. I only fly United so I can keep my status current. Not because the offer a better product, service or a lower price.

  4. quoting Anything about that Female Delta passenger merely reminds Me of How Ignorant some People REALLY Are…… She certainly Isn’t knowledgeable about Air Travel. Delta isn’t the End All of all Travel.

  5. That’s because they never even mention what the flight offers until you confirm your selection. When choosing a flight you’re presented with “makes connections, costs this much, etc”

  6. I never realized how brilliant Delta is. What was a race to the bottom has agile Delta pulling up out of its descent while the inertia of American and United have them still headed for the ground.

  7. @Gary

    You’re right about the brand. As you’ve noted, a good brand has people continuing to return without checking out the competition. The minute a customer starts asking “what does X offer…” you’re kind of screwed.

    TBH, I was kinda ticked with JetBlue the last time I flew them. They advertise their service/brand, and an opportunity came up for me to check them out on DCA-BDL. Turns out that that route is too short for any inflight service… Brand Fail.

    Same with the inconsistency in hard product. One of the reasons I totally love CX J is that they are CONSISTENT. I know what I’m going to get. I go there, book them, and be done. You’ve mentioned that they’re not always the best in terms of catering or whatever, but so be it. Even if they’re not the best, they’re good, and most importantly, consistent. It doesn’t matter which US airport I fly them from, I get the same thing.

    If I have to try to hard to figure out what product you are going to deliver to me, I may very well just throw my hands up and book someone else.

  8. I’d prefer to choose Delta more often. I find the product to be fairly consistent, as @Dan says, and I like the operational side. I had a flight the morning after the latest IT fail and, based on my airport and flight experience, I’d never have known there was a major outage just hours before.

    However I’m forced to choose AA for my work travel as they offer the best schedule for me. I can put my kids to bed, sleep in my own bed, get up super early, and be in my office before lunch. DL would have me several hours later or, most likely, flying out the night before. And for business travel I’m not so much worried about even a $50 ticket price difference. But I rarely have a nice experience on the AA flights. Gate crowding, employees who obviously don’t like their jobs (both ground crew and flight attendants), worn and dated seats and interiors on most of the planes. I’d love to choose DL and get some sort of status out of my business travel but it’s just not going to happen.

    Consistency and quality matter, and if there’s a free meal included then great.

  9. And thanks for this post, @Gary, very insightful and honest in the opinions offered. I know that, as much as you travel, you must form your own opinions about airlines and offerings but it’s always nice to hear such an impartial attitude like this one.

  10. Delta is winning the perception and quality factors, but still losing with Skypesos. Which do you think is a bigger driver of profits?

  11. Bags fly free and no change fees is exactly why people pay more to fly Southwest.

    Plus bundling always works in bringing revenue up — that’s why Caller ID and voicemail are not charged as separate optional fees (you know, to “give you choice”) with your mobile service, which would suck without them (just like a 6 hour flight positively sucks without food included in the price). DL, always the leader, has learned that unbundling is hurting them and is moving back to the bundled model. Kudos.

  12. Even if you aren’t hungry and don’t like the airline food, meal service for everybody breaks up the flight and helps pass the time. Therefore a better flight experience.

  13. My parents, for example, only do transcons on JetBlue and Virgin America because they’ve decided they are “better”

  14. This is Marketing 101 – product differentiation as a means to obtain a higher price (or higher market share) in a commoditized market. What amazes me is that the supposed expert analysts simply don’t understand this, and insist on commoditization as the pathway to success.

  15. What a great and insightful post.

    I agree that customers are not thinking about the question “at the margin, how much is a free meal in coach worth?” in a narrow way. They treat the free meal not as an independent “add-on” that worth ~$5, but rather, as a signal for overall quality. Marginally speaking, they would perhaps associate this free meal experience with another ~$10 premium on customer service, ~$5 premium on crew attitude, ~$15 premium on branding etc. on average. These numbers are made up, but it seems that DL has been data-mining and experimenting for a while to come to this conclusion.

  16. The one issue that non one has noted is flights at your airport. We do not live at or even near a Hub airport for any carrier. Boston is an 1+ hr away with out traffic (like there is always traffic to Logan) JFK is 4+ hrs and no airline flys there (faster to drive to NYC or take a train) PHL is the next best choice and that means AA is the one. To fly DL to ATL and then to LAX takes more time then to PHL to LAX.

    There are also fewer DL flights out of our airport each day then AA or SW. SW is not an option as the price is NEVER good and they Do not fly out of the USA to Canada, Europe, Asia or other “non party college places”

  17. I think this works from a marketing standpoint. People debating whether somebody will pay more because they are getting a free meal I think misses the strategy. Effectively they are doing what other airlines refuse to do. On long flights I think it makes sense. I also feel that a flier getting that free meal might think of the airline in a better light. Delta would not do this if they did not think it had benefit. Often on these flights when they sell food, they tend to run out. That makes customers unhappy. Or the more popular choices are out. I am sure some of those items are not eaten and tossed out. It makes more sense to give everyone a meal.

  18. Something else that’s missing her is the business travel and the per-diem. A route with a meal on it means:

    * I don’t have to stop to get food on tight connections
    * My per-diem stretches a bit further than it otherwise would have

    When I expense my tickets which could go up by some amount of money, within reason. However, my per-diem doesn’t go up to cover for the missing things that come from the airline removing services.

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