In its home market, the most effective sales tool for Air New Zealand’s (ANZ) new Pacific Premium Economy class has been word of mouth. “We have been marketing it as our best-kept secret,” says Ed Sims, general manager international airline at ANZ.
But that secret is now out as bookings pour in. “It’s been superb,” says Sims. “We were the first Australasian carrier to introduce a premium economy class.” The product, which offers 23 seats with 38-40in of pitch upstairs on a Boeing 747-400, was introduced last July. The UK market was the first to catch on to the new product, followed by the USA and then New Zealand.
ANZ is following in the footsteps of carriers such as All Nippon Airways, bmi, British Airways, EVA Air and Virgin Atlantic in offering an enhanced economy product for longer-haul services. And it is far from just network carriers that believe travellers are willing to pay a little extra for more comfort. UK-based leisure/low-cost players Excel Airways, flyglobespan and Monarch Scheduled have introduced premium economy products, while Australian Airlines, the Qantas subsidiary that operates on leisure routes, is also bringing one in. India’s Air Sahara has opted for a three-class cabin layout for its new Delhi-London service, where the third class is premium economy rather than first.
As the quality of long-haul business class becomes increasingly impressive, putting the old first class out to pasture, more carriers are studying the introduction of souped-up economy products. “The three-class service of old is obsolete,” says Sims. ANZ went back to the drawing board to develop its new long-haul cabin concept, and asked Star Alliance partners bmi and United Airlines about their experiences with enhanced economy products.
Like many carriers, ANZ was finding it increasingly tough to fill premium-class cabins with full-fare-paying customers. There were too many seats filled with travellers on upgrades and airline staff. “We looked at how to start building up travel patterns in people at a younger age where they felt comfortable in moving up a class,” says Sims. The carrier developed Pacific Premium as a product where people “traded up rather than traded down”, says Sims. “It is pitched at the premium leisure traveller, not at the business traveller. We don’t want business to downgrade.”
ANZ charges about 30% more for these seats, and like Virgin, its premium economy is upstairs on the 747. “People say they have never been asked to go upstairs on an aircraft,” says Sims, and it feels more exclusive. “They say they are finally sitting in a cabin with people more like themselves.”
Globespan’s experience with holiday packages to Canada since the 1970s convinced it to offer premium classes in the 767-300ER that will fly daily scheduled services between Glasgow and Orlando Sanford from June, says Tom Dalrymple, chairman of the tour group that launched low-cost carrier flyglobespan in 2002. However, the carrier describes this product as a new breed of long-haul low-cost service, with 160 “no-frills” seats as well as the 57 premium-economy and 24 business-class seats. “It is a long journey and some passengers are happy to pay extra for some added comfort,” says Dalrymple.
At prices that range from 10-30% more than regular economy, the sales dynamic of the premium product is different compared with that for business class. “The critical leverage here is load factor,” says ANZ’s Sims. “We are being far more aggressive in how we fill this cabin, taking an approach that is more like that of a low-cost carrier.”
ANZ is now looking at whether to expand the number of premium-economy seats it offers, says Sims. “For every two rows of premium economy, you need to take out three or four rows of economy,” he says, and carriers have to study what happens to revenue and yields to ensure they make the right call. ANZ will decide over the next six months and could add more, he says.
At first glance, the prospect of removing seat rows to introduce the option of an enhanced economy product would seem heresy to low-cost carriers with their high-density, single-class cabins. And for most it is, but the “one-size-fits-all” model is far from universal. Monarch Scheduled has had experience with a premium economy on its Airbus A330s that ply long-haul leisure routes, and began experimenting with selling seats in its short-haul aircraft that have extra legroom, such as those by the emergency exits, during 2005, says Jonathan Crick, the carrier’s sales and marketing director.
“We tested the market to see what value people placed on having more legroom,” says Crick. The airline sold the seats at £15 ($26) one-way. “The seats were there, so we tried it. There were no changes to the product, so there was no risk involved.” Take-up was good, mainly, Crick believes, because it flies slightly longer routes than many other European low-cost players. “Our average sector length is a bit longer than the average low-cost carrier,” he says, with many of the carrier’s routes from the Midlands and north of England to southern Europe.
“Our business model is to compete in the low-cost sector,” says Crick. “Then we seek to differentiate ourselves within this category. We recognise that within our customer groups there are sub-groups, and that each might prefer different product options.” At Monarch Scheduled, Virgin Blue or Virgin Express, these options might include paying to reserve a seat, buying an extra-legroom seat, a meal or lounge access.
Get what you pay for
“Each individual customer can tailor their requirements,” says Crick. “No one customer is subsidising any other customer – you always get what you pay for.” Monarch Scheduled is reconfiguring its entire fleet of A320/321s and 757s to offer more seats with extra legroom because demand was outstripping supply with one-class aircraft. In its 180-seat A320s, for example, it is removing one row of six 29in pitch seats to create 54 seats with 34in of legroom.
The cost equation that carriers have to consider is whether they can make up for the lost seat revenue by tempting travellers to take the enhanced product. Crick admits its strategy may be risky, but it is deliberately reconfiguring its aircraft in the winter, when load factors are lower anyway. Monarch has strict criteria to meet when it considers adding features, he says. “The first criterion is, can we do it online? There must be no overhead or administration costs and it must be automated. If we can’t provide the feature at virtually no extra cost, we don’t do it.”
In the USA, only a few buy into the idea of differentiation. United Airlines chairman Glenn Tilton says: “Other US carriers provide a commodity product that meets the barest of customer expectations, apparently believing every element of their business is only about cost.” United is the only US major to offer an enhanced economy class, with up to 5in of extra seat pitch over the standard 30in product. This is available on all its services, including low-fare carrier Ted, and on regional aircraft service down to its 70-seat Embraer 170s.
US carriers AirTran Airways and Spirit Airlines have gone further than other domestic low-fare players in adding a second class. Both position these products as business class, offering two-by-two seating with 36-37in pitch compared with 31in in economy, and charging $35-75 one-way for the privilege.
“Spirit Plus is a great product for us as it differentiates us against other low-cost carriers,” says Spirit. “It compares nicely against other airlines’ domestic first or business class. The cabin is very popular and it is getting more and more difficult to buy an upgrade on the day of departure.” ■