Should Air France introduce a premium economy class? The carrier has rejected the idea in the past, but is now taking another look. "We are studying this possibility as we face competition against some niche players that are focused on the intermediate demand between purely international standard business and economy classes," says deputy chief executive Philippe Calavia. "Maybe there is room for an intermediate solution, either for business minus or economy plus."

Several other leading long-haul carriers have already made the choice. Qantas will be progressively introducing a new premium economy cabin on Boeing 747-400 services to London and Johannesburg from April, and plans to extend it to some 747-400 and Airbus A380 services to the USA later in 2008.

Japan Airlines also introduced 44 premium economy seats on London routes at the start of December, and will roll them out to Frankfurt, Paris and some US destinations during 2008.

Meanwhile, carriers already offering premium economy are expanding or upgrading their product. Virgin Atlantic Airways, which along with Taiwan's EVA Air pioneered the concept in the 1990s, is doubling the number of premium economy seats on its 747s out of London Heathrow to 64. The carrier, which offers premium economy on all its flights, says it now carries around a million passengers a year in this class, and that there was a 15% rise in bookings over the past 12 months. EVA, which offers premium economy on long-haul flights, introduced an upgraded product in 2006 on its new fleet of 777-300ERs and is now in the process of installing the improved product on its 747-400s.

British Airways also offers premium economy on all its long-haul routes, with 40 seats on its 777s and 747s. It says the product has performed well in the seven years since it was introduced and has "a strong following".

On the other side of the world, Air New Zealand, which has had the class on its 747s and 777s since 2005, is increasing premium economy seating on the 747s from 31 to 39, having boosted it from 23 to 31 only a year ago. It cites premium economy as one of the key drivers behind its improved financial ­performance in 2007.

That still leaves plenty of major airlines in Europe and Asia that have not adopted the class. In the USA, only United Airlines has premium economy and uses it mainly for rewarding its frequent fliers silver and gold members get it automatically for free. So is premium economy really becoming a new standard for airlines, or will it stay a niche product for particular routes and markets?

One observer who thinks it should be a new standard is Klaus Brauer, director of passenger satisfaction and revenue for Boeing. He says that whether to introduce premium economy "is the most important question for our industry right now". He points out the typical airline yield curve starts high with first and business class passengers but then drops sharply for economy. He sees premium economy as a way to soften that drop and get more yield from the middle range of passengers.

Brauer's target market for premium economy is business travellers, which is something that has many airlines reaching for the panic button. He believes it is almost certainly fear of cannibalisation of their business classes that is making many airlines wary of premium economy. But Brauer points out that while around 40% of passengers are business ­travellers, at least half travel in economy. Often this is due to corporate travel policies that forbid business class travel. "I believe there is potential for higher yield from these passengers, who are clearly less price sensitive than ­tourists," he says.

Virgin Atlantic points to business executives with small to medium-sized budgets, who can't stretch to business class, but are prepared to pay for the extra space of premium economy. Both All Nippon Airways and JAL say the market is mainly business travellers seeking to economise, though JAL points as well to "baby-boomer retirees with money to spend on themselves".

It is this other potential target market - upgrading leisure passengers - that carriers are often happier talking about. British Airways says this is the main driver for its premium economy growth. UK carrier bmi, which offers premium economy on long-haul services, also points to holidaymakers who are prepared to give themselves a bit of a treat.

Ed Sims, group general manager international for Air New Zealand, sees a new generation of younger leisure travellers prepared to upgrade. "When we only had first and business class cabins, the vast majority of passengers in them were older," he says. "In premium economy we get 18-35 year olds, who are able to pay the price premium. The upgrade cost is equivalent to the cost of a night in a hotel if they can sleep better, they feel it is justified." Brauer adds into the mix the dilemma of solo leisure travellers. "If you are ­travelling with your family, you don't mind sitting close to them. But business people and single leisure travellers don't want to be rubbing shoulders with the person next to them."

This leads him to an interesting conclusion: it is seat width as much as seat pitch that is the key selling point in premium economy. He reckons a minimum of 21 inches from seat centre to seat centre is needed to keep American shoulders from touching - though the figures are lower for Europeans and Asians. By no coincidence, Boeing's new 787s are designed with enough width to allow eight 21 inch seats in a row - something Brauer admits was not thought about when the 767 was created.

It's all in the seat

Of course premium economy seat specifications do vary from airline to airline, though 38 to 40 inch seat pitch is fairly common, with widths from 19 to 21 inches. But some carriers such as United use the same seat in premium and regular economy with extra legroom the only differentiator. Several leisure carriers such as Flyglobespan and Zoom also offer this type of limited premium economy product with legroom the main differentiator. Zoom also gives premium economy passengers free alcoholic drinks, newspapers and headsets, while economy passengers have to pay for them.

Some carriers, however, offer both a wider seat and several extra frills including ­enhanced meal service, priority check-in and sometimes, although not usually, lounge access. A year ago, ANZ went further and offered full business class service in premium economy, while bmi recently put its former business class seats into premium economy. To those who wonder how either carrier can take this step without cannibalising its business class, the answer is simple - lie-flat beds. "We introduced lie-flat beds in business and premium economy at the same time," says Sims. "We were confident we could increase the specification on premium economy, because people will pay to lie flat. It is a clear differentiator."

The amount passengers are prepared to pay is another question, particularly on daytime flights. Virgin Atlantic admits that it gets passengers flying lie-flat business class for a night flight and then premium economy for the daytime return flight. Behaviour of this kind might give pause to carriers considering premium economy.

This also touches on the issue of where to pitch premium economy fares. Brauer thinks to attract the economy-flying business travellers, the fare should ideally not be any more than a full economy fare, though he concedes that on long-haul routes it might need to be higher. Most airlines are remarkably coy about how much more they charge for premium, but Air New Zealand says premium fares are about 30% higher than normal economy fares. SAS quotes figures about 19% higher, while for a London to New York flight, Virgin ­Atlantic says economy fares start at £260 ($535), premium economy at £600 and Upper Class at £1,200.

The fare has to be enough to pay for the extra space of a premium economy seat, which can be twice as much as normal economy, and to generate higher yield too. However, as Sims at Air New Zealand points out, that does not mean premium fares need to be double economy ones. "The margin comes from very good load factors," he says. "We find it very easy to fill premium economy seats, and there is also less discounting than in economy. Premium economy is less of a commodity." Brauer points out that this will only be true if the supply of premium economy seats does not outstrip the market, however. "Premium economy cabins are currently relatively small," he says. "If everyone tries to match the high-end premium economy products out there, I do worry whether the market will be big enough."

Short-haul premium

While premium economy might be thought of as a product for long-haul flights - perfect for sectors above nine hours for example - a few carriers are also trying it on shorter routes. Worth noting here is ANA, which in April will be upgrading its premium economy offering on domestic routes and short-haul international routes. ANA's "super premium economy seat" (a standard economy seat with 38-inch pitch) will be replaced with a wider seat with a 50-inch seat pitch. It will also start offering lounge access. Rival JAL also has a domestic premium economy product and has just begun introducing premium economy on select long-haul flights. The new international premium economy class includes a wider seat with more legroom, lounge access and dedicated check-in counters. ANA has been offering a similar premium economy product on its long-haul routes since 2002.

SAS, which has had a long-haul premium economy since 2001, also introduced a premium class on European routes in 2004, which is offered alongside regular economy and business classes. The attraction here is not the seat pitch or width - which are the same as economy - but greater flexibility.

"We identified that there was a market for a more time-efficient product for people not wanting to pay the premium needed to fly business class," says the carrier. The premium product allows last-minute flight changes, and passengers can use the business class check-ins in Copenhagen and Stockholm. In the air, a cold meal is provided, whereas economy passengers have to buy their food.

Short-haul low-cost carriers exploring this market include Virgin Blue, which is to introduce up to 12 premium economy seats on its 737s from April to woo corporate travellers, with 2:2 seating, free access to in-flight entertainment, more flexible fares and lounge access. The carrier says this is part of its ­transition to "a New World Carrier" - less pricey than network carriers, but offering "perks" to those travellers that want them.

At least two domestic US low-cost carriers - AirTran and Spirit - also offer what they describe as a business class, but which is essentially premium economy. AirTran's has a roomier seat on a 2:2 configuration, with drinks and a snack, and priority boarding. There are 12 such seats per flight, which can be booked in advance for a simple surcharge of $40-80, depending on the route.

"It is an amenity our passengers appreciate and is extremely popular," says the carrier, adding that those taking the seats vary from business travellers to frequent fliers to holiday-makers looking for a treat. The carrier says the seats rarely go unfilled if they are still available, they can usually be sold at the gate.

Long-haul low-cost carriers such as AirAsia X, Jetstar and Oasis Hong Kong also have business class seats which are essentially premium economy, as they are not lie-flat and are priced closer to legacy carrier premium economy fares. Some all-premium carriers such as L'Avion and Maxjet also have old generation business class seats and offer fares at premium economy levels. Air France's study of premium economy is in part a reaction to L'Avion, which is now competing against Air France on the lucrative Paris-New York route.

Cathay Pacific Airways, which is competing against Oasis Hong Kong to London and Vancouver, is also studying premium economy. Cathay is now the only carrier on the Hong Kong-London route without a premium economy offering because ANZ, BA and Virgin Atlantic all have it. "We're watching it like a hawk," says Cathay chief operating officer John Slosar. "We'll watch to see if a number of customers say this is value-added. If they do we'll respond."

Singapore Airlines has also experimented with premium economy on its small A340-500 fleet, used to operate non-stop services between Singapore and New York. But the carrier is now considering removing this cabin from its A340 fleet and decided against offering premium economy in its new fleet of A380s. Other carriers such as Qantas are using the extra real estate available in the A380 to offer premium economy as a fourth class.

With an increasing number of carriers now offering premium economy it seems to have firmly established its place in the airline armoury. But whether it will become more widespread remains to be seen. Perhaps a key test will be how the class fares in a downturn. Will it drain business class cabins or suffer as leisure travellers tighten their purses? Carriers insist the class would be robust under such circumstances, with Sims saying that economy would be hit harder, while premium travel would be less elastic. "Premium economy is pretty resilient in a downturn, though the jury is out if there will be a downturn," agrees Virgin Blue.

Brauer also agrees, though he believes cannibalisation could be a problem. "But would it be cannibalisation, or just life?" he muses. "I honestly believe this is a pretty robust product, and something that people think is worth paying for."


Source: Airline Business