US carriers are turning to cabin segmentation in response to the various competitive pressures they face across the North Atlantic, with multiple executives calling the market “challenged”.

American Airlines and Delta Air Lines executives both point to their cabin segmentation initiatives, which include no-frills fares and premium economy cabins, while United Airlines touts an “aggressive” response to competition in the market.

The premise behind cabin segmentation is that many passengers have the ability to pay more for the product attributes that they need or want, for example, the flexibility to make last minute changes, sit in a more comfortable seat or earn premier-qualifying frequent flier miles. However, the US carriers claim that they leave much of this potential revenue on the table due to their lack of differentiation between economy fare classes.

The transatlantic market, which all three US carriers see as critical to their global networks, has seen a surge of new low-cost carrier activity spearheaded by Norwegian and, to a lesser extent, WestJet and Wow Air in recent years. This competitive pressure, coupled with the strong US dollar and multiple terrorist events in western Europe during the past year, have pushed yields down despite strong traffic.

Atlantic passenger unit revenue (PRASM) fell by 7.7% at American, 6% at Delta and 2.8% at United in the fourth quarter, continuing a slide that began in 2015.

PRASM fell even as the carriers culled capacity, with available seat miles (ASMs) down 5.4% at American, 0.8% at Delta and 2.4% at United during the period, they each report.

Norwegian, which has yet to release its fourth quarter results, grew capacity by a whopping 77% across the Atlantic in the fourth quarter, FlightGlobal schedules show. However, it remains less than a quarter of the size of its nearest US competitor – American – in the market.

Once dismissed as a non-threat, American, Delta and United all pointed to LCC competition across the Atlantic and outlined the beginnings of their responses during recent fourth quarter earnings calls.


Delta is the US leader in segmentation to date. The Atlanta-based SkyTeam Alliance carrier debuted its no-frills basic economy fare in early 2015 and began rolling it out in international markets in 2016. Later this year, it will debut a new premium economy cabin on its new Airbus A350-900 aircraft, in yet another segmentation step aboard its aircraft.

“We need to adjust to that new paradigm as high quality products for leisure customers who are willing to pay more than just standard coach fares,” said Glen Hauenstein, president of Delta, on the transatlantic LCC incursion in January.

He cites premium economy as one upsell opportunity that the airline will offer passengers.

Basic economy is already having its desired effect. Many business travellers are booking higher fare buckets to avoid the limitations of the restrictive no-frills fare, boosting revenue in markets where it has been implemented, executives have said.

Both American and United plan to roll-out their own basic economy fares this month. However, both only plan to offer the fares in selected domestic markets initially and neither has said whether they will expand them to the transatlantic flights yet.

“We are working with our [joint venture] partners to make sure we have an effective plan going forward to compete,” said Andrew Nocella, chief marketing officer at American, in January. “And that is continued segmentation of the product as we talked about for the future.”

The Fort Worth-based Oneworld Alliance carrier will begin selling its own premium economy cabin this quarter, with plans to expand it across its international network in the future. The product is initially available on its Boeing 787-9 aircraft.

American executives have outlined plans to offer up to six distinct cabin segments on international routes in the future: first class on Boeing 777-300ERs and business class, premium economy, extra-legroom economy, economy and, potentially, basic economy on other widebody aircraft.

United has neither announced plans to offer basic economy in international markets nor a premium economy cabin. However, executives have said that it will consider expanding the no-frills fare once it sees how the introduction goes domestically, and that they are evaluating a new cabin between economy and business class.

“We need to be competitive with everyone,” said Scott Kirby, president of United, in January. “We are sensitive to anyone that’s a competitive threat for us and we will be aggressive about competing with all of them.”


The US carriers are also tweaking their networks and shrinking capacity, at least during off-peak periods, in an effort to improve yields across the Atlantic.

Transatlantic capacity will decrease roughly 7.8% on American and roughly 4% on United in the first quarter, FlightGlobal schedules show. Delta says it will reduce capacity by about 3% in the market during the period.

Much of these reductions are seasonal adjustments. For example, suspending flights on certain routes to secondary cities in Europe during the slow winter months and resuming them for the peak summer period.

“We’ve moved capacity where we think it needs to be,” says Nocella on American’s first quarter reductions. The carrier has shifted much of that capacity to the third quarter, he adds.

Delta plans to go a step beyond seasonal reductions to Europe. The carrier plans to “de-emphasise” service to secondary markets in Europe and increase capacity to its partner hubs, says Hauenstein.

“In 2017, we will continue to build on our presence in our strategically advantaged hubs in London, Paris and Amsterdam, while de-emphasising high EU point-of-sale markets,” he says.

Delta was not immediately available for comment on what he meant by “high EU point-of-sale markets”. However, Hauenstein previously described Manchester, UK, and similar markets as ones with high local sales.

Based on Hauenstein’s various comments, the carrier will likely continue to add routes to its partner hubs, like Portland-London and Raleigh/Durham-Paris, and reduce services on routes to secondary cities, like Copenhagen and Stuttgart.

Source: Cirium Dashboard