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Why the disappearance of First Class is down to bad marketing, not lack of demand (Part 2)

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This is Part 2 of a two-part guest post by Oliver Ranson, who runs the fascinating Airline Revenue Economics blog on Substack (free to subscribe, click ‘Let me read it first’ to skip the sign-up page).

He published this article a few weeks ago and we thought it was worth sharing. You can read Oliver’s previous HfP article, How we built the first business case for the award-winning Qatar Airways Qsuite“, here.

You can sign up to receive Oliver’s future articles by email here. There is no charge. Don’t carry on reading until you’ve read Part 1 of this article which is here.

Lufthansa First Class
Lufthansa First Class

First Class microeconomics covers nine revenue generators

Given the underlying demand for First Class that must exist, given macroeconomic conditions, there are nine pathways to revenue generation for airlines.

1. Higher fares: This one is obvious – some passengers are willing to pay more than the business fare and the price gap to private aviation is high. Offering First causes some passengers to voluntarily pay more for their flights.

2. Economy removal: Selling economy seats is easy – you just reduce the fares. Human nature being what it is, the more economy seats there are the more pressure there will be on revenue management to lower bid prices. Unfortunately this approach is not profitable. Offering First removes a natural distraction for an airline’s sales team and allows them to concentrate on more valuable opportunities, boosting revenue across all cabins.

3. Whole network value: Offering First on a limited selection of flights is a common strategy. Qatar Airways operates First Class to a few destinations on A380 super jumbos (see my Substack article) but they only have a few of these.

This approach may produce less revenue than not offering First at all because of passengers wishing to connect and the airline completely losing regular First travellers who ‘always’ fly at the front. Having First Class seats going unsold (or spoiled as we say in the trade) because a passenger wants to travel first all the way or all the time and uses competitors instead harms revenue.

Singapore Airlines A380 First Class Suite
Singapore Airlines A380 First Class Suite

4. Alliance ‘circle’ fares: Each airline alliance has members with First seats and they all offer ‘circle’ fares, like round the world or multi-continent tickets. If one member does not then they may be reducing the value of their alliance membership, which is not cost-free for airlines.

5. The “halo” effect: If something costs $10,000 it must be good and the things associated with it must be great too. That argument appeals to the primitive part of our brains and it works for airlines too.

If passengers see that an airline offers a great First Class, they might be more inclined to buy tickets in other cabins expecting that they will be good too. The result is extra demand and revenue in all cabins, not just First, and a potential boost to the airline’s commercial marketplace products (see my Substack article here). When Etihad was running primetime TV advertising with Nicole Kidman for its ‘The Residence’ A380 ‘apartment’, it wasn’t ‘The Residence’ that it hoped to sell.

6. CEO choice: If a CEO flies an airline in First and likes the service a lot, that airline may be well-positioned to sign a corporate contract for a thousand business or premium economy (see this article of mine here and this article here) seats, which is where they really make their money.

7. Loyalty and upgrades: Some passengers may fly an airline or use a co-branded credit card more often if it enables them to earn the mileage for a “once-in-a-lifetime” redemption worthy of a special occasion. First is more charismatic than business, compounding the impact. Other passengers may be keen on using miles or money to upgrade (see this Substack article and this article), including when their employer pays for business. These effects boost demand and revenue for both business and First Class.

8. Mileage liability: Airlines must account for mileage currency as a liability. The more passengers there are who use large stacks of points for First Class redemptions, the lower the liabilities become. A small effect perhaps, but still relevant.

9. Multiplier effect: All the above may have “multiplier effects”, for example higher seat sales and higher yields together increase revenue by more than the sum of each.

How to market First Class

The prosperous do not seem to trade down when it comes to other products and services – I do not see why they would they do so in air travel?

First Class was worthwhile for airlines in the 1990s, when there were fewer millionaires, lower stock market returns and fewer successful businesses, and the product was not as good as it is today (see this Substack article) – I do not see why it should not be so today.

Taking a look at the marketing data in the table below, it looks like airlines are doing a poor job of marketing the front cabin.

Source: Brand web sites, February 2022

What strikes me about this table is how the three luxury non-airline brands are much more aspirational and philosophical in their language. They are selling a lifestyle (benefits) rather than a product (features).

Although the airlines’ language is flowery it is much more matter of fact – suites, lounges, menus, bedding, spas, all features not benefits which any sales pro will tell you is a mistake. I believe that if airlines marketed their First Class as a lifestyle brand that also happens to be a time machine (see above) they would be much more successful.

Successful First Class pricing can be counter-intuitive

The rule of thumb I follow for inter-cabin upgrade pricing is that each step roughly doubles the fare received by the airline, although not necessarily the sticker fare. So for example an airline might receive £500 for economy, £1,000 for premium economy, £2,000 for business and £4,000 for First.

But many business class passengers do not pay the sticker fare – the buyer gets a discount either at the time of purchase or at the end of the year. This might be because their employer has a contract with the airline but there are also some wealthy families in cities like Hong Kong who are known to have deals too. When passengers travel in a group or on an inclusive tour there might not even be a sticker price.

Such discounts are rarer in First as the smaller cabin does not facilitate the volumes required for the airline to take an interest. Corporate policies limit discounts up-front too and while a CXO might travel in First at their contract rate most managers will only be allowed to fly business. Significant discounting in business class has some surprising implications for successful pricing in First.

Emirates First Class Suite
Emirates Boeing 777 First Class Suite

First Class sticker fares can be cheaper than business:

Set business class fares at £5,000 and First Class fares at £4,000 – if the expected discount is 50% in business and 0% in First the airline will receive £2,500 for business and £4,000 for First, which is about right given the difference in the seats. This strategy works well if business class demand to come (see this Substack article) is high.

Sell First by inflating business prices:

Set business class fares at £3,800 and First Class fares at £4,000. Many passengers who will buy a business class ticket anyway but have some control over their travel (successful small business owners for example) will pay the extra £200 for First, think they got a great deal and be more likely to travel in the highest cabin in the future, boosting lifetime value.

This strategy works well when business class demand to come is low but travellers own their budgets and willingness to pay is high. It might also work well with passengers redeeming miles on some routes.

Offer special First Class fares to smaller businesses rather than larger ones:

Many airlines have a scheme for small businesses – when I was at Qatar Airways we had Qbiz. Nowadays my company is a member of On Business, the American Airlines, BA and Iberia programme. Corporate customers may have contracts and high travel budgets, but their travellers are not buyers.

At a small business on the other hand the decision-maker may be the traveller. It makes sense for airlines to offer First Class as a treat to SME customers – “enjoy the fruits of your success” or a similar tagline would work well – and the SME programme is the perfect channel to make this happen.

Bundle First Class with ticket flexibility

Sometimes a business class ticket that upgrades to First Class for free is a compelling reason to fly on an airline, even if another is cheaper. The reason is that business travellers can expense the business class fare to a customer, who never actually sees that the traveller actually flew in First.

British Airways used to do this a lot. The catch was that you needed to buy a relatively expensive ticket with flexible conditions for change and refund. This approach is great for airlines because it gets people to voluntarily pay more, even if a cheaper fare is available.

If you sell First Class seats or any other cabin product, or if you are an airline wanting to make your First Class more successful, reach out to me to help you achieve your goals – oliver AT ransonpricing DOT com

Comments (83)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • AJA says:

    There certainly is an aspect of negative connotations to the CEO flying up front in First when the rest of the business is only seated further back.

    It also isn’t a great look if you are billing a client. In the same way having sales people turn up at a customer in expensive cars can also work negatively: the client thinks how much of the price I’m paying is going towards funding this.

    Re the marketing of a lifestyle rather than the benefits i think Cathay’s blurb is the closest to the hotels using the word inspiring to focus the mind on the unwritten benefits of First over Business but I think the problem airlines have is trying to get customers to see what the extra fare is getting them over a business fare and essentially it is a larger seat, more individual space and hopefully better food, drink and service.

    The trouble is that today those elements of food, drink and service are distinctly lacking, understandable to a point over the last 2 years but the airlines, especially BA need to improve on those elements again.

  • Rob S says:

    Brilliant article, thank you to HFP and Oliver for producing and sharing it.

  • JG says:

    Expanding on your time capsule…

    * Free, good quality network connection.
    * Reasonable sound proofing to enable Zoom/Teams
    * large, good quality, screen with HDMI/USB-C input.
    * Seat adjustments and space to allow for a natural working position.

    Sell First Class not as a luxury product, but as the most viable way to get meaningful work done while in the air. Is 7 additional hours of executive time worth less than $3000 extra to your company? That’s fine, they can fly business. Are you sending someone whose time the company actually values? First.

    • Bagoly says:

      A valid strategy.
      But in that case the refresh time to add/change the inputs needs to be fast, as technology changes.
      Both hotels and airlines seem to struggle with this – they have a say ten-year renovation cycle, and the tech goes out of date long before that.
      Perhaps because it’s replacing a say USD10 component with another one of similar cost, but involves USD500 per seat in labour and ancillaries (E.g. replacing a panel), and the hassle of scheduling the work.

      • Phil W says:

        When we were procuring Business Class seats at bmi back in 2005, Weight and Reliability far outweighed the actual cost of the seat in the total cost of ownership calculations.

        The cost of having to take a plane out of service to do work on a seat was astronomical. It’s why even inexpensive but functionally rich changes are difficult to justify for airlines.

        • JG says:

          Thanks both for the additional insight – definitely one of those moments where it seemed too obvious to me for it to be truly viable! I appreciate you taking the time to add the maintenance and shifting technology perspective – I should have remembered the gyms and hotels I’ve been to in recent years that still expect my iPhone to have the old 30-pin charge socket!

    • Thywillbedone says:

      Hard ‘no’ to zoom/teams calls please. The sky is the last refuge away from them …

    • Jeff77 says:

      “ Is 7 additional hours of executive time worth less than $3000 extra to your company? ”

      Usually, yes it is. Especially now that travel budgets are being cut, never to return to 2019 levels. (There will of course be travel, maybe even a lot but nowhere near the level it was)

  • John says:

    Similar comment as to part 1. Short-term fluctuations (such as C19) aside, there has been tremendous growth in all cabin classes (eco, premium eco, business) except first.

    The obvious interpretation of that data is that airlines have managed to make their produce relevant to consumers. There are numerous statistics that back that interpretation, from NPS to more elaborate measures.

    But you’re saying they have failed to keep first relevant to affluent fliers? Where are the stats in line with that interpretation?

  • Panda Mick says:

    I work in pre sales and am often on both sides of “feature requests”: Having to request and having to listen to.

    Some time ago, when working with a particular company, my feature requests would often go unheard: It was pointed out that in order to get the ear of the right person, the feature request had to both fix a “business” problem and provide a benefit. This changed everything…

    And there’s a lot of parallels with the marketing here: Oh, “there’s a seat pitch of eleventeen feet”. Woopee do. “There’s a seat pitch that makes you think you’re in your own bed, allowing you to arrive fully refreshed to sign that gazillion dollar deal…”

    Perhaps I shouldn’t work in marketing 🙂 But, I hope you see my point!

  • ChrisC says:

    BA have been reducing F over a number of years. Covid has accelerated that (via decisions to change the make up of the fleet) rather than be the cause of it.

    I can’t remember who said it Willie (more likely) or Alex but whomever it was basically said that there were too many of the wrong passengers in F whether than be those on staff travel or on avios rewards / upgrades and that needed to change because it was affecting those that paid cash for it.

    So from that (plus a host of other reasons including the improvements to the business product) the size of F was reduced as new planes were ordered (that’s if they were even ordered with F) or refurbished.

    • insider says:

      It’s true that at BA, if you are middle management or above, you get access to F when using staff travel. I’ve been on trips where I was one of a group of 4 in F, with other staff also in the cabin. When there are only 14 seats (max), I can see how we are ‘diluting’ the proposition. Personally I think staff should not be given access to F. (although i’ve benefitted hugely from it over the years!)

      Many years ago I looked into some of the data on F; the average seat factors were in the 50-60% if you exclude staff, and a huge chunk of those were redemptions. The reality is that it worked on some routes, but 14F seats was too many, and F was certainly not needed on a long tail of routes. Hence why you see the current direction of aircraft coming into service without F (A350), and 8F cabins being the new norm, replacing the 14F of the past

  • TeesTraveller says:

    Oliver does write some good stuff. Really interesting view on how the numbers stack up.

    However, HFP looks to have missed an opportunity to add a “pay for your first class flight with a credit card from Amex…” paragraph at the bottom of the article….

    • Polly says:

      Think most of us will have already picked up on that last point already…. Good point, tho! F reward chances fading as time goes on, it seems.

      • Ronster says:

        Good evening Polly

        Both I and Polly understand that if you can and routes are available, BA F is the best use of your avios, coupled with a 2-4-1 voucher.

        With 3, 2-4-1 vouchers slowly running out, its become harder and harder for me to justify keeping, what was my first Amex card, that Rob recommended all those years ago

        Time will tell if I cancel it

        Kind regards


    • ChrisC says:

      Perhaps ‘no adverts’ was part of the deal on HfP republishing this article?

  • aseftel says:

    As much as I enjoy flying first class, I don’t think I’d buy this pitch as airline management. The pure cost-benefit might stack up, but I think the return on complexity is really poor. Focus is necessarily scarce in any organisation. To execute a first product, you’d be looking at differentiating in almost every part of the organisation: revenue management, ground experience, catering, crew service protocols, call centre, marketing etc. – all for customers who are going to be the most demanding.

    I think a big part of the reason why airlines like premium economy so much is that they can recycle a lot of their existing components: standard call centre, economy check in, no lounge, business class meals, economy cabin crew routines etc etc. Here they are getting the incremental revenue without adding nearly as much complexity to their operations.

    • John says:

      Those are excellent points.

    • Ed says:

      Absolutely agree!!

      This was a weird article and just focused on the physical space on the plane. There are huge other logistical challenges to a good first product as you say in Ground services. For First quality, substantial additional workforce needed which is increasingly expensive and hard to come by, for small numbers of passengers that are not substantially higher yield on £value than business.

      Also enjoyed the reference to Aeroflot although that was just unfortunate timing.

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