For corporate road warriors and luxury-focused leisure travelers, it’s often comfort, not cost, that rules.
But in the current economic downturn and flurry of mergers, first-class and business-class airline seats may be an endangered species.
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Southwest Airlines recently announced that after its planned merger with AirTran Airways, it will not continue premium service on AirTran routes now offering it.
Rahsaan Johnson, a spokesman for United Airlines, said the company has not decided whether it will keep first class on international fights, like United now has, or shed it, like Continental Airlines, which offers a combined business/first class, when the two carriers merge. Both currently offer first class on domestic flights.
“It is a very important differentiator,” Johnson said, and upgrades “drive significant loyalty.”
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The future of premium seating
“It’s the key to profitability for many airlines,” said Steve Lott, a spokesman for the International Air Transport Association, a trade group. In the first half of this year, passengers traveling on premium seats represented less than 8 percent of the total traffic but contributed up to 27 percent of passenger ticket revenues, according to the association’s most recent monthly report that tracks international traffic in first and business class.
“Airlines need to pay close attention to passengers who are prepared to pay a premium,” he said, by upgrading products and services like meal and wine service and entertainment offerings that include amenities like Bose noise-canceling headphones. The bar is always being raised higher and higher. Today, it’s the race to install lie-flat beds, he said. “One of the few places where airlines can highlight their differences is in the premium cabin.”
Scott D. Nason, a former American Airlines executive, now an aviation consultant, said many carriers are improving business class but have eliminated first. “Business class sells and first class by and large does not,” he said.
Some carries keep first class to sell business-class seats by offering upgrades or as leverage. If two airlines vie for a corporate account, the carrier with first class may win the account. And business class upgrades drive sales in economy, too, Nason said.
Jim Strong, co-owner of Strong Travel Services in Dallas, said that kind of philosophy has backfired.
“The fact that premium class seats are much more accessible at a lower price point through frequent flier miles and discounts hurts the airlines in lost revenue and customers because of lessened value,” said Strong, who belongs to Virtuoso, an invitation-only membership organization of travel agencies who specialize in selling luxury travel.
Good for the consumer
Some airlines are eliminating first class, but others “are upping the ante by investing a lot of money so they can improve products and luxuries for premium passengers,” said George Hobica, founder of airfarewatchdog.com.
Emirates has showers on some aircraft, making it a kind of “ultra, ultra first class,” Hobica said, and Singapore Airlines has “an incredibly wide business class seat — you can fit two people in it,” he said. “It’s always been a game of one-upmanship.”
Competition spawns variety and choice, which is good for consumers, Hobica said. “It’s kind of like the hotel industry with different brands and strategies. You can take a Ryanair or a Singapore, depending on your budget,” he said.
Some carriers like United and British Airways have not only kept first class but also introduced a fourth class of service, premium economy, a kind of hybrid between coach and business that offers more cabin space, larger seats, extra leg room and more services than standard coach, Hobica said.
“More services, more comfort, that’s what everyone wants,” said Barbara Nichuals, president of Bayside Travel and Gramatan Travel, in Westchester County, N.Y.
Nichuals, also a Virtuoso member, said the merger between Continental and United “is going to be an advantage, especially for customers with frequent-flier accounts. It just broadens the options for travelers.” On the other hand, she said there is worry that less competition will impact prices.
“I believe first class international is generally on its way out,” said Jay Sorensen, president of IdeaWorks Company, a consulting firm for the airline industry.
“Premium economy will become more pervasive — it's the perfect compromise between the pain of long-haul coach and the painful prices associated with business [class],” he said.
Losing the edge
“What you see is the addition of premium economy because that’s profitable,” said Henry H. Harteveldt, travel analyst for Forrester Research. “I think what’s going to happen is the airlines are going to raise economy fares, offer more aggressive opportunities to upgrade via e-mail and at kiosks, increase the size of coach cabins, shrink business-class cabins and reduce or eliminate first class, “ he said. As a result of fewer premium seats, there will be fewer upgrades or free frequent-flier seats, which will increase profit margin.
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But he said he worries about reaching the “tipping point.”
“If U.S. carriers continue to cut back in just about every way possible,” they risk losing their competitive edge, and as a result, high-end customers. “People do want to be comfortable on planes and will pay,” he said. “U.S. airlines used to be leaders in reliability and quality. But now, at best, they are middle of the pack,” he said. “Service is often seen as an expense instead of an opportunity.”
Jonathan Friedman, general counsel of a multinational company, who frequently travels internationally, said most American and foreign carriers have made improvements to seating and entertainment programming in recent years, but there remains a huge difference in service on board and at lounges.
“Service is horrible, it pales in comparison,” to European carriers, Friedman said. On a recent trip to London, at the business class lounge at Heathrow of an American carrier, “you had to pay for your own water,” he said. But airport lounges operated by European airlines often provide meals, bar access, and areas to sleep and shower. “It’s night and day,” he said.
A rebounding economy
Peter Belobaba, an airline researcher and manager of MIT’s Global Airline Industry Program, said the future of premium seating is largely contingent on the recovery of the economy and the business travel marketplace. “The quality of premium service is significantly better when there is more competition” he said, “but if the demand does not come back, then all bets are off.”
Darin Lee, a principal at LECG who specializes in the economics of the airline industry said, as a rule, airlines tend to “be forward looking, they invest for the long run.” He said though it is a very cyclical industry, “carriers today are cautiously optimistic.” He said the ones that continued to invest in upgrading their product through the recession in the last two years, “will reap the benefits by having the product to be competitive,” as the economy returns.
Strong, the travel agent, said he thought the merger between United and Continental would ultimately be beneficial to passengers by streamlining services and products. “The Delta Northwest merger is really a footprint for all others,” he said. The airline boosted its image when Northwest’s “stale, unattractive, not user-friendly” product was discarded and Delta’s new premium products were featured. “It’s been noticed by customers,” Strong said. “They want to come back for more.”
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