Passengers won’t pay for more space on planes. This is the commonly accepted mantra and driving logic behind the ongoing “densification” efforts to squeeze more seats onto planes. And, for the most part, that’s proven true. Travelers are still buying the tickets, even with the tighter pitch. A growing subset of travelers are, however, willing to pay more. Premium Economy products continue to grow and Delta Air Lines‘ Premium Select implementation of that will expand to capture even more of those passengers and their willingness to pay more for comfort on board.
During the quarterly earnings call this week the carrier announced that the Premium Select offering will grow to the full international wide body fleet by 2021. The initial launch of Premium Select had it flying only on the 777 and A350 aircraft. This adds nearly 100 A330s and 767s to the premium economy market for the carrier. These join the 11 A350s delivered so far (3 more deliveries pending) and the 18 777s being retrofit in the coming year. The pending A330neo deliveries will also presumably include the Premium Select option.
Most critical to the introduction of the new premium economy option is that it does not erode revenues in the business class cabin. Some eight months in to operating its Premium Select product Delta is confident that’s the case. CEO Ed Bastian spoke to that during the earnings call:
We have seen robust demand for our Delta One product, especially in the Pacific as we have introduced Premium Select into over 50% of the market now, we have seen no real degradation in terms of the demand for the premium products and services, the most premium. What we have seen is really consumer discretionary and corporations that have travel policy that only allow for coach really using that extensible.
Not only are the “right” people buying the product, but they’re paying roughly double the coach fare to get there according to the company. Given that the seating density is less than half of regular economy realizing double revenue is a winning proposition for the airline.
Post-purchase premium profits
Plus, the company expects that it will be able to merchandise the premium seating options even better in the coming months. Delta President Glen Haustein noted that post-purchase upsells now account for 10% of all premium seat sales. This split payment approach to selling premium seats contributed $200mm to the company’s coffers since May 2017 and the carrier expects those numbers to grow. Part of that is tied to better merchandising solutions and more advanced pricing algorithms. Another key factor is the ability to pay for more of these upgrades with SkyMiles points.
Earlier this year the company teased its plan for allowing points-based payment for post-purchase upgrades. This is a significant expansion of the traditional loyalty program upgrade to business class offering and follows Delta’s efforts to remove strict award chart prices from its SkyMiles redemption options. By bringing variable rate points payments to multiple products in the cabin (Comfort Plus, Premium Select, etc.) the program becomes more flexible and more valuable to more members.
As we continue to roll out different ways to buy those products, we will see I think another explosion in demand as other customers will use their miles to sit in the cabins they want. And I think bringing that ability of our frequent flyers to choose where they want to sit after they buy the ticket is really going to be something that’s going to generate a lot of great products and services for customers as well as revenue for the airline. – CEO Ed Bastian
Offering points-based upgrades is hardly innovative in an airline loyalty program. For years those upgrade awards were typically seen as the best use of points. Traditional upgrade awards lost some of their luster in recent years as the programs tightened up, leaving plenty of questions about the value proposition of these new offerings. Even if the points value comes up a little short, however, just the fact that the additional options are offered will likely be well received by the majority of the SkyMiles program’s members.
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