Premium Economy Arrives on U.S. Airlines. Will Coach Suffer?

(Bloomberg) -- As space in economy class becomes ever more constrained, airlines have devised a more spacious cabin product for passengers priced out of business class but determined to escape the indignities of steerage.

Called “premium economy,” this section of added frills between coach and business aims to address a widening gap that has emerged between those cabins—and to extract more money from passengers. The premium economy cabin has been a staple of large international airlines for several years but is just now beginning to appear on American carriers.

Airlines across the globe have rushed to add premium economy cabins in recent years, as customers show a willingness to pay for extra space and amenities. “There's a demand for something in between economy and business,” American Airlines Group Inc. spokesman Joshua Freed said on Thursday during a tour of the new 787-9 at Dallas-Ft. Worth Airport. The plane is a larger, 285-seat version of the 787-8 American first received early last year.

On almost every airline with premium economy, the biggest lure is increased seat pitch and width, typically along with nicer food and tableware, a larger entertainment screen, noise-canceling or reducing headphones, a fancier amenities kit, and occasionally, a more generous baggage allowance. A pre-flight beverage is usually included. Some airlines also let premium economy passengers use their airport lounges for an additional fee.

American is the first U.S. airline to introduce the new cabin, on its Boeing 787-9, with 21 seats in a 2-3-2 across layout, far roomier than the 3-3-3 arrangement in the back of the plane. American uses the same 19-inch wide B/E Aerospace Inc. MiQ seat for first class on some of its domestic aircraft, which further sharpens the contrast with the airline's regular, 17-inch wide 787 economy seats.

The new cabin offers 38 inches of seat pitch, and a six-inch recline. Each seat also comes with an 11-inch screen, two inches larger than what you get in back, and those blessed noise-reducing headphones. (Passengers in the 787-9's business class get noise-canceling versions and a 15.4-inch screen.)

Big money maker

In terms of revenue, the cabins are ingenious, given that fares typically are hundreds of dollars more than regular economy, with only marginally higher cost. For example, Singapore Airlines Ltd., is charging more than $3,900 round-trip for premium economy in early December—almost $2000 more than economy on its new nonstop flight from San Francisco to Singapore. Qantas Airways Ltd.'s premium economy fare over the same period is nearly $1,500 above the $2,411 round-trip for flights from Los Angeles to Brisbane, Australia.

Singapore, which started its premium economy service this summer, prices the cabin about 40 percent to 50 percent above economy seats, spokesman James Boyd said. The largest sales, so far, have come on the longest routes and have appealed to many customers who are traveling for work, he said.

American's first 787-9 international flight with the new cabin took place on Thursday from Dallas to São Paulo. The 787-9s will also be deployed from American's Texas hub to Madrid, Paris, and Seoul. American's new Airbus A350s will come with premium economy as well, and the carrier plans to retrofit almost all of its long-haul international fleet—777s, 787-8s, and Airbus A330s—with premium economy by the end of 2018. American plans to roll out new fares for the cabin in mid-January. Until then, it is selling them as part of its regular extra-legroom seats. American officials declined to discuss fares for the new cabin.

Delta Air Lines Inc. plans to fly its new premium economy product next autumn on new Airbus A350s, followed by Boeing 777s in 2018. Delta said on Thursday that its premium economy seats will be 19 inches wide, with 38 inches of pitch and a seven-inch recline, and will come with a Tumi amenity kit and a Westin in-flight blanket.

A spokesman for United Continental Holdings Inc., Jonathan Guerin, said the company has no announcements about premium economy. “We continually evaluate the products and services we offer our customers throughout their journey,” he said.

Someone has to pay

While premium economy represents a silver lining for travelers hoping to improve economy-class travel, there's a downside for those who are fine with flying cattle class. For some airlines, the “nicer” coach cabin could represent an incentive to make regular economy even more spartan. If you squeeze a bit more in the back, in other words, maybe a few more people will be induced to spring an additional $300 or $500 to move into premium economy.

Another possible consequence of this three-tiered world could involve carry-ons. Some Wall Street analysts have long wondered why numerous airlines that gleefully charge for a first checked bag domestically still have no fee for that same bag on many international routes. Premium economy could become the gateway to further differentiate cabins.

Joe Kiely, Delta's managing director of product and customer experience, said the Atlanta-based airline is not planning “to materially change” the attributes of its economy cabin as the premium version starts to fly. American's Freed said his airline isn't considering changes to economy as a result of the new cabin.

For travelers, the question really becomes: Is it worth it? Is a six-hour flight too short to pony up for the extra room? What about 10 or 11 hours? And if the economy seat is fine for you, does a slightly larger video screen or a glass of wine before departure matter? 

“The value proposition is all about the space on board,” said Seth Miller, a frequent traveler and travel writer, noting that some aspects of premium economy can be purchased à la carte. “But space is not something so easily acquired once on the plane.”

To contact the author of this story: Justin Bachman in Dallas at jbachman2@bloomberg.net.

To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net.