By Airbus’ count 27 airlines now offer a full premium economy class with a recliner seat — not just an extra legroom economy cabin like United’s Economy Plus. That’s an increase in the number of premium economy carriers from just nine in 2008, and given that the class was launched in 1993 (by Virgin Atlantic or EVA Air depending on who you ask) the spike is impressive.
It’s even up by one since April, when VP marketing Ingo Wuggetzer quoted a cost multiplier of 2x economy at the Aircraft Interiors Expo in Hamburg in March, compared with the 1.5-2x economy quoted by EVP strategy & marketing Dr. Kiran Rao at the Airbus Innovation Days in Toulouse in May — which is at the other end of the spectrum from the “couple of extra hundred euros” over economy quoted by chief operating officer customers John Leahy recently in Toulouse.
The disparity, given the price of economy fares — and the fire-sale business class deals available this year on transatlantic routes — made me think, so I did some brief back-of-an-envelope analysis to see which was more accurate.
I took five example routes with both economy and premium economy, using USD pricing from Kayak.com for one adult return nonstop flight November 10-17, far enough out that fares would be representative. I chose routes based on competition in premium economy (where I assumed fares would be keenest, thus trending towards a lower multiplier between a same airline’s economy and premium economy fares) and geographic diversity, and am quoting fares in USD at 1.098 to the Euro.
I also took the cheapest economy fare on any airline and the cheapest premium economy fare on any airline to calculate the lowest cross-airline multiplier, giving the real “cheapest nonstop economy vs cheapest premium nonstop economy” answer that most passengers will really be looking at.
For the UK flights, premium economy is newly subject to the £142 Band B Standard rate of UK Air Passenger Duty for this flight of over 2001 miles while economy is charged the Reduced rate of £71. That’s a difference of $108.56 at the exchange rate on the day of searching, and out of interest I removed that amount before calculating the multiplier a second time; it didn’t make much difference.
Route 1: LHR-LAX
London to LA has an unusual three airlines with premium economy: British Airways, Virgin Atlantic and Air New Zealand (on a fifth freedom flight continuing from Auckland). Interestingly, despite significantly higher prices for Air NZ’s premium economy when purchased AKL-LAX-LHR, Air NZ was very competitive here, particularly given that it offers its Spaceseat product on this route.
• BA: PE $1907 / Y $741 / multiplier 2.6x, adjusted for APD 2.4x
• VS: PE $1907 / Y $1100 / multiplier 1.7x, adjusted for APD 1.6x
• NZ: PE $1984 / Y $726 / multiplier 2.7x, adjusted for APD 2.6x
BA and Virgin both had the cheapest premium economy at $1907, while Air NZ had the cheapest economy at $726, which gives a lowest fare multiplier of 2.6x, or 2.5x adjusted for APD.
Route 2: JFK-LHR
I winced at the price of economy between Kennedy and Heathrow, but it’s something I’ve noticed for a number of years now. It seems to me that the cartel pricing by the transatlantic alliances on this route is really problematic for cheap fares — especially since non-aligned fifth freedom airlines Air India and Kuwait Airways were a third less on the same route. (Yes, it’s generally less reliable and the passenger experience isn’t great, but New York to London is still a ripoff in economy.)
• BA: PE $1546 / Y $1098 / multiplier 1.4x, adjusted for APD 1.3x
• VS: PE $1546 / Y $1098 / multiplier 1.4x, adjusted for APD 1.3x
BA and Virgin had identically priced premium economy at $1546, though Air India was significantly cheaper in economy, giving a lowest cross-airline multiplier of 2.2x, adjusted for APD 2.1x.
Route 3: SYD-HKG
With both Cathay Pacific and Qantas in the Sydney-Hong Kong market for premium economy, I was interested to note that prices are surprisingly different. Given the rather frosty relationship between these two oneworld members, I did consider this a route of competition rather than collusion.
• QF: PE $1227 / Y $728 / multiplier 1.7x
• CX: PE $1485 / Y $676 / multiplier 2.2x
Qantas had the cheapest premium economy at $1227, while Cathay, giving a lowest cross-airline multiplier of 1.8x across the market
Route 4: NRT-FRA
JAL and Lufthansa offer
• JL 2142 / 772 / multiplier 2.8x
• LH 2147 / 774 / multiplier 2.8x
JAL had both the cheapest economy (equal to ANA) and the cheapest premium economy, giving the lowest cross-airline multiplier of 2.8x
• VA 2332 / Y $1319 / multiplier 1.8x
• QF 2439 / Y $1336 / multiplier 1.8x
Virgin was both the cheapest economy and the cheapest premium economy, giving the combined cross-airline multiplier of 1.8x.
Premium economy fares seem a fair bit higher than John Leahy suggests
While this is only an initial fare analysis, Airbus should perhaps ensure that its cost suggestions are accurate and realistic. Nowhere is premium economy the “couple of extra hundred euros” John Leahy suggests, even within the same airline. Even in the JFK-Heathrow market, it’s over twice that, more than $450 over economy.
The average multiplier for each market (including the cross-airline multiplier and using the APD-removed numbers for the UK flights) was:
• LHR-LAX 2.3x
• JFK-LHR 1.6x
• SYD-HKG 1.9x
• NRT-FRA 2.8x
• LAX-SYD 1.8x
The “average of averages” turned out to be 2.1x — above Airbus’ 2x, but not by much. The 1.5-2x quoted by Airbus’ marketing staffers seems a little optimistic, and perhaps for accuracy “1.5-3x with an average of around 2x” might be preferable.
And lastly, this brief analysis suggests that a gap I’ve previously identified — serving the market of economy flyers who don’t want to pay two times the fare for two times the seat, but might be willing to pay 1-1.5 times the fare for extra width (perhaps in the form of an empty seat next to them) — is still underserved.