Skift Take

Don't criticize airlines for segmenting their product. This is a basic business principle: Airlines want to sell customers the most expensive products they're willing to buy.

United Airlines expects to add a basic economy fare to Europe and Latin America later this year, and may, at some point, introduce a domestic premium economy product, along with its previously announced international one, executives said Tuesday at an investor conference in New York.

The basic economy news is not a major surprise, as American Airlines and Delta Air Lines, along with their key European partners, have announced similar plans. The transatlantic basic economy fares tend to be slightly different than domestic one, but the overseas fares have one key feature — customers who buy them must pay for checked luggage. United expects to add its no-frills fares once it works out some technology issues, executives said at the J.P. Morgan Aviation, Transportation and Industrials Conference.

A domestic premium economy product could be more unusual. The suggestion, made by United President Scott Kirby, comes just a couple of months after United followed nearly every major global airline by adding a long-haul premium economy. The product, Premium Plus, will hit debut in the fourth quarter, giving passengers wider seats, extra legroom, and improved catering.

“We are working on ways to even have a premium economy product in the domestic market and look forward to announcing that if we can get to a great product at some point,” Kirby said.

Like its competitors, United wants to slice and dice each cabin, so all customers can find a product they want and are willing to pay for — everything from basic economy to a flat-bed business class seat. United soon will sell five distinct products on most flights, according to a slide shared Tuesday.

This segmentation strategy will “get bigger as time goes on” both at United and across the industry, Kirby told investors.

“This is one of those that’s going to be good for our earnings, but also good for our customers, as we offer a broader range of products that can appeal to customers who are price-sensitive, … all the way up to customers who are interested and willing to pay for a better product,” he said.

True Domestic Premium Economy is a Challenge

Kirby gave no details about what domestic premium economy would look like, and a United spokeswoman declined to share more, saying, “We look forward to announcing further details on United Premium Plus soon.”

Airlines generally haven’t added long-haul-style premium economy seats for shorter flights in part because the product is nearly identical to a U.S. carrier’s standard domestic first class. Still, there could be demand for a true premium economy on key transcontinental flights, such as New York to San Francisco, on which United flies international-style flatbeds, rather than first class recliners.

Then again, it’s also possible United could introduce domestic premium economy without changing its Economy Plus seats.

Delta Air Lines now sells its extra legroom section, Comfort Plus, as premium economy within the United States. While it’s not that much better than United’s existing Economy Plus, Delta’s product has an important distinction. Delta customers can buy a Comfort Plus fare on or through a global distribution system when they book their tickets. On American and United, customers usually buy-up to the extra-legroom seats for a fixed upgrade fee, either during the purchase path, or after they buy their tickets.

As Delta made the switch to allow passengers to turn Comfort Plus into a real cabin with its own fares, it made several enhancements to its Comfort Plus product. Its seats mostly stayed the same — Delta added fancier stitching — but customers started getting free alcoholic drinks and snacks, as well as access to dedicated overhead bins.

The experience in extra-legroom seats on United and American is different. United only offers booze and food on a few important transcontinental routes from Los Angeles, San Francisco, Boston and New York. American has had a similar strategy to United, but executives said recently they plan to soon offer free beer, wine and spirits to Main Cabin Extra customers.


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Tags: airline passenger experience, premium economy, segmentation, united airlines

Photo credit: United Airlines has not had a domestic premium economy product but instead has relied on its extra-legroom section, Economy Plus. United Airlines

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