Premium Economy: A bit like business class, but cheaper…

For many who fly, either for business or leisure (or both), we are spoiled with options, offers, deals and etc. To some, it’s only a way to get from point A to point B, To others it is an experience. The later are likely to be more involved in their pre-purchase process and wanting their experience to be as pleasant as possible.

Those who seek experience and pleasure in their journeys, the options are abundant and often priced competitively. And who doesn’t like being pampered, wined and dined? If you don’t, you are likely to be a minority. Most airlines offer premium options, either business class, first class, oh wait!, and also premium economy. Premium economy, in simple term, is a class in between economy class and business class.

QF PE2.png

Qantas, a leading Australian airline, first introduced its premium economy seats in 2008 (news.com.au). It is priced roughly double the economy class, but half of the business class. Qantas isn’t the only airlines that offer this premium experience (without paying with both of your arms and legs), other airlines such as Air New Zealand, Singapore Airlines, Lufthansa and the list will go on and on.

Customers learn through associations and repetitions that better quality usually means higher price. Similarly, Iacobucci states that ‘price often serves as a cue to quality’ (2013, p.116). Furthermore, Price is more than just a number that affect the bottom line, but it also ‘sends signals to consumers, competitors, collaborators as well as its positioning as a brand ‘ (Iacobucci, 2013, p. 108).

Air NZ

From the airlines point of view, this premium economy class is a very profitable product. Lufthansa’s Chief Commercial Officer argues that ‘with 50% more floor space than standard economy class, the airline can charge for multiple more’ (traveller.com.au).

Arguably, at this premium end of the segment, consumers are less likely to be price sensitive. However, failing to meet consumers’ expectations could mean painful consequences for airlines. Iacobucci (2013) argues that there is an upper limit on what marketers can price their products and the right price is the price just below the consumers’ price upper bound. So how much more should airlines charge? It’s a million (or a billion) dollars question.

From consumer point of view, how much better is the experience will you get from sitting in premium economy seats versus sitting at the back? Is it worth the price? Well, it’s relative. For those who can afford and value premium experience, such as: priority boarding, better consumables (food and beverages) and hopefully better sleep, the extra price may not be a big deal.

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Thanks to online booking websites, such as webjet and third-party comparison websites, such as skyscanner, it is now a very competitive market and it is so easy for consumers to compare prices and spot offers or deals every day of the week. According to Seatguru, airlines adjust premium economy prices depends on how far in advance you book your travel compared to the travel dates. At its peak it could be as much as twice the price of standard economy seat, and it could go down to as low as ten to fifteen percent above standard economy seat.

Beyond deals that can be found on various websites, from time to time, airlines also offer offers cheaper premium fares throughout the year. A good example of this is 50% discount on business class tickets on business companion offer, which is basically a quantity discount, the more you buy, the more you save (Iacobucci, 2013, p.119).

Whilst the premium economy segment is highly profitable, airlines need to keep the balance right between profit margin and being competitive in the market, albeit maintaining demand.

This blog is written by Johan Rudtio

References

Iacobucci, D. (2013). MM. Mason, Ohio: South-Western.

News.Com.Au. (2015). How to fly business class without the price tag. [online] Available at: http://www.news.com.au/travel/travel-advice/flights/qantas-premium-economy-is-like-business-class-but-cheaper/news-story/34916db4017361b553c701950218aad7 [Accessed 30 Apr. 2016].

Qflyer.com.au. (2016). Qantas Companion Airfare Sale | QFlyer. [online] Available at: http://www.qflyer.com.au/news/qantas-companion-airfare-sale/ [Accessed 30 Apr. 2016].

Seatguru.com. (2016). Premium Economy Class Comparison Chart – SeatGuru. [online] Available at: http://www.seatguru.com/charts/premium_economy.php [Accessed 30 Apr. 2016].

Traveller. (2014). Premium economy: the new (old) business class. [online] Available at: http://www.traveller.com.au/premium-economy-the-new-old-business-class-34gmx [Accessed 30 Apr. 2016].

Woods, A. (2015). Is Qantas Premium Economy Worth the Extra Money?. [online] Adventures All Around. Available at: http://adventuresallaround.com/is-qantas-premium-economy-worth-the-extra-money/ [Accessed 30 Apr. 2016].

 

 

 

 

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