Carving up cabins, catering to high-end travel, and putting a price on nearly every aspect of the flying experience has helped larger airlines haul in more cash from their planes. That is one reason why two companies, Delta and United, accounted for almost 85% of the U.S. airline industry’s profits in the first nine months of this year.
For fliers, the message is simple:
“The more you pay, the more you get,” Delta President Glen Hauenstein said this past week.
Airlines are preparing for a record crush of travelers to descend on airports this Thanksgiving—a test of the way they have been battling for fliers’ business, which has changed dramatically since the Covid-19 pandemic. What was once a race to offer the cheapest tickets and capture the biggest volume of passengers is now all about trying to stand out with a superior flying experience. The result has been a shakeout at the budget end of the industry—Spirit Airlines declared bankruptcy this past week—and a bonanza for bigger carriers flying high from selling first-and business-class tickets.
Airlines that haven’t yet embraced the upselling approach are racing to catch up. Spirit told a bankruptcy court this week that “Project Bravo,” a strategic pivot that includes a new suite of upscale bundles, is its ticket back to success. Even Southwest, which has carried an egalitarian approach to flying for more than 50 years, is soon ditching open seating and adding rows of extra legroom.
Bigger airlines offer a dizzying array of amenities, such as the option to move up a few rows, that can cost a few bucks or hundreds of dollars. Less than half of Delta’s passenger revenue now comes from selling regular coach tickets—something that flipped this year.
The lucrative trade off is a reversal from decades when upstart carriers forced heavyweights to try to match their low prices without hemorrhaging cash. Now, the aviation titans are riding a wave of demand for premium tickets, far-flung locales, and revenue from lucrative co-branded credit cards.
“The ultralow-cost carriers built a better mousetrap than us for customers that only cared about price,” United Chief Executive Scott Kirby acknowledged earlier this year. But that’s no longer the case: “We just are winning. It is structural. It is permanent.”
Bigger airlines are wielding their cheaper-fare options as a competitive weapon. United said that volumes in its bare-bones basic economy—where passengers aren’t allowed a carry-on bag—were up 21% in the third quarter from a year earlier.
After losing over $2 billion since the start of the Covid-19 pandemic, Spirit’s new playbook calls for selling tickets that come with extras such as free Wi-Fi, carry-on bags, snacks and drinks, an adjacent empty middle seat, and more legroom. The carrier said its data is showing that new options are resonating with fliers. Other budget carriers are doing the same.
“We had to change the game we were playing to try to compete better, because they were competing better,” Matt Klein, Spirit’s chief commercial officer, said of Spirit’s bigger competitors.
Premium demand
For years, upper class seats were basically loss leaders for airlines. Most customers didn’t shell out to sit in swankier sections, but sometimes got upgraded as a reward for flying a lot, even on cheap tickets.
At Delta, paying customers accounted for 12% of its domestic first-class cabin 15 years ago. To nudge more passengers to pay for first class, Delta did something counterintuitive: It began selling those seats at somewhat cheaper prices.
After the pandemic, the airline found that travelers, including leisure fliers, were more willing to buy the seats. Now around three-quarters of the cabin is paid for.
Premium sections now occupy a larger share of Delta’s plane seats—around 30% currently, compared with roughly 10% two decades ago.
Some airline executives believed that travelers would soon return to their spendthrift ways once long-sought trips occurred and they burned through pandemic savings. That wasn’t the case.
Coming out of the pandemic, United also aspired to a fancier image. The carrier is outfitting planes with seat back screens and bluetooth technology—improvements that burnish the airline’s image, Kirby has said. And with a massive aircraft order in 2021, the airline said it would eventually boost premium seats by about 75% per departure. The airline has said its premium demand is growing more quickly than non-premium.
“To give them credit, Delta proved that air travel is not a commodity,” Kirby said at a conference in March.
Michael Pomposello, who runs a digital-advertising firm in New York, said it’s often worth paying for a better class of service.
“It achieves the absence of discomfort,” he said.
The industry is piling in. American Airlines is increasing premium seating on its planes and CEO Robert Isom said the portion of travelers who are paying to sit in premium cabins is “historically high.”
Alaska Air is also installing more first-class seats on planes, boosting the share of premium seats to 28% from 25%.
Starting in 2026, those who have booked the cheapest fares on Southwest flights will have seats assigned before departure, while people buying pricier tickets will be able to pick theirs at booking. Today, no seats are assigned so anyone has a shot at their favored seat, though customers can pay for options to get a better spot in the boarding line.
The airline is also retrofitting its cabins so about a third of seats will have extra legroom, for those willing to pay more. And a number of standard seats will be deemed “preferred” (read: not free) due to their locations closer to the front of the plane.
“What you’re seeing actually is the transition of the airplane cabin to look a lot more like American society,” said Vik Krishnan, an aviation consultant at McKinsey.
‘Good, better, best’
The selling strategy extends beyond the physical cabin.
United, Delta and American have upward of five fare options on long-haul routes, ranging from the bare-bones to the most luxurious. They also sell add-on features like priority security-line access, and the option to get a full refund as opposed to a flight credit if a passenger cancels.
Delta said this week that it wants to go further. The airline said it’s still experimenting and declined to say exactly what other add-ons there could be, but said that each of its cabins will likely have “good,” “better” and “best” options. Delta’s starting in its main cabin and will be testing options in its Comfort+ section, a step above coach, by the end of next year.
The next step could be deconstructing the business-class ticket. Those pricey fares generally come with all the extras—checked bags, the ability to select a seat, and in the case of international tickets, access to airport lounges. That could change.
Some overseas airlines already offer tiered business-class service. Air France-KLM, a Delta partner, has options on some routes such as “Business Light” and “Business Flex.” Business Light offers passengers only one checked bag and no lounge entrance while Business Flex is a refundable ticket and includes seat selection.
German carrier Lufthansa’s new Allegris cabin configuration includes several business class seating options, most of which will come at added cost. Think an extra-long bed, additional privacy, or surfaces for getting work done.
CEO Carsten Spohr said next year the airline will “see new ancillary revenue streams on business class where, historically, of course, we had none.”
The key for U.S. carriers will be to avoid alienating their high-paying customers by charging them for services that were once included, or annoying them with a deluge of offers. Delta executives said their goal is to provide more choices, not to take features away.
Some consumers are skeptical.
“I just think it’s a money grab,” said Daniel Rivera, 37, an X-ray technologist in Pensacola, Fla. He often flies in Delta’s Comfort+ or Premium Select cabins and fears that the changes will mean he has to pay more for the amenities that are currently included. “It should just come the way it comes now,” he said.
Write to Alison Sider at alison.sider@wsj.com