The premium shift by large U.S. airlines, which began in earnest after the pandemic, is showing no signs of abating. Indeed, it could be accelerating.
"We spent a lot of time way back when in the ancient days of the airline industry wondering if our customers would pay more for a better product," American Airlines CFO Devon May said during the carrier's Q3 earnings call. "And the answer to that question is a resounding yes, and we're going to respond to that and respond to it for so long and to the extent that our customers demand it."
Since 2019, American said it has increased its count of premium economy, business and first-class seats by 16%, compared with 5% growth in economy seats. And by the end of the decade, the carrier plans a further 50% increase in its premium economy and business-class offering.
Trend lines are similar at United, Delta and Alaska Airlines.
In October, United offered a whopping 40% increase in business and premium economy seats compared with October 2019, the carrier said, while economy seats were up 11%, OAG data shows. Delta's business-class seat growth over the same period was up a smaller 7%, but that compared with just 0.1% growth in the carrier's economy seats. And combined, Alaska Air Group carriers Alaska and Hawaiian grew their first-class and business-class seats by 21% over 2019, Alaska said, even as their total seats flown declined 1%.
Looking ahead, United expects to grow its premium seat capacity 2 to 3 percentage points faster next year than its total capacity, chief commercial officer Andrew Nocella said during United's Q3 earnings call.
Delta president Glen Hauenstein provided less specific numbers but said that for the coming year, "most of our growth, if not all of it, will be in the premium sectors."
Delta also projects that revenue from premium cabins will surpass main cabin revenue next year for the first time.
Alaska, meanwhile, has plans to retrofit 218 planes over the coming year with four additional first-class seats and to add the first premium economy cabins on Hawaiian aircraft.
JetBlue next year will unveil domestic first-class cabins. The airline expects to complete first-class retrofits on all of its planes that aren't already equipped with Mint business-class cabins by the end of 2027.
Something more than a trend?
Driving the continued premium bullishness is the resilience front-of-plane sales have shown this year, even as main-cabin revenue tailed off amid a dip in consumer confidence.
At Delta, premium revenue was up 9% in the third quarter, 13 percentage points better than the 4% drop in main cabin revenue. Other airlines have seen similar, if less dramatic, trend lines quarter after quarter.
Analysts said the growing disparity in spending habits between wealthy Americans and those in the middle- and lower-income classes provides the primary explanation for the phenomenon.
According to a Moody's analysis of second-quarter Federal Reserve data, Americans making $175,000 per year continue to increase their spending much quicker than inflation, while spending by the remaining 80% of U.S. consumers has only kept pace with inflation since the pandemic.
Airlines are following where the economy is taking them, said Lorraine Sileo, a senior analyst for Phocuswright.
"That stark difference seems to be more prevalent now than ever," she said of the premium traveler's appetite versus the rest. "It would be premature to say this trend is just temporary, because it is manifesting itself into something that we might see for the foreseeable future."
Travel technology analyst Henry Harteveldt of Atmosphere Research Group said he agreed with that explanation. But he also said strategic shifts have enabled airlines to increase interest in front-of-plane cabins. Notably, carriers used to price coach seats in line with demand, while selling first class and other premium seats at insupportably high multiples.
One example: In 2009, Delta was selling first-class seats for 13 times as much on average as coach seats, Hauenstein said at the carrier's Investor Day event last November. The result was that Delta sold only 12% of its first-class seats and otherwise filled the cabin with upgrades.
Today, price multiples are much lower, and full-paying customers occupy approximately 75% of Delta first-class seats. When customers purchase premium seat products, they tend to repurchase, Hauenstein added, fueling a cycle of increasing demand.
Airlines are also deploying technology to better cater to the premium market, Harteveldt said, including using AI to improve revenue management algorithms and pricing precision. Still, he said airlines will be cautious about leaning too heavily into the premium market.
"They are very conscious that in the game of musical chairs that is airline demand, if the music stops playing and premium demand shrinks dramatically, they don't want to be stuck without a chair," he said.