‘Enhanced’ Economy – Are airlines losing out?

More and more airlines are beginning to introduce an “Enhanced Economy” product, situated somewhere between Economy and Premium Economy. It’s all in an effort to make consumers pay as close to their maximum willingness to pay so that the producers (the airlines) maximise their economic benefits.

Economy Plus, Main Cabin Extra, Comfort+, or whatever other tag an airline wishes to add, this middle ground often provides things like extra legroom and priority boarding, with some carriers throwing in priority check-in and enhanced entertainment.

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United’s Economy Plus – H/T United Media Centre

United, Delta and American have stuck close to this product for a long time, especially as a preference over a full Premium Economy product. Meanwhile, Virgin Australia only recently introduced it to the Australian market with “Economy X” offering a dedicated cabin and very generous legroom.

You won’t be able to use frequent flyer miles to upgrade to these cabins, though, as almost all airlines restrict upgrades either to a fixed fee (usually based solely on distance travelled) or to elite frequent flyers, as a complimentary incentive. On Virgin Australia, upgrades on a long-haul international flight start at just A$140, and around A$20 on domestic sectors. From a customer point of view, this can be incredible value, given the extra creature-comforts you receive for a little extra fee.

Each airline has a bit of a different standpoint here, but in general, the benefit they derive from having this cabin is often very low. A “seat ratio”, in this instance, refers to how many Economy seats can be fit within the space of one Enhanced Economy seat. This higher this ratio, the more the airline needs to charge to justify the product. The “revenue benefit” meanwhile explains how much the airline actually gains from installing and offering this cabin. Here’s a look at some carriers’ numbers:

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Virgin Australia clearly does the worst here, given they have a really low mark-up from Economy. So are they really winning in this game? Unless they can fill all their Economy X seats, there may be many flights when they may have been better off with normal economy installed.

United is an interesting example, as they derive an astonishing revenue benefit, attributable to the fact that they charge a high mark-up and have a very large cabin (around 88 seats on the 787). But, here’s the thing. These Economy Plus seats are given free to MileagePlus Silver and above members (with differing levels of advanced access), with those higher members able to bring up to 8 companions. Hence, these cabins are likely to be filled with elite passengers who aren’t actually paying for the service. A quick calculation shows that at least around 65 Economy Plus passengers need to be paying the extra fee in order for it to be financially beneficial. Otherwise, there’d be a negative revenue benefit, and the extra space these seats take up just might not be worth it for the airline.

That only leaves around 23 seats to be given to elites, which could in fact be taken up by just 3 elites and their companions! On a typical United flight where MileagePlus Premier members are rife, it is very likely that at least half of the cabin will be filled with complimentary upgrades, meaning there may be a loss of benefit. However, the upgrades offer a significant incentive for frequent flyers, who may well be encouraged to achieve/ maintain Premier status to enjoy these perks.

That is where United, and in fact most other carriers, gain their economic benefit from Enhanced Economy. Pretty much every airline with this product will offer it to elites as a complimentary upgrade.

How does this actually impact the airline though? These seats take up more room, which could be filed by extra, standard economy seats. United’s Economy Plus has 34 inches of pitch, and on most aircraft that have large Economy Plus cabins, the airline could add a whole extra row of seats, if normal Economy had been used. Some United aircraft even have more Economy Plus seats that standard Economy, a puzzling tale.

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United’s 777 Configuration – SeatGuru

The most likely reason for these types of configurations is simply what was said above. Frequent Flyer benefits. These features of the program entice loyal customers to focus on one airline, as complimentary upgrades to enhanced comfort is certainly at the top of passengers’ lists. So whilst the ticket sales might show that there is a low/ negative revenue benefit from having Enhanced Economy installed, the long term benefit gained from enticing loyal customers can be enormous.

Aside from this, the truly beneficial results can come from marketing already extra-legroom seats as an Enhanced product. Virgin Australia, for example, not only has a separate cabin for “Economy X” (previously known as Economy Space+), but also sells the exit rows in the main Economy cabin as Economy X. This way, there is no loss of normal Economy seats, but there is extra revenue to be gained.

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Virgin Australia’s 777

Enhanced Economy products offer an array of benefits for both the passenger and the airline, when used efficiently. It is simply a sign of the ever-changing air travel market, where product and market differentiation is constantly increasing.

Featured image H/T: Virgin Australia

 

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