Speaker 1: Bloomberg Audio Studios, podcasts, radio news in the US and
Speaker 1: around the world. We're in the midst of the busiest
Speaker 1: travel time in the year. A record thirty one million
Speaker 1: airline passengers are expected to take to the skies by
Speaker 1: the end of the Thanksgiving season. That's thirty one million
Speaker 1: people dragging suitcases through airports, waiting in security lines, and
Speaker 1: vuying for space in crowded overhead bins. And if you
Speaker 1: are one of those millions of holiday travelers, or if
Speaker 1: you've just bought an airplane ticket recently, you might have
Speaker 1: noticed something new at checkout. There are a lot more
Speaker 1: ticket options to choose from and a lot more line
Speaker 1: items to pay for. For those looking for an upgraded experience,
Speaker 1: you can get your typical first class or business class
Speaker 1: seat like always, but now there's also.
Speaker 2: Premium economy, economy plus different things, which is very confusing.
Speaker 2: Comfort plus, Yes, comfort plus is the way Delta brands
Speaker 2: their Economy plus, and usually what comes with the plus
Speaker 2: is a little bit extra legroom, maybe a better snack,
Speaker 2: maybe a free alcoholic beverage.
Speaker 1: Amanda Mole is a senior reporter at BusinessWeek covering consumer culture.
Speaker 1: She says, on top of convincing some customers to pay
Speaker 1: for slightly better seats. Airlines are also filling more of
Speaker 1: the cheap seats, and these tactics, from creative names for
Speaker 1: sections of a plane to things that used to be
Speaker 1: standard now billed as perks, paint a broader picture of
Speaker 1: how airlines are monetizing the modern flight experience.
Speaker 2: The airlines have gotten really good at giving you a
Speaker 2: multitude of ways to talk yourself into spending a little
Speaker 2: bit more money.
Speaker 1: This is the big take from Bloomberg News. I'm Sarah
Speaker 1: Holder today on the show the growing divide between the
Speaker 1: front of the plane and the back of the plane
Speaker 1: and what it means for airline revenue and for your
Speaker 1: flight experience. So, Aminda, you're an experienced flyer and you've
Speaker 1: written this amazing piece about airline travel these days, and
Speaker 1: you raise this really provocative question, is flying getting better
Speaker 1: or is it getting worse? Which is it?
Speaker 2: It depends on what kind of ticket you're looking to buy.
Speaker 2: It depends on where you want to sit on the plane,
Speaker 2: It depends on how much money you want to spend,
Speaker 2: what kind of credit card you have, where you are
Speaker 2: in that particular airlines loyalty program there's a lot of
Speaker 2: variables that determine exactly how good or bad your experience
Speaker 2: is going to be.
Speaker 1: First class, premium seats, preferred seats. It didn't always used
Speaker 1: to be this way, Right, How did we get here?
Speaker 1: Walk me through the history of the premiumization of airline travel.
Speaker 2: Once upon a time, all the seats on the flights
Speaker 2: were the same. After World War Two, you have this
Speaker 2: burgeoning middle class, you have a burgeoning interest in air travel,
Speaker 2: in leisure travel, and you have airlines that are at
Speaker 2: the time centrally managed by the federal government, So you
Speaker 2: have a board that sets airline flight prices. They set
Speaker 2: them federally across airlines, so airlines can't really compete with
Speaker 2: each other on price. And at that point, all the
Speaker 2: seats on particular airlines planes were the same.
Speaker 1: But they were also like kind of lucks though, right,
Speaker 1: I remember, like the carving stations of the champagne and
Speaker 1: dressing up for flights.
Speaker 2: Yeah, Because if you can't compete on price, and your
Speaker 2: margins are guaranteed and your prices are fixed, then what
Speaker 2: you do as an airline in order to attract new
Speaker 2: customers is to compete.
Speaker 3: On perks, welcome aboard, welcome aboard, the spacious cabin, attractively decorated,
Speaker 3: air conditioned, but draft bring room in US extends even
Speaker 3: to the powder rooms, which looked like those in a
Speaker 3: private home.
Speaker 2: A lot of air travel in that period was undertaken
Speaker 2: by business travelers. There's a lot of men and a
Speaker 2: lot of fedoras, smoking a lot of cigarettes. It's very
Speaker 2: mad men. So like, what did that type of traveler want?
Speaker 2: They wanted cocktails, they wanted carving stations, they wanted like
Speaker 2: a nightclub on the second floor of the plane. And
Speaker 2: then over time this began to change a little bit,
Speaker 2: and it changed most notably in the late nineteen seventies.
Speaker 2: That is when the Carter administration deregulated the airline industry
Speaker 2: in certain ways. That meant there was suddenly a lot
Speaker 2: of competition. So you get all of these airlines flooding
Speaker 2: into a market where the prices are no longer centrally set.
Speaker 2: So you get an influx of small, upstart airlines, and
Speaker 2: a lot of them are super super cheap. You also
Speaker 2: got a lot of people who were interested in leisure
Speaker 2: travel for the first time. This sort of explosion in
Speaker 2: competition brought prices down enough that if you were going
Speaker 2: to drive from Ohio to like the Gulf Coast normally
Speaker 2: for your family vacation, maybe you fly instead. So suddenly
Speaker 2: the proportion of mad men guys has plummeted, and the
Speaker 2: proportion of people who are taking their kids to the
Speaker 2: beach has risen.
Speaker 1: And the legroom is smaller, Yes.
Speaker 2: The legroom is smaller. Suddenly you're getting more seats, the
Speaker 2: lavatories are getting smaller. You're not having cocktail lounges on
Speaker 2: the plane anymore. So you get airplanes that feel a
Speaker 2: little bit more like riding a bus. And then that's
Speaker 2: where you start thinking about what kind of revenue mix
Speaker 2: you want on your airplane.
Speaker 1: When it comes to revenue, business travelers are really important
Speaker 1: for airlines because they travel a lot way more than
Speaker 1: people who just hop on a flight a couple times
Speaker 1: a year for vacation or to see family. So to
Speaker 1: keep those business travelers from going to competitors, airlines created
Speaker 1: loyalty programs. American Airlines had the first one back in
Speaker 1: nineteen eighty one, and Delta and United quickly followed.
Speaker 2: So if you were a customer that constituted a disproportionate
Speaker 2: amount of an airlines revenue, you could suddenly like gain
Speaker 2: points or miles in this case, to access better features,
Speaker 2: better perks. Part of that is the airport lounge. Part
Speaker 2: of that is the free upgrade at that point first
Speaker 2: class tickets. You've always been able to buy first class
Speaker 2: tickets for cash as long as they've existed, but during
Speaker 2: this era they became a really important loyalty bargaining chip.
Speaker 1: And this era being like the eighties the nineties.
Speaker 2: Yes, the eighties in particular into the nineties. Status is
Speaker 2: something that you build up over time, so it is
Speaker 2: a really effective way for an airline or any type
Speaker 2: of consumer business to pull a really high value customer
Speaker 2: into their ecosystem and make any cost of switching to
Speaker 2: a competitor really really high.
Speaker 1: You don't want to start from zero miles again.
Speaker 2: Right, you don't want to start from zero. You don't
Speaker 2: want to have zero miles. You want to be able
Speaker 2: to buy a three hundred dollars plane ticket and feel
Speaker 2: reasonably sure that you will get upgraded to a ticket
Speaker 2: that would have cost seven hundred dollars. So first class
Speaker 2: tickets became these really useful bargaining chips. But as the
Speaker 2: math of airlines gets more complicated all of this premium,
Speaker 2: high dollar, high margin inventory. Airlines start to look at
Speaker 2: it a little differently eventually.
Speaker 1: And that brings us to today. What's different now.
Speaker 4: Airlines are selling those good tickets for cash.
Speaker 2: Well, they're still giving out some, but airlines that have
Speaker 2: a really robust premium offering a really robust premium strategy.
Speaker 2: In the United States, Delta is usually cited as the
Speaker 2: best example of this. They are finding ways to effectively
Speaker 2: market those seats to leisure customers, to people who would
Speaker 2: not traditionally just get a freebie and set first class.
Speaker 1: They're selling them and people are buying them.
Speaker 2: Yes, Delta, over the course of a little over a
Speaker 2: decade went from selling annually a percentage of their premium
Speaker 2: tickets that was like in the teens to selling like
Speaker 2: about three quarters of them for cash.
Speaker 4: Wow.
Speaker 1: Just to emphasize those stats, in twenty eleven, Delta Airlines
Speaker 1: sold only fourteen percent of its first class fares for cash.
Speaker 1: By twenty twenty three, it was selling seventy four percent
Speaker 1: of its first class seats for cash.
Speaker 2: That was definitely one of the things that piqued my
Speaker 2: interest because people suddenly be willing to open their wallets
Speaker 2: in that way is really a profound difference.
Speaker 1: Coming up after the break. What made all these passengers
Speaker 1: willing to open their wallets for first class seats? Plus
Speaker 1: why airlines like Delta and United are taking a page
Speaker 1: out of budget carriers books. Ammandemol, a senior reporter at BusinessWeek, says,
Speaker 1: the airline industry has been changing lately in a profound way.
Speaker 1: Part of that is more and more customers are willing
Speaker 1: to pay cash for premium seats in first class, the
Speaker 1: kind of seats that used to go to loyalty program
Speaker 1: members for free. So I asked her what's changed that's
Speaker 1: made more people willing to pay.
Speaker 2: Part of it was COVID when business travel in particular
Speaker 2: shut down and those really valuable customers stopped buying tickets.
Speaker 2: The airlines had all of these really high value tickets
Speaker 2: and like nobody to buy them. So what they did
Speaker 2: a lot of them is go, Okay, we need to
Speaker 2: encourage people who are flying for leisure or who are
Speaker 2: not traditional business travelers to upgrade. So what a lot
Speaker 2: of them did is slash prices on their premium offerings.
Speaker 2: They figured out how to talk to leisure travelers about
Speaker 2: premium seats. They figured out how to get those messages
Speaker 2: onto booking sites, onto their own website to articulate a
Speaker 2: more detailed list of reasons you might like defy for
Speaker 2: his class. It's not just expensive, or maybe it's not
Speaker 2: as expensive as he thought it was, and you get
Speaker 2: all these wonderful perks.
Speaker 1: And does premium just mean first class in this situation?
Speaker 1: Like I know you can buy like a little extra
Speaker 1: lug room or a premium economy, which is an interesting moniker.
Speaker 1: How did airlines think about gradients of premiumization?
Speaker 2: Yeah, this is one of those things that also started
Speaker 2: before the pandemic but was really accelerated by it. Is
Speaker 2: that for a long time there was like a premium
Speaker 2: class and a regular class that like you sorted into
Speaker 2: one or the other. Over the years, starting as much
Speaker 2: as twenty five years ago, airlines started saying, okay, is
Speaker 2: there a middle ground here? Is there a way to
Speaker 2: create like a quasi premium or an entry level premium
Speaker 2: or gradations of premiumization that you might be able to
Speaker 2: more easily sell to a leisure traveler or somebody who's
Speaker 2: a little aspirational, feeling like they want to travel, like
Speaker 2: somebody rich and famous, but doesn't really have the cash
Speaker 2: for that, And a lot of times those are like
Speaker 2: fifty two one hundred dollars more for a domestic route,
Speaker 2: and they often they.
Speaker 4: Come with a check bag.
Speaker 2: They come with like stuff that used to be included
Speaker 2: in a coach fair, which is part of all of this.
Speaker 2: So you have airlines who had been tinkering with these
Speaker 2: strategies of creating something in between first class and coach,
Speaker 2: and they are now putting in the work to retrofit
Speaker 2: all of their fleet. Somebody told me in the reporting
Speaker 2: on this story that retrofitting a single airline cabin to
Speaker 2: reconfigure like how the seats are meeted out depending on
Speaker 2: the cabin costs like eight figures per aircraft. So it
Speaker 2: is a really huge capital investment and it's a very
Speaker 2: slow one.
Speaker 1: Is this kind of investment worth it for the airlines?
Speaker 1: What are you seeing in the earnings reports? How is
Speaker 1: this all playing out for them?
Speaker 4: Yeah, it is like absolutely worth it.
Speaker 2: If you can get it done in a way that
Speaker 2: is like pretty efficient and that doesn't take too many
Speaker 2: of your airplanes like out of commission for too long,
Speaker 2: it is definitely worth it. The revenue that you get
Speaker 2: from premium customers is huge compared to what a similar
Speaker 2: customer in the back of the plane would be giving you.
Speaker 2: But like the major American airlines want all of these customers,
Speaker 2: They want as many premium customers as they can have,
Speaker 2: but they also want the customers who might have bought
Speaker 2: a spirit ticket or a frontier ticket. So the story
Speaker 2: of premiumization is the story of the front of the
Speaker 2: airlines getting nicer, in the front of the airplanes to
Speaker 2: a certain extent, also getting bigger and taking up more
Speaker 2: and more of the space within the airplane. But it's
Speaker 2: also a story of the back of the airplane getting
Speaker 2: even more unbundled as it were.
Speaker 1: What does that mean? What does it mean to unbundle.
Speaker 2: What happens at the back of the airplane? On the
Speaker 2: full sized carriers now are tactics that are almost entirely
Speaker 2: cribbed from the low cost carriers. Pay for a glass
Speaker 2: of water, pay to select a seat, pay to carry
Speaker 2: on a bag that you put in the overhead bin
Speaker 2: in a lot of cases now, So the low cost
Speaker 2: carriers came about and came on really strong in the
Speaker 2: early two thousands and proved the existence of people who
Speaker 2: were willing to pay for nothing, willing to pay to
Speaker 2: enter the airplane, and that's about it. If they can
Speaker 2: save twenty bucks by not watching the in flight entertainment,
Speaker 2: if they can save twenty bucks by shoving everything in
Speaker 2: a backpack, they are willing to do that. They are
Speaker 2: willing to sit in the middle seat on a ten
Speaker 2: hour flight to save forty bucks or fifty bucks. And
Speaker 2: that has been like great for the airlines because until
Speaker 2: relatively recently, if you flew like a popular domestic route
Speaker 2: in the US, and if you flew it on a
Speaker 2: coach fair, it was pretty likely that you were gonna
Speaker 2: get to sit next to an empty seat. Nobody wants
Speaker 2: to buy those middle seats. Nobody wants to sit next
Speaker 2: to the bathroom. Nobody wants those The airline said, well,
Speaker 2: what about if we make those cheaper. If there's no
Speaker 2: market for that fair at two hundred and fifty dollars,
Speaker 2: what if we find a way to make it one
Speaker 2: sixty nine.
Speaker 1: So at the same time as they're creating these gradients
Speaker 1: of higher classes, they're also creating gradients of lower classes
Speaker 1: below economy. Basic economy.
Speaker 2: Yes, but that means that those seats get filled up.
Speaker 2: You get one hundred and sixty one hundred and seventy
Speaker 2: bucks out of them, and that is great for airlines
Speaker 2: because they're flying that flight anyway, and if you can
Speaker 2: do that across ten or fifteen seats across like thousands
Speaker 2: of flights like that is meaningful money. You've just found
Speaker 2: more pockets of revenue on each and every flight that
Speaker 2: you operate, which is profoundly good for airlines pocketbooks.
Speaker 1: What about for flyers.
Speaker 4: For flyers, it's more mixed.
Speaker 2: If you are one of those people who wants to
Speaker 2: fly everywhere for the least amount of money possible and
Speaker 2: is willing to put a week's worth of clothes in
Speaker 2: a backpack and you'll figure it out, this has been
Speaker 2: pretty good for you because there's a lot more opportunities
Speaker 2: to do that. If you are just a regular coach flyer,
Speaker 2: this has probably been enormously frustrating and antagonizing because if
Speaker 2: you were flying before things started to get unbundled in
Speaker 2: the back of the plane.
Speaker 4: You remember when you bought a.
Speaker 2: Two hundred and fifty dollars fare and you could check
Speaker 2: two bags. There weren't really a whole lot of extra
Speaker 2: fees that you were going to have to pay on
Speaker 2: top of that initial outlay, and the seat in front
Speaker 2: of you was probably a few inches further forward than
Speaker 2: it is now.
Speaker 1: What do you see as the future of premiumization? Is
Speaker 1: this front of the plane back of the plane divide
Speaker 1: only going to get larger.
Speaker 2: The analysts and experts that I spoke to were all
Speaker 2: sort of like, the sales of these premium tickets can't
Speaker 2: be infinite, and I think several of them expected it
Speaker 2: to shake out a little bit, even because post pandemic
Speaker 2: travel is still like normalizing a little bit. But I
Speaker 2: think that most of them look at this and go, Okay,
Speaker 2: some of these people who have experimented with upgrading, some
Speaker 2: of them are just going to become premium customers, because
Speaker 2: once you have done along haul flight in first class
Speaker 2: or just premium economy, it is very very hard to
Speaker 2: then conceptualize doing it in regu coach. Once you're used
Speaker 2: to it, and once you've experienced the alternative, it is
Speaker 2: very hard to go all right, time to find my
Speaker 2: middle seat in front of the bathroom.
Speaker 1: Thank you so much, Amanda, Thank you so much for
Speaker 1: having me. This is the big take from Bloomberg News.
Speaker 1: I'm Sarah Holder. This episode was produced by Jessica Beck
Speaker 1: and Julia Press. It was mixed by Alex Sugira. It
Speaker 1: was fact checked by Sakshowmonnaises and Audreyana Tapia. It was
Speaker 1: edited by Caitlin Kenny, Aaron Edwards, and Danielle sachs. Our
Speaker 1: Senior producer is Naomi shaven Our, Senior editor is Elizabeth Ponso.
Speaker 1: Our executive producer is Nicole Beamster. Bor sag Bauman is
Speaker 1: Bloomberg's head of podcasts. If you liked this episode, make
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Speaker 1: for listening. We'll be back next week.