Premium Economy: The Not-So-New Cabin That May Begin to Impact Corporate Travel Policies

The question posed in the headline of a recent Telegraph article caught our attention: “The Death of Business Class? The Rise and Rise of Premium Economy,” it read.

Sure, premium economy, a fourth airline class that some consumers still don’t know about, is on the rise, becoming a popular solution for the widening gap between a more luxurious business class and a less spacious economy cabin for passengers who want more comfort and better service without paying a hefty price tag. But does it really spell the doom of business class? Will organizations en masse start booting their C-suite and long-haul travelers out of business class in an effort to save money?

According to Eric Olson, a senior consultant of air with Global Business Consulting, the advisory arm of American Express Global Business Travel, that’s highly doubtful, especially when you consider that the airlines are hoping this option encourages passengers to buy up, not down.

As Olson explains, even though premium economy has been around since 1992 when Virgin Airlines introduced it, it only started taking off in 2009 during the Great Recession. That’s when airlines were seeing that many companies were cutting costs by reducing their business class policy, so instead of having corporate travelers slide all the way down to economy, the airlines began pushing premium economy. But as it turns out, the demand for business class was pretty resilient, so the carriers began shifting gears, trying to entice the more frugal companies who buy strictly economy seats to give premium economy a try in the hopes they’ll move up incrementally.

Adoption through the years has been slow. As Olson explains, one reason is because it has been tricky presenting this new class in the GDSs and online travel agencies. Booking a premium economy seat was not a streamlined process and a lot of times manual lookups were required. That issue finally is getting resolved, but there are still some residual challenges around distribution and accessibility, he says.

Another hurdle has been inconsistency. While airlines increasingly are reconfiguring their aircrafts in order to offer this distinct cabin, there is not always a guarantee that the plane you’re flying on actually will have premium economy. You very well could be on a plane leaving from London to New York that has it, but the same carrier doesn’t have it available on the return flight. Or it may be that you’re booked on a flight with premium economy but then an equipment change, which happens quite regularly, forces you onto a new aircraft that doesn’t have it. Then where do you sit?

If you’re lucky, you get bumped up to business class, but more likely you’ll be sent down into economy ­— which is a problem since that’s not what the company has paid for.

“It’s this kind of inconsistency that has people worried,” Olson says.

Yet, it seems the issue of inconsistency will diminish with demand now rising.

From the conversations Olson has had lately with a number of clients about possibly implementing premium economy into their programs, many are intrigued, but when it comes down to execution, they realize it may not be worth it. This is especially true, Olson says, if the travel program is being run by a procurement team, which generally is more focused on showing senior management how they have controlled or cut costs.

“If you enter an RFP [request for proposal] or a sourcing agreement and you can demonstrate that you have saved money on a year-over-year basis through standard negotiations for economy and business cabins, then why go through all the effort to introduce this new cabin with a new policy to save money, especially when it could really have a certain amount of backlash from your travelers?” he asks.

Still, he says some companies may toy with the idea of adjusting their policy by increasing the number of hours necessary for their travelers to land a seat in business to reduce costs, especially now that the deep air discounts that corporate travel programs have been enjoying since the recession are starting to plateau.

“Cabins are getting full and so the airlines have had increased leverage during negotiations and have not been decreasing fares to the same degree that they have in the past,” Olson says. “What that means for the corporations is the savings that they’re so keen to earn on a year-over-year basis are starting to wither away, so they need to be a little bit more creative to find ways to save.”

Premium economy may be the solution, but it will require time-consuming policy revisions.

Olson says one of the “cleanest” ways to roll out a premium economy policy is to carve it up by flight duration, like how many companies treat their business/economy policies. For example, an organization that allows business class on flights over six hours may decide to bump it up to eight and then offer premium economy on flights between six and eight hours to reduce any resulting traveler friction.

Olson says another solution for long-haul flights may be to base it on the time of day in which travelers are allowed to fly business class at night (so they are well-rested and can hit the ground running when they land in the morning) and premium economy during the day. This option, he says, works out well especially for American business travelers heading to Europe since most transatlantic flights originating from the U.S. depart in the evening and most flights heading back home leave in the morning.

For any organizations who are considering buying up from economy in order to make their program more traveler centric, Olson encourages them to do so sooner rather than later since they are in a good position now to negotiate some sort of first-mover advantage with the airlines before premium economy really takes off.