American Is Now Selling Cheap Upgrades To Everyone. What’s Next?

My father traveled quite a bit when I was younger.  It was a fundamental part of his job, something he couldn’t avoid.  It lead to some pretty cool family vacations, so we learned to deal with him being gone now and then.

He spent a bunch of time flying on TWA, and then American Airlines after AA acquired TWA out of bankruptcy.  He had colleagues that traveled a lot more than him and received luxurious gifts like luggage and crystal for hitting milestones in the amount of flying they did with the various airlines.

Back then, my father recalls getting upgrades on virtually every TWA flight he flew, regardless of the destination.  He can also remember when he transitioned to American Airlines that he would receive upgrades on flights to London even as a Gold member purchasing coach tickets.

There were an alphabet soup of other airlines that he flew back then, though only the occasional elite status.  Most of those didn’t offer upgrades, but he did receive some here and there.  As it stood, the formula back then for him was the ability to sit up front when he held elite status.

Fast forward to today and it’s a different world for elite travelers.  Luggage and crystal are quaint memories of a different time.  Free domestic upgrades, once a reliable cornerstone of elite membership have started to disappear.  They’re not gone, but the airlines are selling more and more of those seats.  American Airlines is the latest to announce that they’ll be targeting non-elite travelers for paid domestic upgrades.

United Airlines has been selling upgrades to non-elites for quite some time, in a program dubbed by frequent travelers as “tens of dollars” for domestic upgrades for non-elites, sometimes even while offering that same seat to an elite member for significantly more than a customer that rarely travels with them, a real thumb in the eye.

As Gary notes, American has shied away from this previously.  But, in a new era where the airlines are becoming very skilled at extracting incremental revenue from their passengers, discounted domestic upgrades becomes the next frontier.

I’ll admit, I haven’t seen that much drop in the percentage that I clear upgrades on American this year, but I have bought a small amount of cheap domestic upgrade fares when the opportunity presented itself.

None of this is surprising, but it causes us to ask….

What’s Next?

When United and Continental completed their merger, the priority list for complimentary upgrades on some flights of the combined elite groups stretched 50-100 names deep.  Whereas American Airlines only offered free, unlimited domestic upgrades to their top-tier Executive Platinum, United Airlines offered complimentary upgrades to all of their elite members.

We didn’t see quite the same bloat when American Airlines combined their loyalty program with US Airways, mostly because they initially only extended unlimited free domestic upgrades to elites for flights under 500 miles, preserving the policy where only Executive Platinum members received free domestic upgrades on all flights, availability permitting.

With the addition of a 75,000 mile level recently (Platinum Pro), American will now have more people fighting over the remaining free seats in domestic first.  And, they’ll be selling more of those seats to travelers with the move to target non-elites for these upgrades.

Premium Economy Will Be The New “Upgrade”

AA Premium Economy

American Airlines announced late last year that they would begin rolling out a true premium economy product on international routes.  They intend to sell this as a separate cabin, similar to what Delta has done.  They’ve left unanswered the question of whether Executive Platinum members will be able to use their Systemwide Upgrades (SWUs) to leapfrog premium economy and still receive a business class upgrade, the cabin that these upgrades clear into now when you purchase an economy ticket.

But, they’ve sent strong signals, noting in their recent earnings call that they need to address their loyalty members about program changes before the full roll-out of premium economy is realized in 2018.  Translation:  upgrades from the economy cabin will be to premium economy (where that cabin exists on planes) instead of to business class.  This isn’t official, but it’s effectively written in stone.  We just haven’t seen the pieces of stone yet.

Domestic First Class Seats Will, For The Most Part, Disappear

This is absolutely conjecture on my part, but I still believe it will happen (and have for some time).  In Europe, flights on narrow body planes feature “business class”, which is effectively a blocked middle seat in a row of 3 standard economy seats.

In the US, the domestic first class cabins on narrow body planes are effectively 2 larger seats on each side of the aisle with better recline than coach.  Those seats used to sell for a significant premium to the coach seats.  Now, the airlines are sometimes commanding less than $50 for that seat.  And, less of them are going empty as customers are being trained to buy the first class seat if they want the extra comfort.

The next logical step when you can’t command as much for those seats will be to replace them with smaller ones.  The airlines gain more flexibility to sell coach or business class in the same row based on demand with this configuration. In Europe, they literally slide a small curtain back and forth to mark the business class cabin, folding down an insert in the middle seat to block it.

An arrangement like this would mean that the airlines could still charge $50-$150 on shorter domestic routes for an upgrade (effectively a blocked middle seat) while opening up the opportunity to sell more coach seats on flights instead of giving them away for free to elites.  This won’t happen on longer routes since there’s significant demand on routes like JFK-LAX for premium seats.  But, I feel pretty confident one of the big 3 will look this way over the next 5 years.

United won’t be the first to do so, since they just started rolling out a new domestic first class seat.  I wasn’t very impressed with the seat when I’ve flown it recently.  But, the airlines don’t change course quickly, and I imagine they already have large commitments to purchase these seats.  So, we’ll be stuck with that product for quite some time, though I’m still hoping they fix the tray table.

Where Does That Leave Us?

It’s worth nothing that I don’t begrudge the airlines one bit for any of these changes.  It’s business, and if they can sell a domestic first class seat, they’re maximizing short-term value for their shareholders.  I doubt they’re maximizing long-term value, since they’re diminishing the value they offer to their most loyal customers.

In an era where planes are always full, it’s easier to make the bet that loyal customers will stay put. After all, with parity in the loyalty programs, there is no greener pasture.

If the wind shifts and planes are no longer as full as they are today, the airlines may have to revert to old playbooks. For now, the playbook says to monetize everything.  So, expect to pay for that cushy seat up front on your next flight.  Or, expect to be sitting a bit further back than you’re used to.

The post American Is Now Selling Cheap Upgrades To Everyone.  What’s Next? was published first on Pizza in Motion

8 Comments

  1. Interesting and you are 100% right. Why give away something you can sell, if only for a small amount. WE travel a lot, nearly always international and our airline of choice, Singapore, never(to my knowledge) gives free upgrades. It doesn’t make us want to change airlines.

    I think most “loyalty” is more tied to convenience as in who flies to my local airport. I noew there are points/miles guys who advocate flying hours out of the way for award flights but my felling is that most would not do so.

    I would be much more likely to fly an airline that let me buy a relatively cheap last minute upgrade than one that rewarded elite flyers as I am unlikely to ever reach that status. We are Star Alliance Gold but that and a couple of bucks will get you a medium coffee.

    1. ira, the argument against selling all the domestic first class seats is that you may be able to get more revenue from a business travel long-term by offering him free upgrades. I can’t say that’s definitely the right decision, but it’s certainly something to consider when long-term loyalty can make it much easier to fill seats at a higher price, not just fill them. The airlines need to maximize revenue not just by filling the seat but by selling that “time and place” for as much as possible.

  2. I disagree with your prediction that US carriers will introduce Euro-style business class. European carriers tend to emphasize the soft product for business class – better catering, enhanced ground services such as lounge access (which comes with the premium ticket – unlike U.S. carriers which sell lounge access as a kind of club membership and not with the first class ticket). They don’t emphasize the hard product, because the flights are typically so short – most of the big population/business centers are no more than about a two-hour flight from each other. (Not coincidentally, the two main European carriers offering a real business class hard product, Aeroflot and Turkish, have hubs that are farther away from western Europe – for their typically three- to four-hour flights the hard product matters more.) There are many more longer flights in the U.S. (not just the “premium” transcons but also routes like LAX-ORD or SEA-ATL), where the comfort of a larger seat makes a bigger difference in justifying the premium in price. Also, the very way in which U.S. carriers are increasingly marketing and pricing the premium product (which you touch on this post) – basically matching the pricing for premium seats to demand even as the quantity of supply stays the same – makes it less likely they will move to a strategy where the quantity changes by adjusting the divider between business and economy. In other words the pricing strategy you talk about in this post is in place precisely because the U.S. carriers have a fixed, not variable quantity of business class (nominally “first class”) seats.

    1. 02nz, I respect the opinion you’ve laid out. But, the domestic airlines have, for the most part, reduced the quality of the domestic F soft product (setting aside premium routes) over the past few years, not increased it. The hard product is increasing in quality slowly, but the price for an F seat has come down dramatically. Ultimately, I don’t think they can make more money (on whole) by selling more F seats at a drastically lower price on all routes as compared to the smaller quantity of very high-priced F seats they used to sell. I think the airlines are betting they can.

  3. American focused article which is a pity. American carriers are very much behind and are on catch up of airlines like BA, Virgin Atlantic, Cathay Pacific, Singapore etc that offer premium economy seating.

  4. If you read the article this is just tweaking something that was previously already done. This is nothing new. the only difference is that it is offering the potential bid for the upgrade before the check in process. Elites are still, as always, cleared first followed by these paid upgrades. Sure the time may come that AA sells these upgrades BEFORE elite upgrades (as UA and DL do it) but for now this is an incredibly misleading article considering nothing has changed.

    1. Cakflyer, disagree fairly strongly that nothing has changed. First, there’s no guarantee these will only be offered after elites are cleared. That’s just not reality. Second, I can’t tell you how many flights a year I switch within the 100-hour upgrade window granted due to my EXP status. When AA is now marketing these paid upgrades more aggressively, there will less seats available for complimentary upgrades, especially closer to departure. The airlines are all talking about selling more of these seats on their quarterly conference calls. The opportunity for elites to sit up front in 2017 for free will be less frequent than in 2016.

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