There’s an interesting Bloomberg article today about Lufthansa’s first class strategy, and how they no longer want their first class to be “upgrade class.”
There’s no doubt they’ve been taking steps towards that, as they’re eliminating first class on a third of their longhaul routes, including my beloved Seattle to Frankfurt flight. Beyond that they’ve begun only releasing first class award space to partner airlines at most 15 days out, and while that may not materially decrease the number of people booking first class on miles (since many people are still switching to the product close to departure), it certainly helps them maximize revenue in advance, and makes the cabin more “exclusive” and “unattainable.”
The article states that first class demand is up 10%, which they attribute to their new first class product. I’m not convinced attributing it to their new first class is necessarily accurate, as it seems more likely to be as a result of the recovering economy and resulting demand for first class.
The article also states that Lufthansa’s strategy for actually selling first class is to offer discounted, leisure-oriented first class fares that are cheaper than full fare business class in many cases. The idea is that by creating first class fares with change fees they’re not cannibalizing their corporate fares, but also coming up with a way to generate revenue from first class aside from upgrades.
There are some interesting quotes in the article from Lufthansa’s executives. Not surprisingly, they’d like to think their first class is exclusive and innovative:
“We try not to fill first at any price. It’s an exclusive, innovative product.”
It’s also interesting to hear Lufthansa’s CEO say that first class has more or less been “serving as a mile-burning product:”
Chief Executive Officer Christoph Franz said separately that Lufthansa may have stuck with a comprehensive first-class network for too long, and that the product risked becoming “an upgrade class” for people redeeming frequent flyer points.
“For an entire product class to be more or less serving as a mile-burning product, that’s not the right thing,” the CEO said in an interview in New York on Nov. 6. “It’s a top-notch luxury product. We want to have passengers essentially for first class, with a few upgrades.”
Interestingly, despite the apparent increase in demand for first class, premium yields as a whole are down:
While Lufthansa doesn’t break down sales for first class, the share of premium revenue on long-haul flights, including business berths, was 47 percent for the first nine months, the lowest proportion in 4 years. That revenue is generated from just 20 percent of customers, Bischof said.
Anyway, nothing here’s that’s shocking really. I’d expect first class sales to be up with the economy improving (or an improved product — whichever you’d like to attribute it to), though hope that Lufthansa doesn’t go the way of Swiss in not releasing any first class award space to partner airlines, and as of next year, not even releasing award space to non-elite members of their own frequent flyer program.