Why Is First Class So Expensive?

Reader Weymar asked a question in the Ask Lucky forum about first class pricing. I’ll share the full post below, though if you don’t have the time to read it, the question ultimately comes down to why first class is disproportionately expensive, more so than the space it takes up on the plane. Do people really pay that much?

Here’s the question:

Now I know that sounds like a really stupid question. First Class is so expensive because it costs more to provide; feel free to call me an idiot. But it seems to me first class fares are disproportionately priced. I’m going to use the example of the IAH-DME-SIN (and onwards to BKK on a separate aircraft) flight which I bought a few weeks before they announced they would cancel the route because of low yields. Also, I’m not trying to do meticulous scientific research on this, only to get a general idea so my math is’t going to be a 100% accurate.

My ticket in economy for the whole itinerary was $1,300, whereas first class was pricing out at over $20,000. Where exactly does that extra $18,700 go? The biggest factor is space, the single most valuable thing on an airplane. The economy seats on the 777-300ER have 32 inches of pitch and are 19 inches wide. Each seat (and accompanying floor space) is 608 square inches. A first class seat has 72 inches of pitch and is 35 inches wide, so seats are 2520 square inches. That means that a little more than 4 economy seats take up the same amount of space as a first class seat. If ticket prices were based purely on space, the first class seat should cost roughly $5,300. Of course that’s not the only thing that goes into the price of a ticket. Catering, crew wages, and ground service also are factors, but I’d find it very hard to believe that those would cost an extra ~$15,000 to provide.

Demand is also a factor. Prices of anything are almost always based on how much people are willing to pay for it, and not the cost of the components. But it seems to be the case that many airlines these days are struggling to sell first class seats, leading many airlines to eliminate it completely. Singapore pulled out of Moscow because not enough people were flying it presumably, especially in premium cabins. From what I saw, the IAH-DME wasn’t very full in economy or business class. The DME-SIN segment was considerably more crowded in economy class. I can’t remember a clear picture of what the business cabin looked like, but I think it was more full as well. I didn’t get a chance to look in first class cabin on either segment but I assume it was close to empty.

Perhaps Singapore would be able to sell seats better if they weren’t charging $20,000+ for them? Again, unless I’m missing something big I can’t imagine that the first class experience would actually come close to $20,000 to provide. This isn’t something that’s exclusive to them either. Flying Emirates first class from JFK-DXB-BKK would set you back $19,750 vs economy which is only $900. That’s 22 time more expensive. $20,900 for JAL first and $900 for economy (23 times more!!) from LAX-NRT-NGO. LAX-MEL on Qantas is $15,500 in first vs $1,700 in economy (9 times more). All of those prices are for over my birthday weekend in mid-May

Do people actually pay that much? Yes, there are many millionaires out there that could afford it. But it seems to me that the number of first class seats out there far exceeds the demand for them. In most of yours and others’ trip reports first class cabins are usually nowhere close to full. And all the reviews I read and videos I watch used miles to book the seats rather than cash. One more thing I want to throw out there is that EK,EY,SQ,OZ,AF,CX and the like are known for being among the world’s best so maybe they can charge a premium for that. But then look at airlines like AA who charge $16,500 for LAX-HKG in F. Even if you could afford that, why would you buy it when you could go with Cathay Pacific?

Weymar raises some great points, so I figured I’d address them on a few fronts:

Airline pricing isn’t linked to the cost of providing it

This is true in the airline industry more than in just about any other industry. The cost of airfare is incredibly dynamic, and is all about what consumers are willing to pay, rather than how much they should pay to cover their “fair share.” It’s the same reason two people sitting next to one another in economy could have paid exponentially different fares.

While there are lots of businesses with variable pricing depending on the product you buy, I can’t think of another industry where you can have such a drastic price difference for two people getting exactly the same product.

Not many people pay for full fare first class

The reality is that very few people pay for full fare first class. I can’t speak on behalf of all airlines, but I’ve had a few friends at some airlines show me numbers, and you’d be surprised by how few people are actually booked on full fare tickets (or maybe you wouldn’t be surprised). So those $25,000 tickets? Very, very few people are actually paying those kinds of fares.

So, why not price fares more reasonably?

It allows airlines to discount it and create corporate incentives

I recently spoke to an executive at a major airline about this, specifically mentioning how they very rarely discount their forward cabin. His response was essentially that they don’t expect anyone to pay full fare. Rather they have such high fares so that they can be discounted.

Companies can get huge discounts on full fare ticket costs with a big enough contract.

Some airlines, like British Airways, even have promotions offering “free” upgrades to first class when you’re paying for a full fare business class ticket.

British-Airways-Upgrade

So as backwards as it seems, airlines don’t actually intend for you to pay those prices. Rather they set the fares so high so they can discount them from there.

He acknowledged that they’re probably missing out on some high end leisure travel with this practice, but think there’s more upside with the benefits they get through corporate travel.

This isn’t that different than hotels. At Four Seasons you’ll rarely see them offer a discounted rater, but rather you’ll see them offer a second or third or fourth night free, a daily resort credit, free breakfast, etc.

It creates a sense of exclusivity

By pricing first class airfare so high, airlines are creating a sense of exclusivity. When someone does sit in first class, they feel like they’re getting outsized value, whether in the form of an upgrade, award, or discounted first class ticket. We all like to assume that everyone else in first class is paying the full fare, but chances are that they aren’t.

Etihad-A380-Apartment - 46

Airlines are starting to discount first class

All of that being said, airlines are starting to evolve and realize that some leisure passengers are wiling to pay for first class if the deal is reasonable enough. Just recently we saw Swiss first class fares between London and the US for ~$2,600 roundtrip, which is incredible, and a huge discount over their normal fares.

Swiss-First-Class

Similarly, Air France is starting to have some more reasonable first class fares as well in some markets. For example, you can fly roundtrip first class between London and Hong Kong via Paris for ~$4,600, which is a huge discount over the ~$20,000 first class fares you’ll see in other markets.

Air-France-First-Class-Fare

Bottom line

Weyman raises a great point, and ultimately there’s no right or wrong answer. The merits of airline inventory and revenue management strategies have long been debated, and over time airlines have certainly made changes. The number of airlines offering deeply discounted first & business class tickets is higher than ever before.

However, corporate contracts and incentives are at the heart of high first class pricing. Some companies have big contracts that get them upgrade or discounted first class fares, and that can still be very lucrative for airlines. Many airlines are happy keeping the pricing so high that it creates a sense of exclusivity around the product.

Comments

  1. Only the churners goaded by bloggers use those $20k figures to gloat about how they made a killing signing up for a new card and using those miles for a free ticket. In reality they are compensating for the freakshow below the belt.

  2. @Weymar

    You are absolutely correct in that the first class experience is disproportionately priced regardless of how many amenities you add on. Having said that, Lucky raises an excellent point – airline tariffs are highly dynamic. Prices can change up to multiple times a day.

    I have quite a few colleagues who would fall into the ultra-rich category. Let me say on their behalf that none of them travel in first unless they are upgraded due to status (they don’t even use points for a first class upgrade since a round-trip biz or eco is much more valuable to them). This is probably one of the many reasons why they are so wealthy – they manage their money.

    In my case, my company has contracts with two airlines and is part of a corporate frequent flyer account. Our flight prices are agreed upon at the beginning of each year and paid for. The rule is we fly economy for a sub-five hour journey, business for a 5-9 hour journey and first for anything beyond, give it’s offered on that route. When traveling on airlines not directly associated with this contract, our travel dept. uses the corporate FF accounts for upgrades – hence none of us are paying for it either. To give you an example: in 2015 we agreed to 2000 first class ticket purchases on an airline at a cost of 5000USD per round-trip. The money is paid up-front so essentially the airline already has money and can invest it properly without having a single seat assigned. In short, now they can do what they want with the other seats to work on that initial income.

    There are just so many factors behind the scenes to keep track of.

  3. “The rule is we fly economy for a sub-five hour journey, business for a 5-9 hour journey and first for anything beyond”
    The rule at my company is economy for sub-five hour, economy for 5-9 hour journeys and for anything beyond that, economy 🙂

  4. It seems pretty obvious that the airlines charge sky high prices for first class to keep the peasants out. All the MS folk and bloggers riding in first class are there because they do not want to fly with the peasants. It is only a matter of time before the poor peasant folk starving on a diet of rubber chicken and drinking flat water raise up their plastic pitchforks and knives and rise up in revolt.

  5. I thought the response to the question was nicely done. I don’t think the question is stupid either, it is just a simple question with a not so simple answer. I would safely guess that 95% of the general public don’t realize that airlines (and hotels, and, and, and) have corporate contracts. It’s just not something someone in Boise is thinking about when they plan their once a year flight to Orlando for their family of four. And why would they think about that, it isn’t on their radar, so the question isn’t stupid at all.

    At my work we have to use our contracted travel company even if we can get a cheaper rate ourselves. It would seemingly cost the company less money to let me book it myself and do an expense report, the flight is cheaper and they don’t have to pay for the call to the travel company (they charge per the call and the length of the call). But the contract allows my company to get back a percentage of travel booked based on the airlines contract with the travel company and they’d miss out on that if I did it myself. It is large enough that our policy states that if you book yourself you won’t get the expense report approved by accounting. They match the air/hotel/cars booked to the reports from the travel company so they’d know what you tried to do. It is a huge pain for me but since that isn’t costing money it isn’t much of a concern to corporate, lol.

  6. Dear Ben,

    First of all, thank you for this article. Many people are confused as to why First Class fares are so expensive. Although the math that was done above seems correct, there are several other factors that need to be taken into account. One major factor is the city of departure, which changes the fares drastically.

    Let me give you an example of a ticket that departs from my current city:

    DXB-JFK-DXB in Economy Class: $920
    DXB-JFK-DXB in First Class: $11700

    Difference in fare: $10780; First Class is a over 12x more than Economy Class.

    KHI-DXB-JFK-DXB-KHI in Economy Class: $800
    KHI-DXB-JFK-DXB-KHI in First Class: $5900

    Difference in fare: $5100; First Class is a little over 7x more than Economy Class.

    Taking the two examples mentioned above, purchasing the ticket from KHI is half the price than if you were to purchase the ticket from DXB, even though you’re adding an extra route (KHI-DXB)!

    Moving on, the reasons behind the massive difference in the two fares is firstly, the average First Class seat takes up a lot more space than the average Economy Class seat (as mentioned above). Next, the First Class lounge has a lot to offer in terms of food, liquor, showers, massages, etc. Similar to restaurants, the First Class lounge has to markup its prices for everything that is being served, which is effectively ‘taken into account, and added to the price of the First Class ticket, although they are served at free of cost’. Next, the customer experience onboard is extremely personal, in the sense that the ratio of employees onboard vs First Class passengers is almost 1:1. These employees are dedicated to make your experience memorable, no matter how long the journey is. Along with caviar, salmon, and other expensive food items, premium liquor is another factor that First Class passengers can enjoy (to the fullest). These items are also ‘taken into account, and added to the price of the First Class ticket, although they are served at free of cost’. These passengers are also allowed to have multiple course meals, as well as a handsome amount of drinks. Then comes the onboard shower and bar, amenities (such as the travel kit, pajamas, slippers, eye mask, etc), snacks, and other privileges that First Class passengers receive.

    Taking the example that I provided and the example mentioned in the article into consideration, First Class is a little over 7x more than Economy Class, but in terms of size, First Class is 4x more than Economy Class. The extra 3x is because of everything mentioned above, from the First Class lounge, all the way to the amenities (and of course, everything in the middle).

    Hope this helps!

  7. I think we all agree that this is a complex question which requires in-depth analysis of the supply chain and behavioral based pricing. The price difference does not have to add up to the cost of the frills (I strongly believe 7-20x does not represent a 7-20x improvement in services of experiences). To be frank, it doesn’t have to. A business will attempt to sell at a high a price as possible. I think it comes down to:

    – even when the ticket is 5000 USD, an airline knows it will not be able to attract sufficient paying customers.
    – therefore, release exorbitantly priced tickets.
    – there are many execs from corporations who always need last minute travels and policies allow purchases of such exorbitantly priced tickets.
    – effectively the airline has just charged that exec for four seats knowing they would otherwise be providing no revenue.

    Just my two cents.

  8. @Dan – my company has a simple rule. Biz (or what we consider regional first in the US) for all travels within the US and neighboring countries. Int’l First on all flights to Europe and Asia. All work-related travels are treated as inconveniencing the employee and taking time away for families.

  9. To me, the answer is simple and was touched on at the end: exclusivity. The fortunate few who actually would pay full fare certainly don’t want some riffraff that did the math on receiving proportionate value considering square inches of space to be able to consider buying the seat next to them. And to a large extent, I get that. For privacy, safety, and the desire to just be left alone to watch my movie in peace, I may be willing to pay a disproportionate price for exclusivity if I were in that situation. Essentially, it’s similar to why wealthy people live in exclusive gated communities or vacation at the Four Seasons over the Westin.

  10. Analogous example in a different industry…few years ago JC Penney brought in Ron Johnson from Apple to run the company. Switched from the heavy discounting model to a Walmart-style every day low price. Seems fair, right? Result? Epic disaster sales-wise that forced a regime change and a switch back to the prior model.

    Why? People like getting stuff on sale, be it a $40 sweater or a $20K Int’l F ticket. If the airlines offered “everyday pricing” (at say $6-8K a pop), those same corporate customers are still going to be asking for further discounts.

  11. Fully agree on the corporate discounts. Our company allows us to fly First on routes exceeding 9h. While the tickets are still expensive, the discounts are sizable. For example, we pay roughly EUR 4k roundtrip on SQ First FRA-SIN for a full flex ticket. And to be quite honest, if you have to go a meeting straight from the airport after 9h + flighttime, First is worth every penny.

  12. I have no access to beneficial corporate pricing and I’m getting routinely discounted domestic F and International J fares. Prices have come way down for my routes in the past two years. Maybe they’ll go back up again but it’s starting to look like this may be the ‘new normal.’

  13. @AsherO: “A travel blogger should know YUL is not in the US…”

    OK, so Canadians did forget to join the Union, but we still accept them as part of the USA. 🙂

  14. Lucky, the explanation you got from your airline buddy is just plainly stupid and out right ridiculous.
    Can you please ask him to install some common sense first?

  15. Discounts don’t count if you know that nearly every first-class flyer isn’t paying even the discounted ticket price. They’re traveling on some corporation’s money, which stiffs the investors by peeling dough off the dividends.

  16. A first class seat takes up more space than four economy seats.
    Six at least. Go to seat guru or seat expert and trace the cabin spaces.

    If you take in account the first class only bathrooms on say Americans’ 777-300, you are over nine seats. Etihad with the shower, bathrooms, catering area and bar is going to be well over ten.

    I would also guess the average economy ticket price is higher than the examples due to last minute travelers.

  17. Some business class seats are perfectly fine, yet I will take a first class seat every time when the price and expectations match. For example, I like having an escort when traveling First on American to international departures as it is nice to hang out in the Flagship Lounge, board before the long line of business class gate lice, to just settle in and not deal with the aggressors. What was called Global First on United was not much different from business class, especially as it seemed the occupants were United employees—thus a business class seat is just fine there. I like only having fewer than 8 people in First with 2 to 3 bathrooms and the extra room for stretching. I don’t really care about being the first person off the plane to get through customs and just smile at those who are rushing by. I do think that is the difference between first and business class. It is more about attitude and appreciation of enjoying the flight, and less about having the financial resources to do what you want.

  18. This is the best post I’ve read on your blog in months. For me, a loyal reader for years, many posts (n+1 trip report) lose their relevance to me and become repetitive. However, your analysis here was fascinating and informative. Given your years of experience and contacts in the airline industry, I’d love to see more of this type of ‘reporting.’ Anyone can post a trip report, but given the connections and relationships you’ve built over time, you are qualified to provide more frequent peeks behind the curtain like this one. Thanks!

  19. One thing I’ve not seen mentioned here is the comparison to a private jet or a fractional cost of having private jet access.

    I’d wager that that factors into the pricing somewhat as well.

  20. When I last checked a few years ago, the “list price” for a First Class ticket from NYC to PVG went for at least $14,000. Last week I met the $4K minimum spend toward getting the 100K UR sign up bonus for the Chase Sapphire Reserve visa with a mileage run to PVG in UA United First that cost me just under $3K (I needed the mileage run to get about $3K PQD by December 31 in order to retain my UA 1K status.)

    I was thinking that I would needed purchase a high-end, auto-upgradable economy (Y/B/M) or a Business class ticket on outbound to get about $3K PQD, and then I would just purchase a W fare on inbound and try to upgrade it to BF with my last GPU. It never occurred to me that I would be able to afford United First ticket for this MR.

    My plan was to start my 2016 annual Year-end Asian Escapade(tm) in PVG, do a whole bunch little trips in N and SE Asia that would take me HKG 3-4 weeks later, and then I’d just take a flight back home from HKG (a huge “open jaw”).

    I did a search and got:

    LGA-ORD-PVG for $2,999 PQD, not in Y/B/M or BF, but in United First (A fare)!!!

    then for the return I got

    HKG-ORD-LGA in “W” for about $800.

    Including taxes and fees, the round trip cost me: $3928.86, which I put on the CSR. That allowed me to easily get over the $4K minimum spend, so that now the “Earning on Next Statement” in my UR account is showing 114,975 UR points, which means that I have indeed qualified to earn the 100K CSR sign up bonus! Just booking this trip @ 3 UR/$ and purchasing a few other items already got me ~15K UR, and that’s without counting the 41K redeemable UA miles that I will get from the actual flights, including in United First!

    I love the CSR already!

  21. @Andrew Miller – I completely agree. I worked at a small firm that had done the math on private travel and dry leased a light jet (CJ3). When 2-3 people went to a meeting (domestic), the cost of the jet was usually less than what the F tickets would have cost, but the real saving was time (point to point access vs. connecting). The founder almost always flew int’l F and I am certain he benchmarked against cost of private when doing so which made it a “no brainer” to him.

    The other point that wasn’t explicitly made is last seat availability. If you consistently sell international F @ $4-6k you are likely to sell out the F cabin in advance (without the benefit of overselling the cabin like you might consistently do in Y and J) – at first blush, that seems like a win for the airline. The flip side of that coin is that as a result of selling out the cabin, the airline will often turn away last-minute F business and, importantly, doing so also limits the airline’s ability to oversell J (since they usually upgrade oversold J PAX to F). All this to say, while discounted J makes a sense from a load factor/yield mix equation, the airlines are probably better off keeping higher F prices (e.g. sell fewer seats at $12-15k vs. 2-3x as many discounted F seats) to have a handful of seats available for last minute (and less price sensitive) high value customers. Doing so also provides a layer of protection in case the revenue management predictive model guesses wrong on the expected J no show rate and they need to upgrade a handful of people.

  22. Well written. The only thing to add is that nowadays First Class actually gets discounted quite a lot. If you look for travel between Europe and Asia a few months out, you will find a lot of fares for around 5,000 EUR return, on airlines such as Cathay, Air France, Emirates, and Lufthansa. Air France sometimes goes as low as 4,000 EUR.

  23. I was told at university that the answer is simple. First class is so expensive to make business class look decent value.

  24. A general rule might be that business class is people on business whose employer pays, while first class is for billionaires, celebrities, royalty etc. I’ve only flown first internationally a few times but the thing that struck me was that these were people who had so much money that paying 20K really mattered less than a more private experience

    And it’s usually not even that much better than business class. My wife got upgraded from biz to first once and said she couldn’t really tell the difference.

    Those in first are either not like you or me, or they are like you and me and got a upgrade;

  25. I’ll be anonymous for this post, but I am an economist at a very prominent business school. Many of the above explanations, which argue based on perceived value or something similar, are simply wrong. The reason first class fares are high is because the demand curve is “steeper” for first class.

    What does that mean? Take the prices charged by other airlines as given. If you charge, say, $200 more than one of the many airlines on a common route, the average economy passenger will change flights with certainty. There tend to be very few, highly differentiated, first class cabins on a given route. A $200 difference in price will be very unlikely to change the purchase decision of a first class flyer who prefers a certain seat, or time of flight, or similar. The combination of higher willingness-to-pay for the differentiated product, with the lower competition that results from few airlines flying first class on particular routes (aside: first class passengers are also less willing to take a stopover to save money, so effective competition is even smaller) means that airlines make a very different tradeoff when pricing economy v. first. On first, they will charge a price well above cost in the hope that, perhaps, a few customers will want to fly that day, knowing that those customers are not very price sensitive for the reasons listed. In economy, they have to charge a price close to cost or they will be unable to sell any tickets at all. The main tradeoff then becomes how to price over time, in an attempt to segment less price-conscious biz travelers from very price-conscious leisure travelers.

    There are a small number of airlines that use their first class essentially as a marketing tool – Etihad comes to mind – but these are few and far between. Also note that following entry of a good first class – think Jetblue Mint on the NYC-LAX route – you see prices fall on rival airlines because first class pricing now looks more like economy pricing: there are good alternatives that potential first class flyers will switch to if you try to price well above cost.

  26. The answer is simple. By pricing the cabin out of the reach of most people it separates the wheat from the chaff.

  27. This is an excellent post and far more interesting than posts about people cutting in line!

    As everyone else has already said, its incredibly complex with how airlines price things and there’s all sorts of different factors at play with corporate discounting etc. I would never pay the full price for J or F travel because I don’t think it’s worth the significant price premium. If there was a fairer, more transparent pricing structure for classes, such as Y+ being 1.5x Y, J being 2x Y, F being 3x Y, then I would regularly stretch to J but when its more like 3x/5x/10x the value just isn’t there. For example, SQ standard Y+ pricing is a HUGE premium over Y and given they have an excellent Y product, combined with the fact that Y+ is much more Y than J (no lounge, no flat-bed, no champagne I don’t think etc) I cannot see the value in paying well over double the cost for something that is in no way twice as good.

  28. It is often forgotten how many people pay high economy fares; if your business needs you to be in London on Wednesday and Thursday, and you book on Monday from Chicago, you could well pay $3,500+ in the back-of-the-bus …. Comparisons between the most economical Y fares and full F are a touch disingenuous …

    It can, as Lucky’s example shows, be cheaper to fly First from London to Montreal (where the full Y fare is approaching $5K) than in steerage.

    Airfares are not all about the real estate; they are all about a combination of that plus access, availability, flexibility and timing … If you cede control of those elements to the airlines you will get a good deal. If you maintain the control, it will cost

  29. @Martin: +1. My husband and I very much value privacy and a high quality overall experience when traveling, so we’re willing to pay the price difference for first. Though hardly a billionaire, it’s just how we choose to spend our money. We flew AF La Premiere CDG – LAX recently and there were 3 crew for 4 passengers (capacity for 9 passengers — it was their A380). Service and food were impeccable and they even brought a cake on board to celebrate our anniversary. From the private hotel pick-up to being walked through customs at the airport, to collecting our luggage for us, they made everything seamless and effortless. They even specially catered my favorite beer (sadly we don’t drink wine; a cardinal since in the eyes of a French airline, I know…). We wanted for nothing. We paid full fare and I suspect we’ll do it again.

    @anonBschoolprof: +1. Everything you wrote is spot on.

    @weymar: I don’t think @lucky addressed your question on domestic carriers for int’l travel but I can tell you that we absolutely try to avoid domestic carriers when going overseas if at all possible. While often times their hard product is just fine, their soft product simply leaves too much to be desired.

  30. I can say that all employees above a certain pay band in my corporation fly first class in and outside the US. We actually book our tickets using an internal travel planner and I have observed that tickets priced for 16000USD from SFO-SIn on SQ for instance will be as priced as cheaply as 5000-6000USD on our site. Upon further inquiry, I did confirm that our company has a volume based contract with SQ, which is re-negotiated each year. So, in fact we are paying a third of what the tickets show up as to general consumers. Therefore, coming back to the original question, many First Class flyers are not paying the published prices. Is it absolutely necessary that we fly first class? No, but it sure gives us comfort when we are flying to 10 cities in 10 days for meetings and often only have time to sleep on the flight. In cases where multiple execs are flying, it is indeed cheaper to arrange a private jet, when you take into account all the auxiliary costs.

  31. I do feel very sorry for anyone (especially a leisure traveler) who takes the full F/J fares at face value and saves up their hard earned money to buy such a ticket once in a lifetime, hoping that it will be a really special occasion. They are bound to be disappointed, and in that sense I think the airline pricing should be taken out and shot for such deceptive practices.

  32. Two other industries where end-user pricing is also extraordinarily variable (i.e. 2 people could receive exactly the same service, but have paid wildly different amounts):

    – Cruise ships
    – Healthcare (in the USA)

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