Emirates Is Considering Unbundling Business Class

Over the past several years we’ve seen the US carriers add an almost endless number of fees for passengers. Fees are really what’s driving US carriers into profitability. While we’ve seen fees for things like bags for years, the biggest trend we’re seeing nowadays is US airlines truly unbundling economy.

This is an area where Delta innovated with their “Basic Economy” fares, where increasingly their cheapest fares don’t come with seat assignments, aren’t refundable in any ways, and offer no upgrade opportunities.

Delta-Basic-Economy-3

Initially these were introduced in markets where ultra low cost airlines like Spirit operated, but they’ve expanded significantly. American is planning on rolling these out over the coming months as well.

Spirit-Airlines

While historically the Gulf carriers have been known for their full service approach to things, it looks like that’s slowly changing. With the global economy where it is, with fears of terrorism, and with the impact that low oil prices are having on yields at Gulf carriers, even these “luxury” airlines are having to adapt.

Last week I wrote about how Emirates will soon be charging for seat assignments on their lowest economy fares, a move that many were surprised by.

Emirates-Economy

However, it looks like Emirates may soon be unbundling their business class product. At least that’s what Emirates president Tim Clark hinted at in a recent interview with Skift about the “next generation of fees.”

Here’s the first thing he said that I find really interesting:

Skift: In a competitive industry, how do you maintain an edge over other airlines so you can fill seats while maintaining costs?

Clark: The trick is to match [price], and deliver more. That is becoming more difficult these days, because in the old days, we were the only kid on the block doing what we’re doing. Now, there are others who are emulating us. They are following, essentially, the same business model. It’s becoming more competitive and let’s say, interesting. Because certain segments of our markets have become deeply discounted, we’re having to look and see whether we can extract more value through the the ancillary revenue stream. It’s somewhere we’ve never traditionally gone, but the digital world tells us that that’s the way people are thinking. Where the value is clear to them, and is delivered to them on a manner that they expect, they will pay for [extras].

This is indeed true nowadays, as they’re no longer just facing competition from network carriers, but also from the likes of Norwegian, other growing Gulf carriers, etc.

Emirates has been considering adding a premium economy product for a while, though based on the interview it seems like Clark doesn’t want to follow through with it. He thinks the process of implementing it will be difficult, and he’s not sure where to position it in relation to economy and business class.

But he sees some opportunities to unbundle business class:

Skift: Is it possible you might focus on selling discounted business class seats instead?

Clark: I know certain segments will take [premium economy] straightaway. Baby boomers, the aging population of Europe. No mortgages, money in the bank, spending the inheritance of the children, that kind of thing. But they would prefer to have a bed.

You might just say, ‘OK, I’ll give you a special price, just for the [business class] bed. I won’t give you the incentives. I won’t give you ground. You’ll get the business product in the air only, and that’s it.’ No chauffeur drive, no business-class lounge, no expedited [security] search. No uplifting your baggage allowance, et cetera. You just pay for the bed. I’ll give you a price for that. Maybe, if you’ve got business class seats going begging, that’s the easy way to go, rather than create a completely new product, which is going to upend the distribution systems, upend service delivery and upend the logistical management on the operational side.

Wow! I don’t think I’ve ever heard the head of an airline suggest this, and it’s certainly interesting. Emirates does have some extremely attractive business class fares, and in practice I suspect we’d simply see the lowest fares switch to this model, rather than them truly introducing cheaper business class fares across the board.

This could still represent a great deal for consumers, though it’ll take some getting used to, as it’s a departure from how things have been done for a long time.

Emirates-Business-Class-1

Bottom line

This would be an interesting new trend. We’ve seen airlines start to unbundle economy fares because yields have fallen, so they need to better be able to segregate customers.

The new trend is that business class fares have fallen globally, so could we slowly see them unbundled as well, to segregate their customers base there as well?

What do you think — will we see Emirates (and eventually other airlines) start to unbundle business class?

(Tip of the hat to Tagging Miles)

Comments

  1. Well, from the looks of it doesn’t seem much new, it’s like paying to upgrade in airlines like Etihad where you pay to upgrade after booking your ticket but don’t get the excess miles, baggage or chauffeur.

  2. I am sure they’ll unbundle whatever they can get away with unbundling. And, frankly, if you gave me a really cheap Biz Class fare that includes only a lie-flat seat but doesn’t include lounge access, priority boarding, extra baggage, fancier food or alcohol…I’d take that in a heartbeat.

    Much like I think there is a type of flyer who would love La Compagnie’s type of flying, I think this could be quite popular if you get a better price. There are people who love the extra bells & whistles. And there are those who only want the bed & extra space. The former are going to buy up. You’ve got the former. If you can get some of the latter, then you better fill your seats and boost revenue.

  3. I would rely on the bundled business class instead. Airfares are like insurance policies in some senses. They depend on the collective payment of everyone to pay for the few. They know some people won’t use the chauffeur service or lounges, thus it covers the cost of the others.

    Imagine having a majority of people filling the cabin who paid for barebone fares. When they do sell lounge access, it becomes more expensive because the collective group spread out among people are no longer making up for the cost. My guess is:

    A) It’ll be unprofitable to operate and they’ll throw the idea out
    B) People will not like it since the pricing of everything makes the experience more tacky/confusing.

  4. Haha. Let’s see the bloggers dying to take 5 minutes of showers if they had to pay for them out of pocket separately.

  5. So in essence Spirit Airlines remains the leader in the airline industry.

    They were the first to unbundle Economy, and add fees, and everyone followed suit (except for the carry-on fee, so far).

    Now we see Emirates, the five-star airline, following Spirit Airlines in offering a “Business Class” that is just the seat (like Spirit’s “Big Front Seat”).

    Wow. Baldanza as the example of Emirates.

    Times are changing.

  6. This proposal doesn’t make much sense to me. Emirates has the free car to the airport; I could see them introducing a fare class where they take that away. Maybe their lounge is more costly to operate than for others and so maybe they give you access only to a lower-quality lounge. But for most airlines, the marginal cost of expedited scrutiny and lounge access is so low that it’s hard to imagine that taking those away would really improve the economics of cheap business class tickets. Likewise how many business class passengers are checking multiple bags each? It seems like these incremental changes are too small to add up too much revenue in the context of a business class ticket.

    Also introducing a new level of service helps only if the airline can price discriminate and essentially get some people to pay for the upgraded service versus others who are more price sensitive taking the cheaper option. In the context of discounted business class fares there doesn’t seem to be much opportunity for that. People who are booking months in advance to get a cheap seat, but who are willing to pay for discounted busieness, probably won’t pay a huge amount more per ticket just for lounge access and a faster security check, especially as so many people in this demographic can get lounge access through their credit card. So either you end up with everyone taking the cheap version, so you don’t drive any incremental revenue, or the difference between the two prices is so small that it’s meaningless, in which case you’ve added complexity to your pricing structure for no good reason.

    I can understand his impulse. The problem is that most ground services are so cheap relative to the cost of the seat itself as the extra space that takes up on the plane that this hardly seems worth it.

  7. Interesting concept. Usually just travel on mileage awards only but if I was paying, I would opt for the cheapest business class fare and use my Priority Lounge access if available and sleep the flight away!

    The downside to all of this could be if airlines make the business class fares too attractive, more revenue seats will be sold and mileage awards will be fewer and farer in between — not good for us who travel on miles, but a dream come true for the airlines.

  8. I think john has put it brilliantly. I was thinking exactly the same thing even though i would love this to happen. Personally i care about the seats only, only reason to buy business for me but often the fares are more than iamwilling to pay. This will solve my issue but i am not sure if ek can offer much better price by cutting thise mentioned

  9. I would love this. If Y was $1,000; basic J $2500 and full J $5000 it would be a no brainer. Lounges, food, champagne, etc… are nice but on most flights all I really want is a good night sleep.

    Question is, how many people buying those seats are the economy crowd looking for a ‘splurge’ vs the business crowd looking to save some money. I’d be nervous more people would be ‘buying down’ than ‘buying up.’

  10. I am not surprised. When my mother flew EK – DXB-LAX return, three months back, she was offered business class minus lounge access at LAX, for a fee. I do not recall how much it was for and she declined it anyway. However, I wonder if they were trying it out to see what the response would be like before they went public.

  11. THAI area already doing this on their Scandinavian routes — selling discounted J seats as “Premium Economy”. The entire service concept on the ground and in the air is economy except the flat bed.

  12. Can hardly wait to board those over water long hauls at a discount and smell the Big Mac all the way as food wasn’t offered. I could care less about the lounge access, the drive in the MB (have never had it anyway), etc. but you can’t take away the food on board.

  13. Not really surprising. EY already has fewer perks like no chauffeur drive on their cheapest business class fare.

  14. This idea has been implemented by THAI on their Scandinavian routes using B77W where they market their mini-cabin business class seats as Premium Economy.
    Basically, you receive Economy class service from ground to air with the exception of having a business class seat (Staggered Lie-Flat)

  15. THAI: how can these flights be booked? I tried to price it out on Google Flights and CheapoAir but it doesn’t show PE on these flight. And the THAI website of course doesn’t work either and just give and error message.

  16. Interesting idea but I find it very hard to see how the airline would make it work. Though, at the right price point, a full-flat seat without the other business class benefits seems quite attractive to me.

  17. This is interesting. I recently upgraded myself on EK LGW-DXB, for about 400 GBP, I think. There was no chauffeur and no lounge included, but I did get a priority security pass.

    I was one of about ten customers on the upper deck of an A380, and it was an amazing flight. Contrast that with a BA LHR-DXB flight I took recently, which sold for about half the EK price, and was full (and awful).

    Obviously, offering the upgrades in this manner isn’t always filling those business class seats, and I guess that if you are part of a group it is a pretty serious change to your budget. An empty seat is obviously a waste, but I would have thought that apart from the chauffeur, the savings to be made are minimal. Removing the food and drink would surely completely destroy the Emirates business class image.

  18. There is insufficient consistency in lounge offerings and benefit of FastTrack to make this work. Just returned from Qatar J trip ARN-DOH-DXB where the ARN lounge is a very basic PP vs the incredible Al Safwa at DOH. Surely, stopover times will also determine the value of the benefit. Equally, no FastTrack available at DXB, with 30 minute queue. Therefore the value of add ons varies greatly by route and timings.

    Also, I don’t see target demographic. “Splurge” pax would want the full experience vs the more frequent J user probably could just do with a bed. Looks like cannibalising your premium pax.

  19. Already happening. Upgraded from Houston to Dubai for $1000 each way without the extras! Well worth it for the flat bed!

  20. I think it’s a great idea, and I fly Emirates a lot. I like the extras, but they’re not essential. For me a big seat is essential.

  21. Elal for years offers J seat with economy service/meal, and F seat with J service/meal.
    both priced mid-range.

    It’s all a function of Demand by the actual paying customers(and those business passengers need rest and space, not champagne on board) , no matter how many blogs will pop up by Credit card riders.

  22. SonAir has been offering this concept on Houston Express for at least a few years (though admittedly a single route and unique customer base). It tends to be popular with folks who are flying on their own nickel and not an expense account.

  23. I would be okay with unbundled J only if they keep the express lanes/lounge/drinks/food/miles inclusive for status pax (and those accompanying on the same itinerary). It would be a good way to encourage repeat business.

  24. This just tells me that they are not making money and looking for ways to generate revenues. Traditional business model is no longer working and their current burn rate is higher then their sell revenues.

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