Airlines betting on premium seats as air travel rebounds
Bengaluru: In a bid to attract the more affluent customers, airlines – including the no-frills ones – are going for premiumisation. Recently, many international carriers including Emirates have introduced premium economy (PE) seats on their flights to India.
Indian carriers are not far behind. Tata-led Air India launched the services only recently while Vistara has been offering PE seats in India both on international and domestic routes connecting major metro cities for the last 8 years.
Moreover, India’s largest carrier by market share, budget airline Indigo is also expected to start PE services on its newer planes in 2024-25, with which it could potentially fly into markets in Europe and further into Asia.
According to industry sources, for the PE cabin, the airline could go with a longer seat pitch of about 34 inches for 25-30 of its 175-185 seats while other seats (economy) could also see an improved seat pitch.
The airline currently operates a fleet of more than 330 aircraft, and 970 planes are on order.
“This is an obvious move as the airline would have to reduce the configuration and go for smaller capacity for A321XLRs to accommodate additional fuel tanks in the belly that give its extra range. So might as well offer a luxurious class and the premium that airlines can command on PE or business class on international routes is very high,” said a source aware of the development, who didn’t wish to be named.
Indigo, while not having a dedicated PE cabin in its existing fleet, has been offering premium services to its customers in the form of its Indigo Flexi and Indigo Super6E seats at a higher price (about twice the regular economy fare) and has found takers.
PE market scalable
Airlines are betting big now on premium services, both driven by the high demand and profits. “If any airline is operating 3 business class rows with 4 seats each, 5 PE rows with 6 seats each and 22 economy rows with similar configuration, 17 per cent of PE seats can contribute nearly 25 per cent of revenue,” explained Rajat Mahajan, Partner, Deloitte India.
“Globally, airlines make 25-35 per cent higher profit on PE than economy for longer hauls,” said Khushboo Vaish, senior director at Alvarez & Marsal.
India has massive scope for PE, especially post-pandemic where despite the revenge-travel trend flattening out, there is a permanent shift in the mindset of travellers who are ready to splurge on premium travel which comes with wider seats, more legroom, upgraded meals and 100 per cent mileage earnings for frequent flyers.
"We have observed a 3X growth in booking of PE on domestic flights as compared to the pre-pandemic period. In case of international flights, this is almost 1.5-2X over the same period," Rajesh Magow, co-founder and Group CEO at MakeMyTrip told DH.
Moreover, 70 per cent of the PE bookings happen within 0-6 days of the actual date of travel, suggesting that it is primarily corporate-led travel. In the case of international flights, however, the advance purchase window is more than 60 days indicating the travel is likely for visiting friends and relatives, he added.
“We have been observing a surge in demand for our premium cabins across our network, especially on metro routes,” a Vistara spokesperson told DH. However, having them on certain routes has not yielded similar results, leading to the deployment of all-economy aircraft on such domestic routes, the spokesperson added.
Challenges remain
“The main issue with economy extra/PE in India is the market's lack of awareness. Most Indians and NRIs don't know that PE exists, let alone what they are. If you can overcome that hurdle, both will take off massively in India. Demand exists for both,” said Rishi Jain, CEO, Jain Aviation Consultants.
There were experiments earlier as well. Air India, in the 1990s, had introduced ‘Economy Plus’, however, the service failed to take off because it was not marketed well, experts suggested.
Another reason is the price parity, argued Mark Martin, chief executive at Martin Consulting. “Indian customer is price sensitive and will pay only if he can see tangible benefits,” he added. According to Mahajan, while business class demand has grown by 1.5X compared to last year, economy fares have gone up by 20-30 per cent leading to an overall increase in budget airline fares.
Today, with Vistara being the only player in the segment, penetration of PE in the Indian market is ~2 per cent, several experts suggested. ]“This number is likely to remain muted going forward. International sector PE share can touch 10 per cent in 5 years,” said Vaish.
“Many domestic flights in India are too short for passengers to derive effective value from PE. The demand starts climbing with the business traffic and with flights 2 hours or longer” said Devesh Agarwal, chief analyst at Bangalore Aviation.
With first-class shrinking and airlines increasingly cutting down on the frills in the economy segment, there will always be greater demand for PE on long-haul flights, as it is a good alternative for flyers who don’t want to pay 3.5X money for business class, however, desire the greater comforts, meals and benefits PE class offers, he explained.
As Indians travel disproportionately less than their Western counterparts in first class and business, PE can be a good substitute, added Jain.
Way forward
PE is here to stay and will take off significantly in the international market. At a domestic level, however, India is yet to test waters as the proposition will be challenging to sell for flights below the 1.5-2 hours time frame.
However, for niche routes, those connecting captive tier 2 cities and leisure destinations could be testing grounds for PE offering within India due to the success of certain UDAN routes, underscored Vaish. This could lead to the latching of tier 2 cities to the premiumisation drive that is expected to take off in the future.
“As seat technology develops further, a new class of service that offers something between PE and business will likely develop,” Jain further added.
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