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Option for ‘the one per cent’

What is the difference between first and business class? Rather than a set-up for a joke, this is a much-debated matter in airline forums. Many come to the conclusion that first is not worth the extra money.

The question of late has been whether airlines agree. As many carriers squeeze extra cash out of perks most people once saw as core to air travel, such as reserved seats and checked luggage, and as members of “the one per cent” lie low after the global recession, it is not so crazy to think of the first-class cabin as a disposable luxury.

Yet in an industry as cyclical as aviation, it is difficult to find a trend that has not been seen before – which is perhaps why the notion elicits eye-rolling among industry veterans. “I can count 10 times in the past 45 years that first and business class have come under the cosh,” says Tim Clark, president of Emirates Airline. “And the more I hear about it, the more it’s music to my ears.”

More first-class customers for him, in other words. Indeed, while the economic cycle does have a big impact on business travel, the people who buy first-class seats – paying twice as much, often, than the next class down – tend to be somewhat immune to economic downturns. All Emirates’ first-class seats to the US are booked up to the end of August, Mr Clark says.

That means that the fate of first class has much less to do with demand and more to do with supply: whether airlines are willing to devote cabin space to a class of seats that is generally considered lower-margin than business class (once you consider the capital investment required for the likes of in-flight showers and flying art galleries) and with a smaller audience, too. Three-quarters of the space in Emirates’ premium cabins is devoted to business class rather than first. On some routes, first class is not an option at all.

Douglas McNeill, a longtime airline analyst and now investment director at stockbroker Charles Stanley, cites three reasons why airlines retain first-class seats. First, there is the money. Mr McNeill doubts that any airline that lost money on first-class seats would keep them.

Then, there is a branding benefit: “It adds a bit of pizzazz to the brand, a bit of glamour,” says Mr McNeill. The very idea of the first-class cabin reminds passengers that flying need not be a chore; it might even bring you, briefly, shoulder-to-shoulder with a musician or film star – provided they haven’t boarded into an upper-level cabin via a private gangplank.

Finally, there is a marketing benefit related to products throughout the aircraft. “First-class products exude a kind of halo effect on the other classes,” Mr McNeill says.

Mr Clark talks about it as a trickle-down effect: “What we do in premium cabins cascades down into economy.”

On some airlines, perks offered as part of a first-class package might eventually turn into something economy-class fliers can buy a la carte, playing into one of the biggest trends in the industry: an unbundling of products and services. This blurs the lines between classes, with some economy fliers buying access to the premium lounges in the airports, for example, or paying for extra legroom.

The success of these offers has led some carriers to create a new class: premium economy. At British Airways, for example, these fliers even sit on the upper deck of the A380 – a space reserved in the past for business and first class.

A fourth class presents logistics issues – and costs – but new computerised booking systems could help ease these. Does that mean that premium economy might start eating away at business class? Mr McNeill doubts it: in the same way that business class tended to pull more travellers up from economy rather than down from first, he thinks premium economy will prove margin-enhancing for airlines.

Mr Clark does not anticipate a fourth class in Emirates’ immediate future but “would never say never”. It is about the careful calibration – and about protecting the golden egg – of business class. “You don’t want to close the gap too much,” he says. “Premium economy yields bear no resemblance to business-class yields.”

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