Airline Battles: How US Carriers Target High-End Customers
For the road warrior who makes the five or six hour flight between the east and west coasts of the United States, there is an important change coming. Airlines are converting some of their planes on some of those routes to have lie-flat seats in business class.
That's right, instead of making that dreaded red-eye flight between Los Angeles and New York in a traditional seat where getting some sleep at a slight decline is difficult, imagine catching a few hours of sleep in a lie-flat seat?
This week United Airlines launched it "p.s." service on flights between Los Angeles and New York's JFK as well as between San Francisco and JFK. The p.s. stands for "Premium Service" and is the beginning of United trying to stand out with corporate and high-end customers who fly across the country. "The premium business traveler and premium leisure traveler wants to be comfortable and comfort is a lay flat seat on 5 to 6 hour flights like the coast to coast flights," said Henry Harteveldt, an airline analyst with Hudson Crossing.
Fewer Seats, Better Revenue Yield
Once United converts the Boeing 757-200s to include lie-flat seats, the airline will actually be reducing the number of premium seats available on certain cross country flights. The airline is going from offering 38 total seats (12 first class, 26 business class) to a new configuration that will feature 28 lie-flat business seats.
Why would United make that change? It's all about selling a higher percentage of the higher fare premium seats on a plane and having fewer unsold seats that are then filled with frequent fliers upgrading to business class.
"The nature of the airline business shouldn't be about giving away the product," noted Harteveldt. "The nature of the business needs to be about selling the product to as many people who will pay for it. That is a tough challenge but one I think the airlines are trying to respond to by right-sizing the size of the premium cabin."
Business class fares vary depending on the route, time of day and demand in a particular market. Still, most industry analysts estimate business class fares on transcontinental flights are approximately 50 percent higher than coach fares on the same route. According to masFlight, and aviation consulting firm, roughly 11 percent of the seats on transcontinental flights are business class. That percentage has held steady in recent years, though it could be increasing as more airlines upgrade their service between the coasts. JetBlue is the latest to say it will offer premium service on its transcontinental flights, starting next year.
Targeting Corporate Customers
While United is the first airline to turn to lie-flat business class seats, its two primary competitors are not far behind. At the end of March Delta will start flying planes with lie-flat seats and American will do the same later this year. The carriers are upgrading their transcontinental flights because that's where they are in a heated battle for corporate customers.
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"There are a couple of groups that represent a disproportionately large number of premium business travelers. Financial services, consultants, independent business executives and a few other industries like entertainment," explained Harteveldt. "Those industries pay for premium cabin seats. That is the battle.
That is where the profit is and that is who the big 3 airlines, United, Delta and American, are battling it out to win."
—By CNBC's Phil LeBeau; Follow her on Twitter: @Lebeaucarnews