Since its founding, JetBlue Airways has had an egalitarian
identity, providing all passengers with a single class of service, seat-back
television, gratis snacks and a free first-checked bag.
But as the carrier grows out of its low-cost mold and
attracts business travelers with an expanding network, some premium services
have crept in. First there was the "Even More" ancillary, which gave
passengers the chance to pay for extra legroom. Then came last year's
introduction of a new loyalty tier for its most frequent flyers, and starting
in May JetBlue customers in the carrier's Terminal 5 at New York's John F.
Kennedy International Airport can make use of a new lounge operated by Airspace
Lounge. Next up is perhaps the carrier's biggest pivot to attract passengers
with deeper pockets: launching premium seating on transcontinental flights.
Scheduled for introduction next year, the enhanced product
will be available on flights between New York and Boston and both San Francisco
and the Los Angeles area, JetBlue chief commercial officer Robin Hayes revealed
during a March meeting with Wall Street analysts. Details were scarce, but Hayes
said the goal was to "wow" customers with both the product and its
corresponding price point.
The move is yet another sign that airlines increasingly are
tailoring networks and products to the most lucrative customer segments.
Outside of long-haul international markets—the bread and
butter of premium-class travel—there is a something of a product race underway
on the domestic U.S. transcontinental services on which JetBlue is putting its
In the past year, American Airlines, Delta Air Lines and
United Airlines each introduced new or upgraded services that greatly
increase the availability of lie-flat seats on transcontinental routes.
For example, AA is introducing a three-class transcon
product, making it the lone carrier supporting first and business classes on a
single aircraft domestically.
"In the end, you're going to end up with three carriers
in the United States that can pretty much take you wherever you want to
go," said AA vice president of global sales Derek DeCross. "What
really differentiates these airlines is product—and the people who represent
DeCross reiterated what bean counters at network carriers
know well: "The fact of the matter is, it's a very small percentage of
customers who make up a disproportionate amount of the revenue." The
airline's premium product upgrades, which like those of its competitors extend
beyond transcontinental services, "are geared toward that sliver of the
Worldwide, airlines in aggregate last year experienced
further growth in premium demand. "The overall performance of premium
travel markets has been solid throughout 2012, with passenger numbers expanding
4.8 percent for the year as a whole" compared with 2011, according to the
International Air Transport Association.
IATA indicated that while last year's premium-traffic growth
rate slowed from the 5.4 percent year-over-year increase in 2011, as some
business travelers in Europe traded down to coach services amid the region's
economic slowdown, premium demand growth elsewhere stayed strong.
It's a noteworthy turnaround after the global economic
downturn that began in 2008 prompted some corporations to tighten travel
policies and some airlines to scale back premium-class real estate.
Based on the expectations of U.S.-based corporate travel
buyers surveyed in February and March 2013 by Business Travel News, premium demand this year should not abate.
More than half of the 122 buyer respondents expected no change to their
company's use of premium-class options this year compared with last, with those
expecting increases outnumbering those expecting decreases.
According to AirPlus International data, premium-class
policies for intercontinental flights apparently loosened somewhat in 2012
while remaining consistent for domestic and intracontinental travel. Last year,
22.6 percent of intercontinental flight bookings paid through AirPlus were for
business class, compared with 20 percent in 2011 and 15.6 percent in 2010.
Economy-class travel, meanwhile, accounted for 76.7 percent of AirPlus' 2012
volume, compared with 83.9 percent in 2010.
"Part of that is because the economy is getting
stronger, and there's only so much tolerance for intercontinental flights in
coach," AirPlus North America president and CEO Ron DiLeo said. "Part
of it is capacity. There's a lot more capacity in business-class cabins."
There isn't anecdotal evidence this year of a major swing
either way in terms of corporate premium-travel policies.
"You see corporates dialing up and down their travel
policies all of the time as they review their budgets and as they make sure
they're getting good value for money for that premium travel experience,"
said British Airways senior vice president of the Americas Simon Talling-Smith.
Filling In The Middle
As the appetite for flying in the front of the plane stays
relatively healthy, airlines far and wide also have bet on capturing
higher-yielding economy-class passengers by introducing so-called "premium
Since Virgin Atlantic in 1992 introduced its "Mid
Class" (later rebranded Premium Economy), this category of airline product
has blended the comforts and prices of coach and business classes. First,
long-haul international carriers replicated the concept. More recently,
U.S.-based airlines adopted such strategies for both international and domestic
services. American, Delta and United in the past year each made moves to unveil or expand premium-economy products.
While they can attract standard coach customers, such
classes of service also can tempt business-class passengers to trade down—a
concern that United in 2011 evaluated before expanding Economy Plus to
Continental aircraft. "Based on historical data, I'd tell you that we've
generally seen it as a positive, that people are buying up," United senior
vice president of sales Dave Hilfman told BTN at the time. "They are probably sitting in the
economy-class cabin. In international routes, in particular, those intent on
buying business class are still buying business class. It's just a different
Though Carlson Wagonlit Travel in a white paper released
late last year wrote about the opportunity for companies to "save
significantly by shifting from business class to premium-economy class,"
the agency also cautioned that "the potential cost savings should be
weighed against the traveler impact in terms of productivity, stress, and
Among travel buyers responding to BTN's survey, nearly 34 percent characterized premium economy as a
higher-cost alternative to economy class compared with the 21 percent who
characterized it as a lower-cost alternative to business class. These
sentiments appear to validate Hilfman's observation: Corporate travelers are
more apt to trade up to premium economy than down to it.
Sapient senior manager of global travel Michelle DeCosta is
heartened by the proliferation of airline premium-economy seating; her company
allows travelers to pay the slightly higher-than-coach price point for
international flying. While Sapient is "pretty strict around class of
service"—largely shunning business class—its policy on premium economy is
more relaxed. The firm also is willing to pay for add-ons that bolster comfort
and productivity—be they access to a premium floor at a hotel, an upgrade to a
better coach seat or the purchase of inflight Wi-Fi. "We have no problem
with paying for ancillaries," said DeCosta. "We know [travelers] make
the right decision."
"Every year we do analysis on business-class policy,
but it's hard to take that away once it's allowed," she continued. Instead
of creating policy thresholds for when travelers can fly in the front of the
plane—based either on length of haul or employee title—Sapient has managed
"case-by-case" exceptions for premium travel, allowing employees to
make a request for a business-class ticket that is vetted by DeCosta and
funneled up to senior management for approval.
Back Down To Earth
suggests companies are stricter regarding policies on premium-class
hotels—which include luxury and upper upscale hotels, as well as club floors
and other room types that come at an extra cost—than they are with air travel.
Fewer buyers in the survey said that senior executives or frequent travelers
are eligible to use premium-class hotel products compared with air. More buyers
said that travelers were banned from using premium-class hotels than those who
indicated bans on premium-class air. About a quarter of surveyed buyers said
travelers could use upper upscale hotels, while less than 20 percent said
travelers could use luxury hotels or club floors.
Most buyers said they don't anticipate tighter policies for
premium-class hotels this year. The remaining minority was about evenly split
between those who expected more and expected less 2013 premium-class hotel use.
Starwood Hotels & Resorts Worldwide senior vice
president of sales Christie Hicks said that while cost still is a concern among
corporate clients, "if you look at their accounts, their associates travel
frequently, and employee satisfaction is becoming more and more important,
especially if travelers are on the road 45 weeks a year. We see ourselves
benefiting from that, particularly in the upper upscale tier."
Such is the case at Houston-based chemical company Ascend
Performance Materials, where senior manager of indirect procurement Tom Barrett
said premium-class policies remain fairly lax for both hotel stays and air
"You're going to do a huge project, you're going to put
a lot of money behind it," Barrett said. "Yes, there's somewhat of a
constraint, but there's also competition for employees at this point,
especially in the Houston market."
Premium-class hotel restrictions built into policies do not
necessarily mean travelers are not using the products, particularly as hotel
companies seek to introduce travelers to upper-tier products through rewards
"I have personally been in conversations with corporate
travelers who have said, through all of this, they will figure out a way to go
outside of policy," Starwood's Hicks said. "The hook is
At the same time, buyers are facing more pricing pressure
from premium-class hotel suppliers. Luxury and upper upscale hotel demand in
the United States during 2012 increased by 3.1 percent and 2.1 percent,
respectively, while supply growth in both segments was about flat, according to
hospitality research firm STR. As such, average daily rates in 2012 compared
with the previous year increased by 4.6 percent in the luxury tier and by 4.3
percent in the upper upscale tier. While several hotel companies aggressively
are growing their upper upscale and luxury brands, that growth largely is in
developing markets including South America, China and Africa.
In fact, STR reported that the number of luxury hotels under
construction in the United States as of February literally can be counted on
two hands: 10 total projects, with seven of those in New York, Chicago or
Orlando. As of the end of 2012, 4,500 luxury hotel rooms and 7,300 upper
upscale hotel rooms were under construction in the United States, compared with
more than 20,000 rooms under construction across each of the upscale and upper
That is not to imply that hoteliers are not investing in
premium-class products in the United States. Sheraton, for example, recently
invested more than $120 million to upgrade club lounges around the world. Paid
club room occupancy since has increased by 41 percent in North America,
according to Starwood.
originally appeared in the April 1, 2013, edition of Business Travel News.