Lufthansa CEO Carsten Spohr and its CFO Remco Steenbergen today revealed that premium economy is the carrier’s highest-earning cabin, surpassing business and first class. It’s good news for the German flag carrier, as through fleet retirements, the airline’s portion of business and first class seats has fallen.
A premium economy cabin can be a massive earner for long-haul airlines, and more and more of them are rolling out the cabin and investing in making it more attractive to carriers. Late last year, even Emirates joined the mix, rolling out its first-ever premium economy product onboard its newest A380 aircraft.
Lufthansa’s top earner
Earlier today, during Lufthansa’s Q1 results call, it was revealed just how vital the premium economy cabin is for Lufthansa. Remco Steenbergen, the CFO of Lufthansa, revealed,
“Premium economy has been introduced to all network airlines in the past few years. Its contribution per square meter is 39% higher than that of a business class seat.”
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The airline’s CEO, Carsten Spohr, went on to add,
“Premium economy has been a great success. [It has] higher margins per square meter of square feet than business class, economy class, or first class… We see a lot more upgrades from economy to premium economy than downgrades from business to premium economy, which we of course want to avoid”
Why is premium economy so lucrative?
But why is premium economy such a good earner for airlines. The cabin is less dense than the economy cabin, and as such, has wider seats and more leg room. However, it’s not significantly less dense, as is the case in the typical business cabin.
Take Lufthansa’s Airbus A350, for example. The premium economy cabin seats around 21 passengers in roughly the same amount of space that the business cabin would seat eight. As more passengers can be attributed to each square meter of the cabin, more passengers are paying into each square meter of the cabin.
However, the beauty is in the soft product upgrade. Premium economy offers enough of any improvement from economy to make it attractive to consumers. However, the airline doesn’t spend significantly more on the services than in economy. Perhaps aluminum food trays and plastic cutlery will be replaced with ceramics and metal cutlery. Additionally, passengers may get an extra baggage allowance and perks on the ground.
However, the price point for passengers is quite a bit different. Let’s take Frankfurt to New York as an example. On June 30th, a one-way economy fare will set you back €368. Meanwhile, premium economy is currently selling at €938. Lufthansa isn’t spending nearly €600 to provide the premium economy service, meaning that a much more significant proportion of the revenue will be pure profit.
Have you flown in Lufthansa’s premium economy cabin? Did you realize it was worth so much to Lufthansa? Let us know what you think and why in the comments below!