Airlines are making a miraculous recovery by doubling the number of premium seats

• Airlines are doubling down on their high-margin premium cabin offerings and even expanding them on new aircraft.
• They are banking on filling the financial gap caused by a glut of cheap economy seats.
• Premium cabin revenue increased at American, Delta and United in the third quarter.

Airlines are banking that their premium cabins will help recover from the financial hole left by the influx of cheap economy seats that flooded the market earlier this year.

American Airlines on Thursday reported an 8% increase in third-quarter premium revenue compared to the previous year. This increase, while capacity only increased by 3%, indicates that customers are willing to pay for upgrades, something the sector desperately needs to get out of its rut.

Rivals Delta Air Lines and United Airlines reported similar premium revenue growth in the quarter, 4% and 5% respectively.

Andrew Nocella, United’s executive vice president and chief commercial officer, said of the company’s earnings results that the premium cabin “outperformed the main cabin across all entities during the quarter.”

For its part, Delta said its premium cabins generated $5.3 billion in revenue, compared to $6.3 billion for the economy cabin, despite only being a fraction of tickets sold.

Not all airline recoveries are equal. While United and Delta stock prices are up 81% and 34%, respectively, this year, American’s is down 5%.

American’s slowdown is partly due to a failed business strategy that pushed away high-paying customers and resulted in the resignation of its Chief Commercial Officer, Vasu Raja.

“We have taken aggressive action to reset our sales and distribution strategy and re-engage the business travel community, which we are confident will improve our revenue performance over time,” U.S. CEO Robert Isom said in the earnings release on Thursday.

With premium seats, airlines can charge a premium

The legacy airlines’ renewed focus on their premium offerings is also partly due to their recognition of a general shift in customer expectations.

Related stories

It’s a very welcome change as airlines scramble to offset unsustainably cheap economy seats from low-cost airlines, which have slashed revenues this year.

Leaning more on premium seats could fill that financial void.

American has doubled its business class. It plans to launch a new Flagship Suite for future Boeing 787s and Airbus A321XLRs, which will also be retrofitted to the airline’s existing Boeing 777-300ERs.

Delta has hinted at unbundling business class to drive more demand for its higher-priced cabins. Meanwhile, United plans to create a new lie-flat business class for its new A321XLRs. Each of the Big 3 have also announced major investments in their ever-important airport lounges.

On the budget side, Frontier Airlines and Spirit Airlines have yet to turn a profit since 2019 and are making drastic changes to their historic, bare-bones strategy. Frontier announced “business-class-style” seating in March that would leave the middle seat blocked, while Spirit unveiled larger and more spacious seat options in July.

JetBlue Airways recently announced that lounges will be built for Mint business class, and Southwest Airlines plans to sell seats with more legroom, abandoning the previous egalitarian model.