Fare unbundling shifts to premium class

While the trend of airlines unbundling economy-class services is nothing new, it appears that the strategy of increasing profit through the sale of airline ancillary services is now moving into premium classes.

El Al announced earlier this year that passengers holding economy-class tickets ex-South Africa could now purchase seating in the business-class cabin with economy-class service and baggage allowance. This ‘executive seating’ service can only be purchased at the airport.

In June, Emirates also introduced a no-frills unbundled business-class fare. It includes only a seat in the business-class cabin and does not include extras such as lounge access, chauffeur rides to and from the airport, pre-assigned seat selection and extra mileage points and rewards.

There is already industry speculation that Qantas and Lufthansa are mulling over unbundling their premium fares, according to aviation industry analyst, Kambr Inc.

“Emirates’ move represents a natural extension of the unbundling revolution,” said Steve Hendrickson, director of Advisory Services at Kambr Inc. He said if the trend caught on at other airlines, it was not likely to stop at the exclusion of the premium items that Emirates chose to omit.

“As other airlines study Emirates’ business-class unbundling experience, we anticipate similar experiments will be tried elsewhere. After all, there is potentially far more value to be unbundled from a premium cabin product than was ever unbundled from coach (economy) products in recent years,” Steve added.

He said for an industry that believed unbundling enabled greater market segmentation, applying it to premium cabins could open “tremendous revenue opportunities”. 

Steve pointed out that if premium cabin fares began to embrace unbundling and discounting, the upsell from economy would become easier. “But a bigger question is the potential to fit improved value for money into the scope of corporate travel policies that otherwise might forbid premium cabin travel.” 

He said the trend of premium cabin unbundling could eventually create a bridge to that next level of value. “Corporate travel policies will be interesting to watch. Traditionally, many firms forbid employees to book business class under certain circumstances, but they might rethink that proscription if that comfy chair is available at a reasonable price.”

BCD Travel ceo, Marco Cristofoli, said while premium unbundling was not yet widespread in South Africa, it could be on the cards in the near future. SWG group operations director, Dinesh Naidoo, agreed but predicted that airlines would introduce this more aggressively with the implementation of NDC.

“It has begun. I’ve started seeing premium fare unbundling on OTA sites but it is very low key and you need to read the fine print to avoid arriving at the airport and forking out money for services that you thought were included,” said ceo of Asata, Otto de Vries. “Another good reason to use a travel agent!”

Kirby Gordon, head of sales and distribution at FlySafair said: “A long-haul airline’s true profit lies in how successfully it can sell its premium-class cabin and, in tough economic times, it makes sense for airlines to sell ancillary services wherever they can.”

Premium fare unbundling could affect loyalty rewards

As unbundled business-class fares become a trend, many frequent flyer benefits to the side could be pushed aside.

“For those religious about loyalty programmes, the fares are worth avoiding,” cautioned Grant Martin from aviation research company, Skift Research.

He said as airlines continued to disassemble traditional fare structures, frequent flyers would need to be extra diligent to ensure that the rewards they expected continued to return.

“It used to be that frequent flyers could heartily rely on business-class fares for earning healthy rewards – including lounge access, premium meals, frequent flyer miles, and points for elite status. With a new crop of unbundled business-class fares reaching the market, however, that’s no longer guaranteed,” commented Grant.