Airline companies have generated the idea of offering some extra benefits to their customers flying the economy class. The premium economy class will help to diminish the difference between the business class seats and the standard economy class seats. The notion of the proposed premium economy class would be to offer a little more benefit for an extra charge from the customers. Larger seats would be the first vital modification for introducing the premium economy class. In addition to that, additional space would ensure customer’s comfort. The premium economy class should not only offer a bigger seat but also additional value-added services to the customers. These should include but not limited to free boarding, free drinks, extra luggage, better meal, free snacks, and better interior. Moreover, extra inches of seat recline, adjustable headrests, lumbar support, laptop power ports, and some others benefits can be added to the premium economy class. Also, better customer service is another noteworthy attribute of the premium economy class. The premium economy class of different airlines depends on the airline company’s product strategy; each offering has its own merits and demerits.
The given section aims to analyze the possible advantages and disadvantages of the premium economy class. The premium economy class offers a bigger seat than the economy class which could be an attractive feature to the customers who prefer more comfort for an additional payment. The value-added services will attract customers who want to have business class experience but cannot afford it. Researchers have found that customers usually prefer comfort for a reasonable payment; so, the expected demand for the premium economy class should be higher than the business class. So, the benefits of offering premium economy class are more returning customers, higher customer satisfaction, and increased sales revenue for the company. Vink et. al (2012, p.357) found that a bigger seat and extra space for leg resting have made a positive impression on the flight experience of different customers. In addition to that, a big seat with extra pitch increases the number of loyal customers for an airline company.
One of the significant disadvantages of offering the premium economy class is the capital investment, because the seat costs are significantly higher than the economy class seat. As discussed earlier, a larger seat would require more space in the cabin, so the total number of installed seats in the cabin will be less than in regular economy class airlines. Reduced number of seats would require a higher ticket price, which could have a negative impact on the company sales.
Impacts on Emirates Airline
Emirates airlines is expected to have a positive impact on the company brand value, revenues, and aircraft performance of the company from the inclusion of premium economy class in the airline’s products. The premium economy class layout would be optimal with 58 business class seats, 40 premium economy class seats, and 52 economy class seats at the front of the upper deck in the A380 model of Airbus. The lower deck should consis of 437 economy class seats with no modification.
A new service standard will emerge with the implementation of the premium economy class; people purchasing premium economy class will enjoy some of the benefits of the business class. Thanks to reduction of 28 economic seats from the upper deck, service crew will become more efficient in providing better and superior customer services. Reduction of the total number of seats would reduce the weight of the aircraft, which will help to improve the aircraft performance. Different airlines pricing policy is suggesting that people are willing to pay more than 80% extra price for the premium economy class seats. The premium economy class will not only help to increase sales revenue, but also increase customer satisfaction, and therefore the brand value of the company will go up.
Emirates should start the premium economy class service on the following routes:
- London Heathrow to Paris, France
- Munich, Germany to Zurich, Switzerland
- Beijing, China to New York, United States
The rationale behind choosing these three specific flight routes is these mentioned routes are tourist’s destination. Most of the visitors to London are visiting from France, and most of the visitors to Switzerland are from Germany; also, the data suggest more than a million people from the United States visit China each year. People usually seek to have more comfort when on vacation. The economy class travelers will not be flying business class even if they are on vacation. But if those tourists are offered to have a little more comfort and a taste of business class, they may be willing to have this experience. Also, a good number of people from the United States visit for business purpose, not all of them are the big businessman- some are small business owners who usually travels through economy class. These small business owners are the best target customers for the premium economy class. Another thing to consider is that lower rates do not always guarantee an increase in sales rates; sometimes low-price sales change the brand perception of customers. Grigolon et. al (2012, p.42) conclude that utility decreases with the increase of service price; and the demand for low price airlines decreases when the airlines charge the price equal to the regular airlines. They also conclude that airlines that offer the cheapest price lose their image very quickly. The introduction of the premium economy class would add value to the company products and also the brand value would go up. Also, the company can expect to have a significant amount of additional revenue from the premium economy class.
By introducing the premium economy in Emirates Airline, the company has the option to select aircraft model from the four different models. Out of the given models, Airbus A380 should be used for introducing the proposed PE class service. The company should use airbus A380 because competitors offering premium economy class seats are using either A380 or A330 aircraft. And it is possible to sustain a certain level of demand in the long haul and medium haul markets by offering a range of on board bundled service and a higher level of comfort (Fageda et. al 2015, p.295).
On the upper deck of Emirates A380, the business class is located at the tail of a two-class aircraft. The first-class cabin starts from the tail of the craft following a layout of 2-4-2 staggered.The proposed premium economy class should start right before the galley in the middle where the economy class cabin starts. The economy class follows a layout of 2-4-2 but for the premium economy class seats will be installed with a pitch of 38″ whereas the business class seat has a pitch of 48″. The new premium economy class should take the space from row 34 to 39 shown in the diagram. A lavatory and a closet will be installed for quality service in the space between row 31 to 34 as shown in the diagram. Installation of the premium economy seat will take 5 rows following 2-4-2 layout (staggered). After the installation of premium economy class, the aircraft will have a capacity of 58 business class seats, 40 PE class seats, 489 economy class seats.
The new PE will require seats with a pitch of 38″, a width of 19.5″ and a minimum 19″ aisle width. With the comfortable seats of premium economy class, the customers will have access to power port with every seat, on-demand music, attractive galley, easy access to the lavatory installed only for premium economy class.
As per the given information, every seat would cost $20,000 to install; and according to the plan, a total of 40 seats are to be installed on the upper deck of the aircraft. So, the total cost of seat installation would be $800,000 per aircraft. I propose to launch the premium economy service in three different routes which will require at least six (6) aircraft with premium economy class seats. So, the total required initial investment for the project would be $800,000×6=$4,800,000 or 4.8 million dollars. To calculate the gross revenue received per seats of PE, a proper service planning and sales planning are required. The service planning incorporates various customer service issues such as reservation, F&B services, meal plan, and inflight entertainment etc. On the other hand, sales planning incorporates flight schedules, price of the flight, services planned for different markets, and communication to customers (Wensveen, pp.259, 2016)
After looking into various price offers of different airlines,while examining several websites, it has been found that the price for the selected route shows a great variation from airline to airline. Some airlines such as SAS, Air Berlin, Air Austria charge a premium price for selected routes. After comparing different airline companies prices for an economy class seat and a premium economy class seat, the following price table can be generated that will provide an idea of the average flight price.
The table representing an average of flight price offered by different airlines:
|Route Name||Avg. Eco Price||Avg. PE Price|
|New York to Beijing||$700||$2,300|
|London to Paris||$275||$600|
|Munich to Zurich||$450||$830|
If we consider this price as the base price to find out the project’s feasibility, then we find the following information. To install PE in the aircraft, a total of 68 economy class seats will be reduced and 40 new PE seats will be installed in the space of 68 economy class seats. To ensure the profitability of the company all three flight routes are considered for calculating the incremental revenue of introducing PE in these routes. The calculation generates following table of incremental revenue-
|Route Name||Eco Price||Seats||Total Rev||PE Price||Seats||Total Rev||Incremental|
|New York to Beijing||$700||68||$47,600||$2,300||40||$92,000||$44,400|
|London to Paris||$275||68||$18,700||$600||40||$24,000||$5,300|
|Munich to Zurich||$450||68||$30,600||$830||40||$33,200||$2,600|
From the incremental revenue calculation chart, it is very clear that introducing PE in the New York to Beijing route will generate an incremental revenue of $44k per round trip, so it will require around 36 round trips to cover the initial investment in the PE initiation project. On the other hand, London to Paris and Munich to Zurich routes do not generate a considerable incremental revenue.
- The breakeven price for New York to Beijing flight is = $1,190.00
- The breakeven price for London to Paris flight is = $468.00
- And the breakeven price for Munich to Zurich is = $765.00
Findings and Conclusion
I have analyzed many important issues associated with the introduction of the premium economy class in the emirates airline to make a proper decision. The analysis suggests that the best idea is to use premium economy seats (38″) rather than business minus seat (40″), for none of the competitors offer a seat that big. To cope with the premium economy market trend, Emirates need to use airbus A380 for incorporating PE service in its product. A total space of 68 economy seats will have to allocate for PE cabin which will consist of 40 premium economy seats. Three flight routes were considered for introducing PE, and it is found that only New York to Beijing route offers considerable incremental revenue. To introduce PE a total of $1,600,000 initial investment is required for one route only, because at least two aircrafts should offer PE facility in the same route.
The analysis helps to conclude that Emirates should incorporate premium economy class into its products, but PE should only be offered to the long-haul market, not to the medium haul or short haul market. Only, in that case, the introduction of the premium economy will allow the company to benefit both financially and strategically.
While conducting the research, I have learned to implement a new product idea into the existing product line (especially an airline company), to assess the feasibility of a project, and to calculate the estimated incremental revenue of a project.
Apart from changing the seats value, added service costs should be taken into consideration when calculating revenue of the new project. Additional variables cost consideration would change the result.
For a project like this, further research on the airline industry, aircraft provider, consumer behavior of the industry, and economic impact on the industry is required for making a sensible decision.
Fageda, X, Suau-Sanchez, P & Mason, KJ 2015, ‘The evolving low-cost business model: Network implications of fare bundling and connecting flights in Europe’. Journal of Air Transport Management, 42, pp.289 -296, Web.
Emirates route map, 2017, Web.
Seating Chart of Emirates A380, 2017, Web.
Vink, P, Bazley, C, Kamp, I & Blok, M 2012, ‘Possibilities to improve the aircraft interior comfort experience’. Applied ergonomics, 43(2), pp.354-359. Web.
Wensveen, J, 2016. Air Transportation: A Management Perspective. (2nd ed.) 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN: Routledge
Price comparison of different economy and premium economy flights, 2017. Web.