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- [00:02]
A
I'm Brian Summers and I write the Airline Observer.
- [00:05]
B
And I'm Brett Snyder, author of Cranky Flyer. You're listening to the Air show, the podcast where we talk about what happens in the business of the sky. This week's episode is sponsored by skygo. Stay in the moment with your aviation curiosity. Explore scheduled data by airline, airport route and aircraft in seconds right from your phone. Currently in beta. Learn more@theairshowpodcast.com SkyGo Now, John is out at Boeing Media Day this week, so Brian and I have decided to follow the airlines and go premium.
- [00:39]
A
Brett, is that English? I don't even know what that means.
- [00:42]
B
Nor do I, but does it matter because premium's hot right now. So if we say we're premium, it's going to mean big bucks, man.
- [00:48]
A
So they say, all right, we'll do a premium show today. Everybody knows I enjoy a premium seat, but what exactly are we going to talk about in this podcast?
- [00:58]
B
This is a good question. So, outer space guy.
- [01:02]
A
What a great handle, huh?
- [01:03]
B
It is. He left a comment on Cranky Flyer a couple weeks ago with a topic idea and despite his name, this one does not seem to come from outer space. I think it's actually something worth revisiting. So let me read what he said. I've edited just a little bit for clarity, but here was his position. Why can't an airline be successful doing either a premium or at least elevated experience? At a place I have worked, we often say that a company can either be the cheapest option or they can be the best option. Never try to live in the middle. It seems like most airlines try to make their basic experience so horrible that you will look for ways to buy your way out of it. Credit cards, buy up offers, etc. What about an airline's motto being happy to leave the cheapest passengers for someone else? Being happy making money but not Vegas style monetized everything. They can think up something perhaps like a resurrected Midwest Express or slightly less common man luxury. An airline keeping the seat pitch as is but removing all middle seats from coach. Those middle seats cannot be worth much, right? You see some of this with 30 seat jets on smaller airlines that used to fly as 40 to 50 seat jets. Put more simply, it seems like Midwest Express lasted for a long time. Why can't that model or something kind of like it work today? Why can't I have an airline that I can rave about? Why won't anyone dare to claim that best in class ethos for every passenger, knowing that they will still make Money, even if some passengers will go elsewhere. So this is what he had to say, Brian. Now, in the past, I've always been pretty clear this does not work. But considering how much the industry has turned toward premium of some sort, I thought we should talk about it. It's worth talking about again. So, Brian, is there room for this kind of airline?
- [02:55]
A
No, Brett, there is not. So can I go home now?
- [02:59]
B
Thanks for listening to this week's episode of the Air Show.
- [03:03]
A
The premium boom is important and it shows no sign of slowing. That part is great, it gets a lot of attention. But I think there's a lot more going on here than just the premium boom. A big part of this is segmentation. Airlines have become very good at offering a product for all price points on the same airplane. So some airplanes now flown by US carriers, these wide bodies, they have business plus business premium, economy, extra legroom, preferred economy, and depending on how you slice it, two versions of economy, basic and regular. Also remember that airlines take a very liberal view of premium. It really goes all the way back to preferred economy, which we know are just regular seats, you know, in the middle of the airplane. But remember, even on these very premium airlines, there are a lot of regular non premium seats. And coach, you know, I don't sit there very much, but coach is still an important part of the airline profitability pyramid. One reason is that, you know, on certain flights, certain times of the year, coach fares are actually very, very good. We talk to a lot of our friends, they say, oh, I'm going to Italy this summer. Can you believe I'm paying $1,600 for regular economy? I guess what I'm saying is that there are certain times of the year where coach still matters and you want to have that flexibility on your airplane. You want to have the segmentation and like, what's the worst that's going to happen? You oversell coach at pretty decent fares and then you upgrade people either for free to make them very happ or you sell the buy up. I just like the idea of having all different price points on the airplane. One other nice thing about having all those segments on the same airplane. As our old friend Glenn Howenstein used to say when he was president of Delta, today's coach passengers are tomorrow's Delta one customers. And you don't wanna have an all premium airplane today and say to them, we're done with you. We're not even gonna give you a taste feel of the Delta experience. We're not going to get you in our funnel. Just go away. And so I think there's a lot of reasons why you want to have all these cabins on your airplane and not just go all premium.
- [05:36]
B
I hear what you're saying about coach fares being higher. I think that used to be more of a dynamic back in the day where in the summer you had higher coach fares and higher coach demand, because the person who flew in business class for work in the winter would then fly and coach in the summer with their families. But now, because of this premium boom, there's premium demand all the time. And that's kind of why we're revisiting this today to rethink some of these traditional sentiments, that it doesn't really work. Maybe it does now. And so with that background, I still don't think there's room for an all premium airline. The reasons you mentioned are still good. I'm not disagreeing with any of that. It is the upsel that makes a lot of this work. And it's also, you have to think about the cost side of the equation here, too. Right. Which I know we love talking about the revenue side, but the costs are important. And let's talk history, as I want to do. I do think it's helpful and instructive here. So let's go back to the year 2000 when American rolled out more room throughout coach. Right. So this was extra leg room for all. And that, of course, means fewer seats on the airplane. So that's higher unit costs. And it couldn't monetize it in the same way.
- [06:58]
A
No, it could not. And I think it's important to remind people the industry was very different back then. American was making a competitive response to United, which introduced Economy Plus. And in retrospect, that extra legroom section did a lot better over time. But remember that United didn't sell that initially. It had given it to elite members in Mileage plus and to people who paid full price for coach fares. Paying for access didn't come until later. That's when they realized they had stumbled onto something. And that's what made it genius. That's what made it still around today.
- [07:35]
B
Yeah, it's pretty incredible. Remember when the Continental management team came in and they were thinking about getting rid of it? I mean, we've come quite a long way since then.
- [07:44]
A
Those were changes you would like, Brett. Right. What was it that Jeff Smyzac said? He had that famous quote about changes you like, I think on the safety video.
- [07:53]
B
Oh, yeah, right. Things have changed is the point. But. But I will say that even though things have Changed. It still doesn't make Americans effort any smarter at the time. Because what United had figured out is that having a base product and then something that's above that makes it a much better reward whether you pay for it or not. You know that that's more of United's problem. But from a consumer standpoint, this is like human psychology we're getting into here now. But those elite travelers could see this tangible benefit from devoting their flying to United. Whereas everyone on American, you got the same coach product, didn't matter if you paid a dollar or $11,000 or you were gold or platinum or exact platinum, whatever. And it's that extra benefit that really makes the difference. And that's what became the extra upsell for those who are willing to pay for that benefit instead of earn it. And this, this isn't even talking about the cost side of the equation. This is just what people are willing to pay for.
- [08:50]
A
Yeah, the cost side is important because we all know that pulling out seats not very good for unit costs, that's just math. So we took a look at American's annual report for the year 2000. That year the airline saw its unit costs rise 3.3%. And that was solely due to the more room throughout coach program. That doesn't even take into account those big wage increases of that pre 911 era. And then there was also higher fuel prices that year. So total unit costs in 2000 went up 10.5%. Not ideal.
- [09:28]
B
Yes. And this was a huge issue back then when this was considered more of a commodity product anyway, this was still very much a price and schedule type of world that we were living in. So let's put this in more human terms, Brian. Once the seats were removed, do you know how many seats American 737, eight hundreds had?
- [09:50]
A
I do not. Brett, how many?
- [09:53]
B
134.
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A
Oh my goodness.
- [09:57]
B
On a 737800 they had 146. Before the change they pulled two rows. But today on that same airplane, they have 172. But back then, 134 seats with no seat less than 34 inches of pitch.
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A
Can I just say something briefly because I know that at the time American reversed itself reasonably quickly. What an era that was at American Airlines when they actually didn't take six years to realize that they had made a mistake and reversed it. Brett, I know that math, not my forte. You're a big numbers nerd. Can you put some numbers to Americans mistake?
- [10:38]
B
I can. I did pull some numbers over the weekend while I was thinking about this. So American system yield in 1999 was 13.12 cents. That's before the program went into place. More room throughout coach. So let's just pretend that that was also the yield it got on DFW to LAX. So at 1235 miles, with a load factor of 67.34%, according to T100 data, that means this route generated just shy of $16,000 per flight for an average fare of $162.
- [11:14]
A
I cannot believe that that was the average load factor. That has changed over time.
- [11:19]
B
Oh, it absolutely has. But let's run this. Assume that we now have 134 seats on board. In 2000 on the route, American's load factor was 70.59%. Still shockingly low, but we'll use that number. I'll spare you the math, but basically, you need fares to rise 4% just to break even on that airplane from pulling those two rows. And this is at a time when low load factors were the norm. So it would be very different today when you would be impacting seats that are taken if you were to pull them out.
- [11:53]
A
Yeah. Brett, this is kind of interesting. I will point out that in the initial question, Outer Space Guy did ask us if the recent premium boom has changed the game for all premium. Maybe over time it has changed things a little bit, but a lot of this goes back to human behavior, which probably hasn't changed all that much. The reality of the situation both in 2000 and I think in 2026, is that not everyone on the airplane is willing to pay more to get more legroom. I mean, heck, some of them don't even know what they're buying. They don't even know they're getting more legroom. It's just a bonus. Yeah, there are short people out there. There are. They're just people that aren't paying attention. It's really the people who actually care who need to subsidize the extra legroom to. And the price that they pay needs to go up a lot more than 4%.
- [12:50]
B
Yeah, absolutely. So that was the case on American. You had 120 coach seats. Maybe how many of those people are willing to pay more for extra legroom? Well, they have to be willing to pay a lot more to get the same product as everyone else on the airplane. It just doesn't work that way. But back to that point, it's segmentation. That's what really makes us work. Cobbles together all these different types of travelers to fill the airplanes, though. I should say maybe this example isn't perfect because outer space guy wasn't suggesting something that was just add a little extra legroom. Remember, he was suggesting something more extreme like Midwest Express where you're actually pulling out middle seats and having a more premium experience.
- [13:32]
A
Brett, I don't know how we became the grizzled old veterans of the airline industry. I still feel new on the beat, but Midwest Express has not been around for a long time. Should we explain to our younger listeners what that airline was back in my day? So Midwest Express was a Milwaukee based airline that started out as the Kimberly Clark corporate shuttle. They make toilet paper, right?
- [14:03]
B
Yeah, among other things.
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A
So it was the company shuttle and then it became a real airline. It had DC9s and MD 80s. Those are airplanes that used to have five seats across. On pretty much every airline they went with four seats abreast. And the airline had fancy meals as well. Didn't they have cookies or something like that? People love the airline. They just didn't want to pay for it.
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B
That is right. They had the fresh baked cookies on the airplane. That was legit.
- [14:33]
A
There's nothing like that smell.
- [14:34]
B
No, it's true. But I would actually suggest that the premium model is not why Midwest Express worked. First of all, Midwest Express was small. I looked at 1995 schedules using Skygo here and excluding tag flights like they did LA to San Diego and Vegas or something, the Midwest Express jets regularly flew 24 routes from Milwaukee and five from Omaha. So not that big. But second, and most importantly, it didn't have much competition on those 24 routes from Milwaukee. There was competition on 10 of them, mostly on other airlines to their own hubs. And from Omaha, only Vegas had competition. So I still think the reason Midwest Express worked isn't because it had the big seats. It's because people will choose to fly nonstop and they'll pay for that.
- [15:23]
A
It's all about network, isn't it?
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B
Well, that's. I mean, it's not all about network. I feel like we're going in in the face of some of the trends. But it used to be price and schedule, price and schedule. There are more elements to it now, but the network matters. That's still hugely important. Even you would probably fly coach on some airline if they only had coach and were the only nonstop option where
- [15:47]
A
you were going a one hour stage length or less. Maybe I'll push it to Phoenix.
- [15:53]
B
Okay. All right.
- [15:54]
A
But there have been some other attempts at giving people a better experience throughout coach and kind of hoping that they will pay for it. One of them was JetBlue at the turn of the century. That was an airline that especially at the very beginning, had a premium brand and product. It had the onboard TVs. People really liked it. But I think a lot of us insiders believe that what really helped that airline was a bunch of slots at JFK that Chuck Schumer helped them get. And then they had limited domestic competition from that airport. I think the brand did help, but I don't know that the premium aura was going to make that airline a success without the those slots. Also, let's be honest about any new airline, labor costs are pretty good in the very beginning, aren't they?
- [16:46]
B
Oh, sure, it's that juniority that Ed Bastian wishes he had more of at Delta. But yeah, of course, when, when you start out, especially with brand new airplanes, everything is great. You got the maintenance holiday, you get the cheap crew members who are willing to work hard to make it succeed, and there's all that. But it was the slots at JFK. That's what it was. JetBlue, you try and start that at other random city. It doesn't work the same way. It's probably more like Virgin America, which was never a financial success except when they sold it. I was going to say it was a financial success as an asset, but not as an operating company. So yeah, I mean, I, I think that's the key. You got to have some defensible moat here, which we have talked about before. And it's not necessarily the premium that creates a defensible moat. Now, outer space guy did mention the part about 30 seats on 50 seat jets. It's something different. So I, I do want to mention that just to clear the air on that. That's primarily JSX trying to use these federal regulations to create a structural advantage for itself. And of course it pitches this as a premium play, but it's really structural. It can't legally do the flying it's doing with more than 30 seats. And so for this premium model to work, it needs to avoid using airport terminals and it no tsa. I mean, it has its own security. I don't want to get angry grams here, but I bet you anything that if the FAA tomorrow said, oh, you can now have 40 seats instead of 30, JSX would put 40 seats on that airplane. It would still be premium. It would just find better ways to be premium than pulling seats out. Because even in a premium world, unit costs matter.
- [18:32]
A
Yeah. I'll point out one more thing about JSX JSX is not an airline. We're always reminded that JSX is an air carrier, except oddly, when they put themselves up for awards in major magazines, then they want to be an airline. All right. There are other instances of airlines having a more premium experience, but as you say, a lot of them have to do with various regulations that most passengers may not understand rather than a revenue play. So United loves to show off its CRJ 550s and CRJ 450s. That airplane has very few seats on it, lots of extra legroom, lots of first class. This is a different thing. The idea is they have contractual obligations to their pilots. They can only put a certain number of seats on some airplanes. As my favorite cliche goes, you go to war with the army, you've got. Yes, Brett, we've talked a lot about short haul airplanes. Let's talk about long haul.
- [19:39]
B
Let me tell you a little story then, Brian, cuddle up for story time. In between my two years of grad school, I did an internship with Atlantic Express.
- [19:50]
A
I have no idea what that is.
- [19:53]
B
Fair point. It actually was not an operating airline. It was just a working name. It was me and the founder, actually. But it became eos, which flew New York to London with an all premium fleet of 757s. I decided not to stay on after school, but the pitch at the time was that this was a superior product and we didn't need that many people to choose us for it to work.
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A
Tale as old as time.
- [20:18]
B
It really is all those, all those pitches are like, we just need this tiny little sliver and it's gonna work. And it made sense on paper. I liked it. I excited about the idea and I was hopeful that it would work, but it did not work. And yes, there was the issue here of not being able to get into Heathrow. So that's always an issue when you're saying, hey, how about Stansted? But it was just so hard to penetrate the markets for the premium cabin. You had sales agreements, of course, with the big airlines, which made it hard for these business travelers who are under contract to choose you, especially on a route like New York, London. It's so premium and so important that airlines are not willing to give you an inch on that if they can avoid it. And even though this had a lower price, it just didn't work. There were other airlines that tried to do the same thing, by the way. We had Silver Jet and Max Jet. Max Jet was a more down market version, but still premium. They are all long dead. These Airlines, there was no question they would do what they had to do to eliminate this type of threat to their premium business.
- [21:25]
A
Yeah, and all of this has become tougher with consolidation because now you have these mega airlines and mega airline groups on both sides of the Atlantic, especially in the United States, people have their credit cards. They don't want to cheat on their favorite airline. If you live in a big city where premium airline might work, you already have the option to fly one of the big carriers. So why would you fly a premium airline for one route, but then fly your main airline for something else?
- [21:58]
B
Cuz is that not a good excuse? All right. No, I, I think the thought is if we can get a price advantage, we can get a few people to fly us and that's all we need. It just doesn't work because the other airlines will match prices if need be, or find a way to make inroads or do whatever they have to do. And look, this doesn't even talk about the whole loyalty program angle, but because that is what's completely different now is just how much more powerful those programs are. And so it's just really hard to find a place for a premium only airline to roll in. And I, I don't know how that works.
- [22:38]
A
Yeah, the loyalty angle is a little bit insane if you think about it. Over the years, a lot of these airlines have watered down the benefits that they give to loyalty customers. And yet people like, are so sticky to these programs. They just absolutely love them. I think that that is a big deal. But I'll also point out that airlines on both sides of the Atlantic have gotten a lot better. Many of them have made big investments in their onboard and airport experiences. We look at something like the Delta One lounge. It is very hard for a boutique operator to match that. And then on the big airlines, the suites, these, some of them that have doors, they're pretty good as well. So unfortunately, quarter in the jar here. But Scott Kirby talks about, you know, building an airline where people will choose United. That was something that we didn't necessarily see 20 years ago. Forget the loyalty aspect for a moment. People actually want to choose many of these airlines.
- [23:42]
B
Right. So then you lose the top end of the market for all those reasons, but then you also lose the bottom end of the market because you don't have a competitive price on a base product. So you're just fighting for a very narrow group of people here.
- [23:56]
A
Perhaps the only thing that has changed for the better for one of these niche airlines is that there are a lot of premium Leisure travelers now. I mean, I guess maybe it could work now. That's kind of the thought. What do you think?
- [24:10]
B
Yeah, and that's why I wanted to revisit this week anyway, because there is a broader market for something like this than there used to be. I just don't think there's enough there for it to work. But then again, maybe that's why LA Company still exists. Flying people between New York and France and Italy. But honestly, I'm not sure why that still exists. That's, that's maybe a different issue. But who else is even trying this? There just aren't that many even trying it, though. Maybe beyond still counts.
- [24:39]
A
Is beyond still around the airline with the most ridiculous name that isn't spelled like you would expect it to be spelled and then, then has a capital O midway through the fake word. Is that the one we mean?
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B
That is the one we are talking about.
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A
I am not going to take that one seriously, Brett. But, and, and my French pronunciation is perhaps worse than Mike Rousseau. So, so bear with me here. LA Company, as you say, it does some seasonal stuff and charters, but the bread and butter route of that, that airline is Orly to newark. And remarkably, LA Company has been doing this for 12 years. Do you know the secret to its longevity, Brett?
- [25:23]
B
Well, we're talking about a French airline, right? So I'm going to say it's either drinking wine or learning how to overreact when a player on the pitch gently grazes you during the World Cup. See, it's very hip and cool that I know these things about the football.
- [25:44]
A
No, Brett, the secret to its longevity is it has two airplanes, both A321neos. That is not much of a growth rate over more than a decade. So if you are United or you're Air France, I think you just let that one go. Why would you dilute your own yields to put a two aircraft airline out of business? Also, though the La Compagnie business model confuses me, I do understand that it is a perfectly rational idea to run a niche operation like this. It probably even makes some money because it avoids the big guys. But typically when you start any company, you do it for two reasons or one of two reasons. One, you know, you need to grow. You need to grow your revenue every year. Grow or die, as they say. And two, that big Silicon Valley word, but it's beyond that. You go for an exit. Maybe your customer base or your assets or your brand could be useful to a big airline group or maybe just a big airline group. Wants to put you out of business. And in that era of almost 20 years ago, that did sometimes work. So by that standard, arguably the most successful all premium transatlantic airline was La Avignon.
- [27:08]
B
No.
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A
Which. No, did I mispronounce that one?
- [27:11]
B
Just call it La Vionne.
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A
La Villon. All right, so not coincidentally, that airline was started by the same guy as LA company but this earlier French airline, it sold itself to British Airways in July 2008, which was an interesting time for £54 million. And the pound was worth a lot more than. So this was more than US$100 million for a two aircraft operation. But that's what happens when you sell. Roughly two months before the worst of the great financial crisis, that airline became Open Skies. Open Skies no longer exists. But that was a different time. I don't see any other airline paying that much for an operation like that today, do you?
- [28:01]
B
I had forgotten about La Vion. I mean I'm pulling out some real, just random airlines from that era and that one didn't even make my list. But, but you're right, it might be the most successful because this is when BA wanted to take advantage of the new open skies agreement between Europe and the U.S. right? And then, well, I guess it shows how long ago it was when the UK was still part of Europe, but it started Open Skies to fly from the continent to the US and then it bought La Vio. It that was its main competitor. I guess that it I, it all failed. But at the time, yeah, this was a strategic investment. I, I can't imagine anyone making that strategic investment at all today, let alone for $100 million. But look, even if LA Company isn't going to get that exit, it's apparently still a viable enterprise. And we said that all premium didn't work. So if not for wine and overreacting, why does this work?
- [29:00]
A
Well, part of it works, Brett, because it's crappy passenger experience. And I don't, I don't mean that as an, as a knock on them. It is a, it is a niche. I talked earlier about how the big airlines have upped their games with the suites and the all aisle access. You do not get that on LA company the seats on their A321s are actually a couple of generations behind. They're the same ones that Continental installed on its long haul fleet in 2008 and later the ones that United had. They're flatbeds, but two by two on the airplane, very little storage space, not particularly wide. So I don't think that the Big airlines find them particularly threatening. What La Compagnie is doing is essentially offering a business class product for what are often premium economy prices. I do think if La Compagny went four times a day across the Atlantic, we'd probably see some competitive response. But at this point, I think the major airlines believe that they're selling a completely different product than La Compagnie. Now, Brett, should we circle back to that ridiculous airline in the Middle east with the big capital O in the middle of its made up name, Beyond? You do this thing at the end of the year with the graveyard on crankyflyer.com about airlines that we lost the previous year. I mean, maybe the beyond is going to show up there. Is it worth talking about? What do they do?
- [30:31]
B
No, it's. What are they trying to do?
- [30:32]
A
What do they pretend to do?
- [30:34]
B
Well, they're based in the Maldives and they're trying to fly these premium only airplanes to the Middle east and then on to Europe. They. They only have two airplanes, but this is a joke, man. They're. They're taking the summer off. Did you know that? They're not.
- [30:48]
A
That's usually a bad sign.
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B
It's usually a bad sign. They're not even going to be flying again until October. They're just like, forget, we're good right now. This to me feels like one of those, like, well, I don't like my options flying premium to the Maldives and neither do a lot of my friends, so we should totally start an airline. It just feels like that. But this is not even worth talking about. I think the point is maybe there's a niche or two around the world to support something small like LA company But if not for regulatory or aircraft requirements, it's just not a model that works more broadly. And it wouldn't work for a bigger airline either because it needs that upsell opportunity. This is just unicost rise more than unit revenues when you try and play this game. And it's all about the upsell. This model just doesn't have it.
- [31:37]
A
Brett, can I add one more of my famous cliches before we finish here?
- [31:42]
B
Go on.
- [31:43]
A
The juice is not worth the squeeze.
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B
You've been listening to the Air Show. Thank you to this week's sponsor, skygo. If you have suggestions or questions for us, or if you're interested in sponsoring the podcast, email us@infohairshow podcast.com or visit theairshowpodcast.com to get in touch.
- [32:02]
A
Leo Duran produced and edited this episode. Our theme music is by Joshua Moser thanks for listening and we'll be back soon. La avignon.
- [32:18]
B
Nope.
- [32:19]
A
Which. No, did I mispronounce that one? But lavignon. No, I caught lightning. No, I didn't do it again. I.