Upgrade to First Class? Use $1 Per Minute Formula

Summary

WSJ Your Money Briefing

Episode: Upgrade to First Class? Use $1 Per Minute Formula
Date: April 26, 2019
Host: J.R. Whalen
Guest: Scott McCartney, Middle Seat columnist

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Episode Overview

This episode dives into the financial sense (or lack thereof) behind splurging on premium airline seats. Wall Street Journal’s Middle Seat columnist, Scott McCartney, shares research into the true cost of upgrading to first or business class—offering listeners a simple “$1 per minute” rule to size up those tempting offers, and revealing the surprising economics behind all those extra inches in the sky.

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Key Discussion Points & Insights

1. Trends in Airline Seat Pricing

• Premium seats are pricier than ever:
  • "The gap between coach and first class or business class or international flights has actually expanded ... on average, that doesn't include the add on fees. But we've also seen premium class tickets go up in price." (Scott, 02:45)
• Economy seats are relatively cheaper:
  • While the sticker price on economy tickets may be lower, add-on fees can drive up the total cost.

2. Square Inch Economics

• The price of comfort is disproportionate to the space:
  • "If you look at domestic coach, first class, for example, you get about 50% more space than you do in economy, but you're going to pay three times as much. So on a per square inch basis, you're actually paying double." (Scott, 03:38)
• This math holds internationally:
  • “With business class, with the lie flatbeds … you get three times as much space…but you pay six times as much on average … the cost is double what you pay in coach.” (Scott, 04:09)

3. Why Pay More? Comfort, Productivity, and Sleep

• International flights sell sleep and productivity:
  • “For international trips, if you’re flying through the night, what the airline is really selling is sleep. And that lie flatbed … that’s worth a lot for business travelers who hit the ground running.” (Scott, 05:23)
• Coach discomfort drives demand:
  • “Airlines have made coach so uncomfortable that we are willing to pay that premium, and it is a large premium, but space is precious on an airplane." (Scott, 05:54)

4. U.S. Airlines Upgrading Their Game

• American carriers now match international standards:
  • "They have the money to spend. They’ve spent the money to up their game and provide products that are on par, if not even better than some of their international partners.” (Scott, 06:36)
• Competitive upgrades justify higher fares:
  • The improvements allow U.S. airlines to command higher prices from customers who previously opted for better international carriers.

5. The Hard Sell: Last-Minute Upgrade Offers

• Upgrades now marketed aggressively:
  • “Rather than give the seat, the premium seat away to frequent flyer, they'd much rather sell it ... When you check in with the kiosk, you get offers for upgrades. It's enticing.” (Scott, 07:45)
• A simple value formula—$1 per minute:
  • “Think about it in terms of the minutes that you'll be in that premium seat. And look at it in terms of $1 per minute. So if it's a two hour flight and the offer is $150, well, that's more than $1 a minute, which would be $120. If it's only $80, that's probably a good deal.” (Scott, 08:12)

6. Premium Economy: The Airline Profit Center

• New cabin class hits the sweet spot:
  • “Premium economy ... is a cabin unto its own ... you pay about twice the coach ticket price and you get about 33% more space ... that’s really attractive to a lot of people for a 10 hour flight.” (Scott, 09:10)
• Most profitable square inches on the plane:
  • “Even though you're not paying a business class price, that turns out to be the most profitable square inches on the airplane for the airline.” (Scott, 10:15)

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Notable Quotes & Memorable Moments

• Most Memorable Comparison:

  • "I don't know where else we ... would go ... where you're paying such a disproportionate amount for what you're getting in return. But boy, when you get on a plane, those leather seats and the real silverware and the glasses ... that looks pretty good."
    — J.R. Whalen, (05:03)

• On Sleep as a Commodity:

  • “What the airline is really selling is sleep. And that lie flatbed, the difference between being able to sleep and not being able to sleep, that's worth a lot.”
    — Scott McCartney, (05:23)

• On Airline Marketing:

  • “They'd much rather sell it to a customer ... it's enticing ... you've had a frustrating day, all of a sudden it looks pretty good.”
    — Scott McCartney, (07:58)

• On Value Calculation:

  • “A good rule of thumb for people is think about it in terms of the minutes that you'll be in that premium seat. And look at it in terms of $1 per minute.”
    — Scott McCartney, (08:12)

• On Profitability of Premium Economy:

  • “That space really becomes per square inch, some of the most profitable space on the airplane for the airline, even more profitable than business class.”
    — Scott McCartney, (09:45)

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Key Timestamps

• Premium seat pricing trends – 02:45
• Pricing by the square inch – 03:38
• What you’re buying in premium (comfort, sleep, productivity) – 05:23
• US vs international premium products – 06:15
• Last-minute upgrade sales and the $1/minute rule – 07:45
• Profitability of premium economy – 09:10

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Takeaway

If you’re eyeing an upgrade to first or business class, Scott McCartney’s advice is to calculate whether you’re paying more than $1 per minute of flight time. Airlines know the value of extra space in flight—so do the math, weigh your own comfort needs, and remember: the plush life comes at a steep per-inch price.

Transcript

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[J.R. Whalen]

Here's your Money briefing. I'm J.R. wahlen at the Wall Street Journal in New York. Next time you consider economy versus first class on a flight, our Middle Seat columnist Scott McCartney says a dollar per minute in the air might give you an idea if the upgrade to the plush leather seats is really worth it. We'll talk to him in a moment. First, these money in market stories. You should know a good bit of economic news. Orders for long lasting factory goods, what some people call durable goods like refrigerators and lawnmowers, rose 2.7% in March. That's the fastest pace in seven months and well ahead of expectations. And it suggests that demand picked up after a slow start to the year. Also, orders for motor vehicles rose 2.1% in March, and that has some economists feeling that business investment might not be slowing as quickly as was feared. Although most expect business investment growth to weaken further over this year. And the strong labor market is not causing high school students to delay or skip college, the Labor Department says the share of recent high school graduates who enrolled in College rebounded to 69% last year. That's up from 67% the year before, the Labor Department saying the share of women enrolling in college remained the same year to year, while the share of men increased. But over the decades, the share of men attending college and entering the workforce has declined. Economists point to many factors, including disability insurance to immigration, to the opioid crisis. We've all been there. We board a plane and walk by all the lucky folks in the plush first class and business class seats on our way to the aisle seat in row 51 and the wild tundra land known as coach. The passengers in first class have the life of but does that extra bit of comfort make personal financial sense? Wall Street Journal Middle seat columnist Scott McCartney has been running the numbers and he's on the line with us. So Scott, let's start with the plain numbers. On average, the cost of a premium seat has gone up, while economy seat costs have actually gotten cheaper.

[Scott McCartney]

Yes, that's right, J.R. the gap between coach and first class or business class or international flights has actually expanded and that is because we've seen somewhat of a reduct in economy class ticket prices on average, that doesn't include the add on fees. But we've also seen premium class tickets go up in price and basically there's more demand. As you note, coach is unattractive to a lot of people and airlines aren't handing out upgrades like they used to. And so people are willing to pay and airlines are finding creative ways to get them to pay for first class and certainly for business class on international trips.

[J.R. Whalen]

And as you write in your column, this becomes a game of square inches, especially in the economy seats.

[Scott McCartney]

Yeah, it's really interesting. We started out looking at exactly the question of how much more do you need to pay to get comfort on an airplane. And we did that by looking at average ticket prices compared to two years ago. And then we took it a step further and said, well, you know what, if we looked at this as we do real estate, where you looked at the price per square inch and that's really what matters. There's a limited number of square inches in an airplane cabin and how airlines divide it up gets really interesting. And so if you look at domestic coach, first class, for example, you get about 50% more space than you do in economy, but you're going to pay three times as much. So on a per square inch basis, you're actually paying double. It costs twice as much per square inch to get into first class as it does in coach when you buy a ticket. And interestingly, the same formula held for international trips with business class, with the LIE flatbeds, you get a whole lot more space. You can get three times as much space as you get in coach on a per square inch basis, but you pay six times as much on average. And so guess what? Per square inch, the cost is double what you what you pay in coach.

[J.R. Whalen]

You know, I don't know where else we, we would go in terms of whether it is going to the grocery store or buying something at another place where you're paying such a disproportionate amount for what you're getting in return. But boy, when you get on a plane, those leather seats and the real silverware and the glasses and I suppose even the alcoholic beverages, that looks pretty good.

[Scott McCartney]

Well, it does. And for a lot of people, this is a productivity question. For international trips, if you're flying through the night, what the airline is really selling is sleep. And that lie flatbed, the difference between being able to sleep and not being able to sleep, that's worth a lot that's worth a lot for business travelers who hit the ground running, go right into the meeting, and they're not as tired as they, as they'd be otherwise for, you know, domestic trips. Sometimes it's the difference between being able to open your laptop and actually work during the flight or not. You know, I think part of this is that airlines have made coach so uncomfortable that we are willing to pay that premium, and it is a large premium, but base is precious on an airplane, and so if you want more, you're going to pay twice as much.

[J.R. Whalen]

And the US Airlines have done a lot to catch up to the international carriers in creating the premium space on their planes. In some cases, they look like almost mini apartments. I mean, I was on a Cathay Pacific flight internationally, and the amount of space that a single passenger got in first class was just bewildering. But the US Carriers are learning a lot about what they can offer.

[Scott McCartney]

They really are. And, and it's interesting, and I think this is, this is part of the reason why we saw international prices for business class and first class go up more than we did for domestic. The US Carriers all have international partners and, you know, savvy travelers were spending their money with the partners. You can still get the frequent flyer miles and the status perks and things like that, but if Cathay Pacific seat is a whole lot better than Americans, then you're going to fly Cathay Pacific or British Airways or, you know, you name it. And when the US Carriers figured this out, they have the money to spend. They've spent the money to up their game and provide products that are on par, if not even better than some of their international partners. And that's really leveled the playing field and allowed them to charge higher prices for their product, which they really couldn't command before.

[J.R. Whalen]

And just to make sure passengers get the message, airlines will dangle a pretty tasty carrot in front of people in the form of an upgrade to premium seating just before boarding. But there's a cost that goes with that.

[Scott McCartney]

Yeah, they've really become better marketers at this. Rather than give the seat, the premium seat away to frequent flyer, they'd much rather sell it to a customer, maybe a frequent flyer, maybe not. They'll push email pitches. When you check in with the kiosk, you get offers for upgrades. It's enticing. It's especially, you know, you've had a frustrating day, all of a sudden it looks pretty good. And it may be 2 or $300 or whatever the cost. I think for this A good rule of thumb for people is think about it in terms of the minutes that you'll be in that premium seat. And look at it in terms of $1 per minute. So if it's a two hour flight and the offer is $150, well, that's more than $1aminute, which would be $120. If it's only $80, that's probably a good deal. And so I think that's a good measuring stick for people to keep in mind. Look at the offer in terms of a dollar per minute and see if that works for you.

[J.R. Whalen]

And like everything else we talk about here on youn Money Briefing, it really does come down to economics and earnings. And these airlines report to shareholders. And for the airline's bottom international carriers, the sweet spot, as you point out, appears to be the premium economy section of the plane.

[Scott McCartney]

Yeah, again, this is a really interesting development. Premium economy, it's a cabin unto its own, a class of service in between coach and business class on international flights. It's been very popular with a lot of international airlines and the US Airlines are now finally catching up with it. And when you look at the numbers, you pay about twice the coach ticket price and you get about 33% more space, a third more space that's really attractive to a lot of people for a 10 hour flight. But on the other hand, that space really becomes per square inch, some of the most profitable space on the airplane for the airline, even more profitable than business class. And the reason is you're just not getting the level of service that you get in business class. So you get a better meal than coach, but you're not getting a fancy meal with a whole lot of menu options. You're not getting that very expensive lie flat seat. You're getting three, four more inches of legroom, an inch or two wider seat, a better recline. You're not getting fancy amenity kit or noise canceling headphones, all those additional costs in business class. And so even though you're not paying a business class price, that turns out to be the most profitable square inches on the airplane for the airline.

[J.R. Whalen]

All right, that is Middle C columnist Scott McCartney joining us on the line. Scott, thanks for breaking down all the numbers and coming on the show.

[Scott McCartney]

Sure. Good to be with you.

[J.R. Whalen]

And check out Scott's column on WSJ.com or the WSJ app. All the numbers are laid out there and it's really fascinating to see the cost differences. And that's your money briefing hr. I'm JR Whalen in New York for the Wall Street Journal.

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