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03 December 2023

Battle to win first class passengers

By David Robertson

There is an almost arms race going on in the skies above us and the weapons of choice are personal cabins, giant flat-screen TVs, showers and luxury Italian upholstery.

A handful of airlines have raised the stakes in their competition for first-class passengers and the products now on offer are a far cry from the seats of yesteryear. Emirates, Etihad, Singapore and Jet have set a new standard in first class and competing for the very wealthiest passengers has become an expensive business. So expensive, in fact, that many airlines are giving up the fight and dropping out of the race completely.

The new minimum requirement to compete at the luxury end of the aviation market is an individual cabin for each passengers, sliding doors for privacy, a wide fully-flat bed, big TV screen and seemingly millions of hours of entertainment on demand. Add to that individual extras such as the showers offered by Emirates and Etihad's Poltrona Frau Italian leather seats (as also used by Ferrari) and you can see how high the bar has been raised.

For rival carriers competing on the same routes as these airlines, it is almost impossible to convince passengers to pay thousands of dollars for a first-class seat that does not come with these amazing extras. This has set up a troubling dilemma for these airlines because first class can be very profitable if the seats are full. But is it worth investing millions of dollars in the upgrade necessary to compete with Emirates, Etihad et al given that in the past year first class has been anything but full.

The recession has encouraged many first-class passengers to downgrade to business while business passengers have gone to premium economy or economy to save money. Iata, the trade body that represents the world's airlines, has said that traffic is down about 40 per cent in the premium cabins, which means carriers are transporting heavy first-class seats around the world but making no money. Add high fuel costs to the mix and many carriers have decided that it is simply not worth the effort to compete in this market and are stripping out the first class in favour of more premium economy and economy seats.

Even the really big carriers such as Lufthansa are struggling to make first class work on all but a handful of routes and the Germans have started selling first-class seats at business-class prices to keep their planes full. Air France has cut the number of first-class seats on its new A380s by 25 per cent and British Airways has delayed a £100 million (Dh590m) upgrade of its existing first class until some time later this year.

Even Qatar Airways, which styles itself as a "five-star airline", is ditching first class for its new fleet of Boeing 777s.

As a result, the airline market will become more segmented with a small number of airlines capable of competing for first-class passengers with the sort of product that Emirates and Etihad have deployed.

The rest will make first class available only on certain routes or do away with it entirely.

Ironically, the reason this arms race got started was the relentless improvement in business-class cabins. Fully-flat beds have become standard on the better airlines and the service levels in the business cabins of, say, Emirates or Etihad, is now better than first class on most second-tier airlines.

But this has meant it has become harder to convince passengers that they should pay an additional premium for a first-class seat. To maintain the differentiation and justify the higher ticket cost, carriers have been forced to introduce innovations such as individual cabins in First.

This has not been a cheap development with Etihad spending $70m (Dh257m) to create its award-winning product. However, there are signs that the arms race may be becoming more nuanced at the top end of the market. For the few carriers that are offering the ultimate luxury of an individual cabin, there is little to be gained from adding an extra inch to the length of the bed or an extra hundred hours of entertainment. The product offered by those competing at the top end of the market is now so good that small advances barely register with passengers.

Peter Baumgartner, Etihad's Chief Commercial Officer, called this "undifferentiated superiority" when we met on a recent tour of the airline's new headquarters in Khalifa City, Abu Dhabi. Baumgartner's view was that once an airline was able to offer the very best product, passengers stopped noticing (or caring) about many of the improvements being sold by marketing departments because they could not see much real difference.

The airlines competing at the top end have instead sought other means of one-upmanship over their rivals. Etihad's approach was to partner with Poltrona Frau, the Italian leather furniture makers, to bring a touch of class and luxury to its first class cabin. There will be other advances when Etihad introduces its A380s in a couple of years and these are likely to be particularly popular with Arab travellers (I'm sworn to secrecy on what they are).

Emirates has taken a different approach by offering showers onboard the aircraft. I'm told by frequent fliers that it is a pleasant luxury on long flights. Jet Airways of India has gone for five course meals. Ultimately, the sort of premium cabins offered by an airline will reflect passenger demand. The wealth of the Gulf allows Emirates and Etihad to compete at the very top end while other carriers will concentrate on their business-class passengers.

This means that we are likely to see greater stratification in the airline industry with only a handful of carriers truly able to lay claim to five-star status. For these airlines, the benchmark will no longer be rivals such as BA or Air France but, rather, the Burj Al Arab, Shangri-La or Mandarin Oriental hotels.

- The author is Business Correspondent of The Times of London


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