bocastephen

Elementary Product Management says, 'don't devote resource to a product your customers have stated they will not pay (extra) for' - especially if you *think* enough people *might* to make it worthwhile....because it will never turn out that way.

If my top customers told me outright they will not pay more for a product feature, I ain't adding it.

The other side of that coin is this 'economy plus' - if the customers want something between coach and BF, and you under-deliver, they will be unhappy and won't pay for that either.

Adding a premium economy section has to be more than just a few extra rows of pitch a la E+ on UA - which, by the way, their own Elites don't pay a dime extra for. It would need to be something which included extra pitch, extra seat dimensions for the cushion length and width, and better catering/service.

I could see 5 rows of 2-4-2 on the 787/777 which would only cost roughly 23 standard coach seats (a couple rows removed plus the loss of a seat per row of premium) - perhaps a design which matches the SQ E+ seat on their A340s - which is leaps and bounds ahead of competing products from the Europeans and Eva. The decision to create the premium coach product needs to be thought through carefully - how will upgrades/awards be handled, what type of catering should there be, how to separate the cabins, etc. etc.

sbm12

My quick numbers on this are that you're replacing 63x 31" pitch seats with 40x 43" pitch seats, which is a pretty comfy PE section. Based on the current CASM ($.1108, though I give the 777s a 20% discount for their longer stage lengths that helps on the CASM) and average stage length of a 777 (~5800miles) the reduction that you're suggesting is ~$30K in cost that needs to be accounted for on each flight by those 40 seats. If you can get people to pay ~$1K each way (taking into account load factors that say you're not going to sell those seats out every flight) instead of ~$520 each way then you can actually make money at it. That being said, the CASMs will be slightly higher since you're going to have catering considerations and possibly an extra FA on board. This actually is in line with what Virgin seems to charge for their PE on NYC-LON flights, so the numbers are probably pretty sound. They obviously scale up for the longer flights, so the BOM/PEK/HKG/DEL/NRT flights will be closer to ~$1400 each way to come close to a break-even.

Without the 20% CASM discount the numbers are a bit more dire, with the average PE seat needing to sell for ~$1300 and the long-hauls needing to sell for ~$1700 each way. These numbers are still reasonable, and the ~$3400 r/t is less than you'd pay for Y from NYC-TYO by about half, save the R fares.

So it is possible, if people are willing to pay for it. Generating that 80% load factor in that cabin may proove difficult for paid travel. Also, what do you do about upgrades? Does it become Y -> PE -> J or can Y => J? There are a number of complexities that come about that would all have to be addressed.

perezoso

Hmmm.... I'll believe E+ on Continental only when I plop my rear end in it. I don't think it's going to happen.

Having said that, I quite liked BR's E+. The food was unremarkable; but the premium was really not that high over economy - maybe 15%. Lots more leg room and recline. Only complaint is that 8 across on a 777 still isn't particularly generous elbow room. I wouldn't pay a heck of a lot of premium for it.

brooklynflyer

I work at a company where a lot of us travel a lot internationally and we have a fairly strict travel policy. Just because some travel manager says that the company won't pay extra for a lie-flat product doesn't mean that the employees don't expect one given that other carriers (especially foreign flag carriers) routinely offer it for the same price as CO. Even though we have "preferred" carriers, there are enough loopholes in our policy so that we can pretty much choose our carrier. Guess who's popular to London? Eos, BA and Virgin (not CO). By hook or by crook, they are going to have to offer a product that is competitive with others if they expect people to pay the same fares.

bernardd

I see they way your argument goes, but I think there's a simpler way to look at this. 4 rows of 39" x 8 pitch is almost exactly the same length as 5 rows of 31" x 9. On this basis, if the PE revenue is, on average, 45/32 = 1.41 ie a 41% premium you're breaking even. If you can get more than that it's a good deal.

BA, and I believe VS don't allow you to upgrade Y -> J - if you want to upgrade to J you have to buy at least a discounted PE seat, but in pricing terms that can be cheaper than some airlines which insist you buy flexible coach in order to be able to uprade. FWIW BA doesn't charge a co-pay to upgrade PE -> J so overall while it's structured a little differently, the net result is probably not too different to the current CO regime.

J.Edward

There's already the structure in place: the BF copays.

If you want to sit in PE, you pay the associated co-pay as if you were trying to upgrade to BF.

If you also want to sit in BF, you can part with the extra miles.

Or, should you want BF, and not PE, there's the 'regular' way of upgrading we have now.

bocastephen

This may be true, but I wouldn't develop and invest in a product on this type of assumption - unless my key customers say to my face "yes, upgrade the BF product to lay-flat and we will pay an additional premium for it", I'm not doing it - unless my key competitors do it as well.

BA, SQ, CX, VS, etc., are not key competitors of CO - as much as I love CO, it's just not in the same league as those premium flag carriers. CO needs to read what DL, AA, UA, US, NW are doing before committing to such an investment, absent clear customer data which supports additional spend.

pbarnette

And I think this is exactly the thinking that CO should avoid, but has them clinging to this nonsense about PE without a 3rd cabin. BA serves 19 US destinations. They have 10 flights a day to New York City. They efficiently connect many of those 19 US cities to key markets all over Europe. They efficiently connect many of those 19 US cities to the Middle East, Africa, and the Indian Sub-continent. Sure, CO has a built-in advantage on EWR-BOM, but they do not have that same advantage over BA on BOS/ORD/BWI/IAD/DFW/PHX/SEA/SFO/LAX/...-BOM.

The same logic can be applied with regards to CX/SQ/TG/ANA/KE/... to Asia. Or EK or the other Middle East Carriers to the ME and South Asia.

I guess I am saying that I categorically disagree with the claim that CO should consider DL, AA, etal as their key competitors on international routes and only follow their lead. And besides, even if I did think that they are the appropriate comparators, then 50% of the competitors you have identified (I think we can all agree US doesn't count) are switching to flat-bed seats. The other 50% have angled lie-flat. And 50% have Int'l F. And so on. I think that, either way you slice it, the answer is that CO will have to introduce angled lie-flat to remain remotely competitive and will have to introduce flat-bed to retain any reputation as one of the better of the legacy carriers.

TWA Fan 1

The critical issue is whether companies will pay the same for a lesser J product. That's what it really boils down to.

The full fares for J on BA, VS, and CO are all the same and so there is very little incentive to buy CO J.

Of course, CO fills its front cabin by discounting very aggressively. At that point, though, you have to wonder what good the additional density in J is doing them if the effective RASM's are in fact lower...

TWA Fan 1

The real market for PE is in transpac where the price gap between Y and J can be gargantuan.

Now that Qantas has added PE, CO becomes the only major airline flying transpac to offer 31" seat pitch as the only Y option on transpac (some competitors offer a combination of Y and PE, more spacious Y, or all PE only).

Anglo Large Clawed Otter

Did you miss the last bit of the Q4 earnings conference call? Even if CO introduces PE and/or increases Y pitch, they will retain one seat on each long-haul aircraft having 31" of pitch, located behind the stink shield. Now, they didn't specifically say who they were keeping that one for, but methinks they may have made a notation in your file

pbarnette

You missed the parts about reduced padding, limited recline, and enhanced recline for the seat directly in front of it.

bernardd

Yes, that's kind of feasible, but I wouldn't see the cost of PE as being a fixed number of dollars, more like a percentage because CO would be losing a percentage of Y seats.

On that basis off-season TATL deep-discount Y might be $650, while the PE equivalent (ie same APEX & restrictions) needs to be just over $1,000. A more flexible ticket bought closer to departure at, say, $2,000 in coach would be $3,000 in PE etc etc.

IMO that's about what the PE service is worth, and still leaves a decent gap to BF / J / F or whatever.

Anglo Large Clawed Otter

I would regularly shell out $1,000 for TATL Y+ travel on CO, if the bar were set at least as high as BA/VS. I'd shell out $1,250, without thinking twice, if the bar were set as high as BD's new Y+ product.

CO 1E

Why not just charge half the copay and half the miles of a Y-BF upgrade for a Y-PE upgrade?