The Evolution of Premium Economy (and What the Heck Is It Anyway?)

The term “premium economy” is a fairly nebulous one. It can mean anything from just a little extra legroom to an entirely different class of service. It can be confusing to a lot of people, so let’s talk about it. How did we even end up with a premium economy anyway? And why isn’t there a uniform definition?

In the modern era, I believe Virgin Atlantic was the first to use the “premium economy” term when it renamed its “Mid” class of service twenty years ago. (EVA in Taiwan may have been slightly before that.) But other than those isolated uses, premium economy was very slow to catch on. And when it did, it caught on differently in different places.

In the US, it was sort of an accident. Back in 1993, TWA decided to replace coach with Comfort Class, something that added legroom throughout the cabin for all coach passengers. This awesome flashback shows the ads TWA ran at the time. (I haven’t heard that jingle in years.)

While this was a “premium” economy compared to what other airlines offered, on TWA this was just plain old coach. This was the same thing that American did in 2000 when it launched More Room Throughout Coach by giving everyone more legroom. Neither of these were good ideas because they made a very poor assumption — that people in coach would choose American and TWA because of their onboard product. That wasn’t right. Some people will always just search for the cheapest fare and neither TWA nor American had a lower-cost product to sell to those people.

American’s introduction of More Room Throughout Coach, however, was actually a poor response to a better idea. United announced in August 1999 that it would create Economy Plus, a section at the front of the coach cabin with more legroom than the rest of coach. Looking back, that seems like a brilliant idea, but it wasn’t done very well.

United did have the product, but it lacked the right vehicle to make money. Elite travelers and full fare coach passengers got access to Economy Plus, but that was the only way in. Without a real revenue generation component through paid upgrades, it would have been hard to justify for anyone else to do the same thing. But eventually, United figured it out. In a world where unbundling became more and more acceptable, offering a paid upgrade to sit in these seats seemed natural. Sure enough, it worked. People have called this premium economy, but it’s really just coach with a little extra legroom.

Delta followed eventually with Economy Comfort and American, long after ditching More Room Throughout Coach, added Main Cabin Extra. This became the de facto premium economy section even though, other than at KLM, the rest of the carriers in the world had turned to something else.

Most carriers outside the US followed the EVA and Virgin Atlantic model of having a separate cabin. This would allow people to buy tickets directly in that class (instead of paying to upgrade) and it came with a lot of different perks including a better seat, better meals, and more. Effectively, it became sort of what Business Class was before it went WAY upmarket.

I wrote about the creation of premium economy as a way to solve a pricing problem on the blog for my wife’s company, Integrated Insight, this week. What is that pricing problem? If you look back at what Business Class was when it was introduced, it really wasn’t much more than coach. But while Business Class went upmarket, coach went the other way. The pricing gap became so great that airlines looked for a middle class that would allow coach travelers to buy up without breaking the bank. That’s how a separate Premium Economy cabin was born.

Lufthansa Premium Economy

Even previously conservative airlines in this regard have started to make the move. Lufthansa, an airline which only recently went to fully flat beds in Business, is the latest to have launched premium economy, seeing the need competitively (pic above via Lufthansa).

That explains how we got where we are, but it doesn’t explain why. Why is it that US airlines have evolved differently from the rest? I think there are two main reasons. First, US airlines have much larger domestic/shorter haul networks than other airlines, and a more spartan extra legroom product makes more sense there because First Class domestically hasn’t created that same kind of gap as it has internationally. Couldn’t they have gone with one product on the domestic fleet and another internationally? Sure. But that’s not cheap and it brings me to reason #2. It takes a lot of money to develop a new seat and new service standards. Then you have to implement it. US airlines haven’t had the money to invest in that kind of thing… until now.

With US-based airlines starting to make more normal profits, maybe we’ll see them start to consider a true premium economy cabin. On the other hand, there is some strategy here. When British Airways, Iberia, and American formed their joint venture, they liked being able to offer both products to let people choose. Today, that means that someone who is tall but cost-conscious can pay for coach and then spend another $100 to fly in the extra legroom seats on American. But someone who has a little more to spend (but not Business Class money) might opt for the improved experience in premium economy on BA. Personally, I prefer product consistency instead. Maybe we’ll see that happen eventually.

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