ASK LUCKY (and each other)


Have a travel related question? Post it here, and I’ll do my best to answer it as quickly as possible.

Anyone can post a question, but you'll get the most benefit from registering to join our forum. You'll be able to see when your question is answered, and like comments from other users.

This space is intended to be more of a community as well, so feel free to jump in and share tips!

Thanks for reading!

Best,
Ben

Why is first class so expenive?

Discussion in 'questions. answers. conversations.' started by Weymar Osborne, Sep 11, 2016.

  1. Weymar Osborne

    Weymar Osborne New Member

    Messages:
    26
    Likes Received:
    8
    Now I know that sounds like a really stupid question. First Class is so expensive because it costs more to provide; feel free to call me an idiot. But it seems to me first class fares are disproportionately priced. I'm going to use the example of the IAH-DME-SIN (and onwards to BKK on a separate aircraft) flight which I bought a few weeks before they announced they would cancel the route because of low yields. Also, I'm not trying to do meticulous scientific research on this, only to get a general idea so my math is't going to be a 100% accurate.

    My ticket in economy for the whole itinerary was $1,300, whereas first class was pricing out at over $20,000. Where exactly does that extra $18,700 go? The biggest factor is space, the single most valuable thing on an airplane. The economy seats on the 777-300ER have 32 inches of pitch and are 19 inches wide. Each seat (and accompanying floor space) is 608 square inches. A first class seat has 72 inches of pitch and is 35 inches wide, so seats are 2520 square inches. That means that a little more than 4 economy seats take up the same amount of space as a first class seat. If ticket prices were based purely on space, the first class seat should cost roughly $5,300. Of course that's not the only thing that goes into the price of a ticket. Catering, crew wages, and ground service also are factors, but I'd find it very hard to believe that those would cost an extra ~$15,000 to provide.

    Demand is also a factor. Prices of anything are almost always based on how much people are willing to pay for it, and not the cost of the components. But it seems to be the case that many airlines these days are struggling to sell first class seats, leading many airlines to eliminate it completely. Singapore pulled out of Moscow because not enough people were flying it presumably, especially in premium cabins. From what I saw, the IAH-DME wasn't very full in economy or business class. The DME-SIN segment was considerably more crowded in economy class. I can't remember a clear picture of what the business cabin looked like, but I think it was more full as well. I didn't get a chance to look in first class cabin on either segment but I assume it was close to empty.

    Perhaps Singapore would be able to sell seats better if they weren't charging $20,000+ for them? Again, unless I'm missing something big I can't imagine that the first class experience would actually come close to $20,000 to provide. This isn't something that's exclusive to them either. Flying Emirates first class from JFK-DXB-BKK would set you back $19,750 vs economy which is only $900. That's 22 time more expensive. $20,900 for JAL first and $900 for economy (23 times more!!) from LAX-NRT-NGO. LAX-MEL on Qantas is $15,500 in first vs $1,700 in economy (9 times more). All of those prices are for over my birthday weekend in mid-May

    Do people actually pay that much? Yes, there are many millionaires out there that could afford it. But it seems to me that the number of first class seats out there far exceeds the demand for them. In most of yours and others' trip reports first class cabins are usually nowhere close to full. And all the reviews I read and videos I watch used miles to book the seats rather than cash. One more thing I want to throw out there is that EK,EY,SQ,OZ,AF,CX and the like are known for being among the world's best so maybe they can charge a premium for that. But then look at airlines like AA who charge $16,500 for LAX-HKG in F. Even if you could afford that, why would you buy it when you could go with Cathay Pacific?
     
    #1
  2. Gaurav

    Gaurav Well-Known Member

    Messages:
    4,058
    Likes Received:
    1,740
    @Weymar Osborne, there are so many factors that go into pricing for any product. I think you have touched on a few of them but I think one to consider is just creating an aspirational product via pricing in that the price is linked to the perceived value of the product and not just cost of providing it. If you think about a Rolex, it's priced at a point to attract a certain market and not to cover costs to make it. I'm sure airline revenue management are constantly playing with the revenue generation of different cabins and may also be a reason why many carriers are paring back on their first class offerings. The last thing to consider would be the fact that when most of us buy economy, we are buying discounted economy tickets. When considering the cost of Y or B class bookings, the math may actually be closer to your space calculations.
     
    #2
    Rob in Miami likes this.
  3. Weymar Osborne

    Weymar Osborne New Member

    Messages:
    26
    Likes Received:
    8
    True, I think it's been a noted trend that many upscale hotels will charge high prices but throw in an increasing amount of amenities like free breakfast, spa use, property credits. People will look at the initially high cost and perceive that to be a sign of quality. Many people will still buy it though because they think all the goodies will offset the high cost so they still got good value out of it. But for most ultra-expensive brands that are bought to show off wealth rather than because they are a good value like Rolex or Bentley, you have other brands which are much cheaper but the difference in quality isn't as large as the price gap such as Swatch or Jaguar.

    So I can understand why some premium airlines, the gulf carriers in particular, can get away with charging seemingly impossible prices, from what I can tell super-expensive first class fares are pretty consistent across the board. Going back to the American Airlines example. I personally doubt I would ever pay for American first class even if I could afford it when I could pay for something like Singapore or Austrian Business class which is arguably just as good. No one thinks of American as a luxurious, high-class airline no matter how much they may want to be. Their first class lounges are sub-par, and there are a few airlines out there that offer similar catering in business class. The only thing AA's first class really has going for it is the extra space you'd get over business class.

    And even if you are a super premium airline like Emirates who can get away with charging astronomical prices because of brand image, is it worth it? From all the trip reports I've read and videos I've watched (I unfortunately have no where near enough miles to experience it for myself.) Emirates first class is rarely full. Plus, I imagine a pretty decent portion of people who fly first class are doing so on miles rather than with cash.

    The only explanation I can think of is that when someone comes along who actually can afford it, it will cancel out the money lost on passengers who would have paid it had it been a little bit lower. They can keep up their ultra-exclusive brand image and subsidize losses from rich people not buying their tickets by charging mega-rich people a much higher price. Again, I don't think that strategy works for every airline. I can't really think of any airlines that fits into the "Swatch" category. That is, whose product maybe doesn't compete with the best of the best but still has a very good offering.

    I'll admit that I didn't think about discounted and flexible fares. What a flexible fare does essentially is cover losses an airline may incur from a canceled ticket that could have otherwise been sold to another passenger, right? The extra revenue gained from passengers that purchase refundable fare and do fly is enough to offset the loss of a occasional cancellation. Still, since a large number of tickets sold are discounted, that must mean the price of a discounted ticket is at least enough to cover the cost to provide a passenger with service.
     
    #3
  4. Gaurav

    Gaurav Well-Known Member

    Messages:
    4,058
    Likes Received:
    1,740
    I think Ben mentions it many times but there is little correlation of costs to ticket pricing. It is all about what the market will bear. Fare classes are used to segment the market. It's not a great system but that and fare rules are what the airlines have to play with to maximize revenue.

    I would posit that the swatches of the airline world are the non first class seats. The product is travel. You can do the Rolex version in first class and then assign whatever other brands you want to the J, PremY, and Y.

    Again, the F cabin is about sales but also perception and branding. Some airlines can make it work well. Others, as you mention, not so much and they remove it like AA is doing for the majority of the fleet. EK markets the heck out of their first class cabin and creates a halo effect even though their J and Y products are decidedly middle of the road in terms of hard product.
     
    #4
  5. Gaurav

    Gaurav Well-Known Member

    Messages:
    4,058
    Likes Received:
    1,740