THE RETURN OF THE FIRST CLASS

January 15, 2023

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For years, traditional airlines have raced for volume, if only to cope with fierce competition from low-cost airlines that were carving out a growing share of the market. It should be remembered that the best contribution from customers came from the European business market, to which the carriers applied particularly high rates. Except that the level of services was not good enough to justify price differences of around 200% compared to new entrants, especially for journeys that rarely exceeded 2 hours of flight. I still remember having alerted Air France officials to the risk of transferring this portion of the market and being answered, somewhat disdainfully, that first of all the low-costs were going to have a hard time and that in any case, they carried only "rucksacks". We saw what happened.

So, to avoid the flight of customers, the "legacies" as they are called, have had to lower their prices to more or less align with those of competitors. Except that, in doing so and despite the use of a very refined "yield management", the unit revenue began to fall without the costs of the companies being reduced. How can we find an economic balance when high-contribution customers no longer agree to pay the rates requested, even if they are supported by generous loyalty programs? Especially since it had more and more choices of carriers. Why pay more than €1,000 for a return trip from Paris to Madrid when competitors offer the same journey with the same type of aircraft for €300?

The response of traditional carriers could be found in internal savings so as to approach the cost price of low costs. Yes, but that would have required efforts that the companies did not want or could not make, trapped by overstaffing and unions frozen in the defense of their privileges. There was therefore nothing to be expected from internal savings. It remained to do them on the suppliers and the quality of the services. The first targets were travel agents to whom it was suddenly decided to abolish commissions and replace them with websites allowing direct sales. It should be noted that the latter has found a solution by having their customers pay for their service in exchange for which they have striven to find them cheaper and cheaper prices. Airport service providers have not been forgotten. The companies exerted strong pressure to lower their prices, which the latter had to do, but they were led to employ less and less paid staff and their performance suffered. And finally, the carriers have lowered the level of their services. The cabins have been densified, the meals have become more and more frugal, the assistance agents at the airports have been gradually replaced by machines and the customers have been asked to do the administrative procedures themselves via the miraculous internet sites.

And that is how passenger volumes soared and revenue, of course, did not follow. As a result, the very high-contribution clientele was neglected and in order to densify the aircraft, the First cabin gradually disappeared and some companies simply replaced the business class seats with economy class seats and separated the cabins with drapes. In short, little by little, we hit rock bottom, and there was no longer any real difference between low costs and traditional carriers.

Except that this wealthy clientele and largely ready to use its money for high-end services exists. But the race for volume will decrease, at least under ecological pressure. We have seen, moreover, since the end of the pandemic, prices have increased sharply. And the leaders are wondering if this is not the time to return to basics and therefore to restore the First Class which had fallen into disuse. Air France began its shift elsewhere before the health crisis. Lufthansa has decided to return to service the A340-600s, of which a lot of bad things can be said, but which are equipped with a First Class. It seems that line is taken, at least for the long haul. And that's fine.

The return to grace of a certain luxury on board, even for a small number of seats, will result in an improvement in all services, even if it takes time. Air transport may finally regain the luster it had lost.