Aircraft Interiors – industry development summary: Jul/Aug-2024

US low cost carriers (LCCs) join Premium trend

'Premium' has once again become the buzzword for airlines.

A report from the International Air Transport Association (IATA) in Jul-2024 highlighted the resurgence of premium class travel. It shows that passenger growth of premium cabin classes outpaced economy class in Aug-2023, and the divergence has persisted since.

Figures show premium passengers make up just 3% of total travellers, but contribute 15% of passenger revenue (excluding ancillary income).

In the US this has enabled airlines with premium products, including Alaska Airlines, Delta Air Lines, and United Airlines, to leapfrog in bottom line figures.

The upending of market dynamics, largely due to a shift towards premium travel, has proven especially drastic for LCCs. In this past quarter alone Frontier Airlines, Southwest Airlines and Spirit Airlines all underwent fundamental business model transformations.

Frontier and Spirit now offer fare bundles. While guests can still opt for the ULCC experience by selecting a 'barebones' fare before adding seats, bags or meals, they can now select a fare top-funnel that comes with set features.

This presents major implications for the interiors space, especially at the pointy end.

Spirit's 'Big Front Seat' has transformed from simply a higher price square on the seat map to a dedicated fare type - 'Go Big'. The new fare type enables Spirit to compete for first class customers on a level playing field.

Meanwhile, both Frontier and Spirit now offer guaranteed middle seat fares, a concept known to Europeans as 'Eurobusiness', but until recently it was rarely known in the US.

Even more noteworthy is the shift seen from Southwest.

Ranked fourth largest worldwide by available seats, Southwest has maintained a unique and relatively unchanged business model for decades. The Dallas-based LCC is known for free checked bags, open seating, and enforcing direct bookings.

Before 2020, double digit operating margins was all but expected from Southwest. Not any more - margins have been on a downward trajectory.

In addition to one-off events, such as a meltdown over the northern winter season in 2022, the airline simply doesn't have products to capture the premium trend. Then came the activist investor Elliott Investment Management, causing Southwest to pivot.

In Southwest's 2Q2024 earnings call, the first phase of this change was announced - assigned seats and extra legroom premium seating options.

While the shift from open seating is a Southwest-only phenomenon, the decision to offer an extra legroom option is seismic.

Let's visualise the impact of this announcement.

US FSC and LCC ranked by proportion of narrowbody seats in service as Economy Plus, or higher

Source: CAPA - Centre for Aviation Aircraft Interiors Database.

Southwest management expects "roughly one-third of seats across the fleet to offer extended legroom, in line with that offered by industry peers on narrowbody aircraft".

Using CAPA - Centre for Aviation's Interiors Database, let's apply a simple one third ratio to Southwest's seat count and compare the new narrowbody premium ratio (Domestic First, or higher, and Economy Plus, excluding exit row-only products as a proportion of total seats) with industry peers.

Southwest instantly jumps from the bottom, alongside ULCCs, to the near top, on par with Breeze Airways and United Airlines, while being ahead of the majority of legacy airlines.

Obviously, the new Southwest may not necessarily warrant a number three position when account is taken of how legacies have higher-yielding first class seats that take up more space. Nonetheless - it is undeniable that Southwest now holds a solid position in the premium space.

The pivot of Southwest is so major that it singlehandedly increases the US narrowbody premium ratio from 21% to 27%.

This doesn't even account for future changes already announced by other airlines.

Alaska Airlines is expected to increase its premium ratio from 23% to 26%. The Seattle-based airline recently unveiled reconfiguration plans for its 737 fleet, with the -800, -900ER, MAX 8 and MAX 9 all to offer 16 first class seats, which is an increase of four for the -800 and MAX 8.

The 737 fleet will also offer 30 premium class seats, six more for the -900 and -900ER. Retrofits are expected to wrap up by 2Q2026.

On a related note, the airline's regional jets operated by Horizon Air and SkyWest Airlines recently completed adding one row of extra legroom premium class seats in early 2024.

Allegiant Air is also expected to jump the ranks as it slowly continues the rollout of Allegiant Extra seats. This extra legroom product in the first six rows is expected to be available on half of Allegiant's fleet by the end of 2024.

Assuming the product rolls out fleetwide, Allegiant's premium ratio will double from 10% to 20%.

JetBlue Airways is reportedly considering first class recliners on mono-class aircraft. Should this be delivered, CAPA - Centre for Aviation is curious to see whether the airline opts to maintain the same number of 'Even More Space' extra-legroom seats. This will allow JetBlue to achieve an industry-topping premium ratio.

Meanwhile, the 'Big 3' are unlikely to see a major premium ratio shift in the interim.

United and Delta are still undergoing premium projects, albeit in a different direction. United's NEXT programme is adding PTV and upgraded seat products across the majority of its narrowbody fleet.

Since completing installation of Viasat WiFi on all narrowbodies, Delta is now replacing selected narrowbody first class with the new customised Recaro R5 product, initially debuted on the A321neo in 2022.

American Airlines' only announced narrowbody reconfiguration plan involves adding four first class seats to its A319 and A320 fleet.

US LCCs are going premium, and for now, there is no sign of this trend losing momentum.

Other global LCCs going Premium

The premium trend is not only being embraced by LCCs in the US.

We now turn our focus to IndiGo.

The eighth largest airline worldwide by available seats recently introduced an 'IndiGo Stretch' business class product. This is a company that has been mono-class since its founding, and the new premium strategy is expected to have a profound impact in the region.

India benefits from a seemingly unstoppable economic rise and increasingly wealthy population. With the nation's largest domestic airline, IndiGo, offering only economy class products, corporate and wealthy travellers can only turn to Air India and Vistara, or have money left on the table when they fly IndiGo.

With Air India's acquisition by TATA Group and future absorption of Vistara, the former national airline is expected to emerge from its period of prolonged weakness as a more competitive and premium brand. IndiGo's pivot is crucial to not lose revenue to the strengthened Air India.

IndiGo's international ambitions are also clear. The introduction of regional business cabin paves the way for a much more premium product in the future on the A321XLR and A350 fleets. This may enable IndiGo to directly tackle the hold that Middle Eastern airlines have on South Asia.

While IndiGo's decision may have unique circumstances, it does mark yet another example of the ongoing trend by various LCCs to adopt dual-class configurations.

According to the CAPA - Centre for Aviation Aircraft Interiors Database, approximately 9% of narrowbodies currently operated by LCCs have a business class product - this is up around 3pts vs pre-COVID-19.

This increase is driven a premium shift and reassignment of not-taken-up (NTU) dual-class aircraft.

NTU reassignment is a one-off COVID-19- and MAX-induced phenomenon that resulted in LCCs, including Air India Express, AJet (formerly known as Anadolu Jet), and China West Air, putting into service dual-class aircraft that were originally ordered by legacy airlines.

There are also LCCs strategically opting for a premium strategy.

In the 2010s Air Canada Rouge and Spirit Airlines started to offer de facto domestic first class seats.

WestJet joined their cohort in late 2018. JetBlue's lie flat 'Mint' marked an even more drastic diversion from traditional LCCs when it was announced in 2013. FlyDubai embarked on a similar transition in 2017, when it debuted its first 737 MAX 8 with lie-flat business class.

How the latest move by IndiGo impacts the global LCC premium trend will, without doubt, be closely followed.

Timeseries of in-service LCC narrowbody Business Class manufacturer over the past decade, since 2015

Source: CAPA - Centre for Aviation Aircraft Interiors Database.

Other latest global interior news

OEMs

• Embraer: Ku-/Ka-band satellite connectivity will be available for retrofit on E175s by 2026.
• Embraer introduces Recaro seats for line-fit and retrofit on E175 and E2.
• Embraer E195-E2 can now fit an extra row of four seats to most configurations.
• SmartSky Networks ceases operations.
• Viasat-3 F1 satellite enters commercial service.

Middle East

• Etihad Airways deploys AirFi wireless IFE for A320.
• Emirates Airline debuts Boeing 777 with new business class.
• Qatar Airways introduces business class Qsuite Next Gen.
• Oman Air rebranding first class as Business Studio.

Americas

• American Eagle first satellite WiFi CR7 back in service (PaxEx.Aero).
• Delta Air Lines: most trans Atlantic flights to have free WiFi by the end of northern summer.
• WestJet and TELUS to introduce free inflight WiFi powered by Starlink technology.
• Azul retrofitting A330neo with Viasat IFC.

Asia

• Air India has started refit of close to 100 aircraft.
• Air India offers BlueBox wireless inflight entertainment.
• Korean Air first 787-10 enters service: new Prestige Suites 2.0, PriestmanGoode-designed cabins and Viasat WiFi.

Europe

• ITA Airways completes installing premium economy across A350-900 fleet.
• LOT Polish Airlines reaffirms Viasat IFC selection for 787.
• Turkish Airlines introduces new TCI Crystal Business Class Suites.
• Turkish Airlines to offer unlimited free WiFi by the end of 2025.
• Discover Airlines to introduce new long haul business class product in 2027.