Caviar and privacy: Airlines' business-class wars are here

CNBC

4 days ago

DALLAS — Armed with dollops of caviar and handfuls of Bang & Olufsen headphones, U.S. airlines are duking it out for international business-class dominance. There are even differences between seats in the same cabin.
Next week, American Airlines plans to start flying its upgraded business-class "suites" that feature today's premium-class must-have — a sliding door — and other features like a "trinket tray" and a wireless charging pad.
Within the cabins on its subset of Boeing Dreamliners, which American is calling the 787-9P (the P stands for premium), there will be eight "Preferred" suites that the airline says will have 42% more "living area." They'll be first come, first serve with no upcharge, at least for now.
United Airlines is hoping to outdo its rivals by putting doors on its Polaris long-haul business class seats; creating a new option at the front of the cabin called "Polaris Studio," which has an ottoman (for a visitor); and installing 27-inch 4K screens. The studios are 25% larger than regular suites, United says. It hasn't yet said how much more it will charge for the studios over the standard suites.
Having an even-higher tier of seats within long-haul top-tier classes has been catching on.
Virgin Atlantic has the "Retreat Suite" at the front of Upper Class on its Airbus A330s and Lufthansa is offering a two-person suite in its new Allegris first class that can be converted into a double bed. Etihad has a three-room option called "The Residence" on Airbus A380s, which can cost $20,000 or more for a one-way ticket between New York and Abu Dhabi, though the airline varies how it uses those jets.
"The experience here is a way to give not only our existing customers a wider range of products to pick from," Andrew Nocella, United's chief commercial officer, told reporters earlier this month. "We just didn't have something better, and now we do."
American and United took a page from Delta Air Lines, the most profitable U.S. carrier, which already offers suites with sliding doors in its Delta One cabin. The Atlanta-based carrier, in turn, last year opened a dedicated lounge for the highest-tier customers, a move American and United had already made.
Business-class tickets are costly for many consumers. A ticket aboard American's new suite, leaving Aug. 8 and returning a week later, is going for $5,747 from Philadelphia to London, compared with $867 in standard coach.
Getting more customers to pay up for pricier seats is key for an industry with high costs and thin margins. Delta had a 7.6% pretax margin last year, United had 7.3%, while American's was 2.1%, and the broader S&P 500's was 12.8%, according to FactSet data.
Airline executives are banking more than ever that consumers will continue to splurge on better travel experiences despite weaker-than-expected demand for lower-priced tickets like domestic coach this year.
"I think it's growing this much because the experience in economy is so bad," said Robert Mann, who worked at several airlines and is president of aviation consulting firm R.W. Mann & Co.
Airlines have been updating their cabins for years and they have become so elaborate that they have slowed down some aircraft deliveries because of supply chain snarls and bottlenecks in regulators' certification.
American is using the new suites in a combined, larger business-class for international travel, and getting rid of its first class, for the most part. By many measures, though, including space and amenities, the service is higher end than many "first class" cabins of the past.
"Really, business [class] is starting to become so similar it was hard to really differentiate, and we want to make sure we offer as many business-class seats as we can," said Heather Garboden, American's chief customer officer.
The name matters.
"A lot of corporations will not permit the purchase of first class, but they will permit business class," said Mann.
Airline executives have been confident about their push to invest billions in the more luxurious cabins, brushing off signs of a possible economic downturn.
"We're at a really uncertain economic time right now and premium demand has remained solid," Garboden said.
Wealthier people "tend to do OK even in a recession," Mann noted.
The number of premium seats is rising along with the experience.
American said by the end of the decade it will increase its lie-flat seats and premium economy seating by 50%. The airline also recently said it will offer free satellite Wi-Fi to its loyalty program members, following Delta and United.
United is also growing its cabin with its Boeing 787-9 Dreamliners outfitted with eight "Polaris Studios," in a 1-2-1 configuration and 56 Polaris business class suites. Currently, the planes only have 48 Polaris seats.
It expects to have 30 Dreamliners with the new interior by 2027 but a first flight, between United's San Francisco hub and Singapore, is set for early 2026, the airline said earlier this month.
The carriers are also trying to raise the bar on the so-called "soft product" like plush bedding and comforts like noise-cancelling headphones.
American announced last month that it won't collect its Bang & Olufsen headphones from Flagship travelers before landing so they can keep watching movies and other entertainment longer.
"Polaris food and beverage offerings are being upgraded at the same time with enhanced meal choices on all new dishware, glassware and fresh white linens," United's Nocella said. "We've even added red pepper flakes in addition to salt and pepper so passengers can spice up their meals."
While the top-tier business class is offering higher tech and more high-touch service, the carriers don't have the over-the-top amenities of international airlines.
United is planning an amuse bouche of Ossetra caviar for Polaris. Meanwhile, in first class in Emirates , which has larger aircraft with the Airbus A380, travelers have access to showers on board and "unlimited" caviar service.
For some, good service is simpler.
"I could be sitting up front or I can be sitting in the back but if the plane's late, the plane's late," Mann said.