Delta Jumps on the Premium Economy Bandwagon
In the past few years, all of the U.S. airlines offering long-haul service have put extra-legroom seats on their widebody fleets. They rightly recognized that plenty of travelers would pay a premium just to get a few extra inches of legroom on longer flights.
Most U.S. airlines offer some kind of extra-legroom seating today. Image source: The Motley Fool.
But aside from those precious inches, there hasn't been much to distinguish these extra-legroom seats from regular economy seats. By contrast, many foreign carriers offer premium economy sections that represent a middle-ground between economy seating and the extremely pricey lie-flat seats that have become standard in business-class cabins.
American Airlines (NASDAQ: AAL) shook up the market in late 2015, when it revealed plans to offer a true premium economy section on most of its long-haul flights. Apparently, Delta Air Lines (NYSE: DAL) feels that it can't afford to fall behind. Last week, Delta said that it will introduce premium economy seats on some long-haul flights beginning next year.
Premium economy comes to the U.S.
Last December, American Airlines announced that it would begin to roll out a new premium economy section on its wide-body fleet in late 2016. The seats themselves will be wider and offer more legroom (38 inches vs. 31 inches for a typical economy seat). Premium economy tickets will also include other amenities such as noise-canceling headphones, priority check-in and boarding, upgraded meals, and complimentary alcoholic beverages.
American's premium economy rollout is beginning with the 787-9, which began to enter its fleet a few months ago. (That said, the new premium economy section officially launches next April and can't be booked for flights before then.)
On the 787-9, American Airlines' premium economy section will be quite small, with just 21 seats. However, there will also be 27 of American's traditional extra-legroom seats, without the extra seat width and other perks of the new premium economy cabin.
In the next two years or so, American Airlines will retrofit most of its other wide-body aircraft with premium economy sections. The one exception is its aging (and shrinking) fleet of 767s, as most of those planes will be retired within a few years.
American Airlines will put premium economy seats on most of its wide-body planes. Image source: American Airlines.
Delta follows suit
Delta Air Lines didn't even wait for American Airlines to officially launch its new premium economy section before announcing its own competing option. Delta's new fleet of A350s, scheduled for delivery beginning in the second half of 2017, will come configured with a 48-seat premium economy cabin.
The product features are similar to what American Airlines is offering, starting with wider seats and 38 inches of legroom. Premium economy tickets will also include amenities like priority check-in, expedited security, early boarding, pre-departure beverage service, and an upgraded menu.
Delta also plans to retrofit its 777 fleet with premium economy seats in the coming years, but it isn't committing to adding premium sections to its other wide-body planes.
Delta isn't blindly copying American Airlines
Delta's premium economy cabin will be bigger than American's -- but it will be installed on just a few dozen planes. Image source: Delta Air Lines.
American Airlines' rollout of premium economy on its wide-body fleet clearly played a big role in Delta's decision to create a similar product. That said, Delta isn't just playing follow-the-leader. Its strategy around international premium economy service differs from American's in two key ways.
First, Delta's premium economy cabin is much bigger. 48 of the 306 seats on Delta's A350s will be in the new premium section, compared to just 21 out of 285 seats on American's 787-9. At the same time, Delta doesn't plan to have its regular Comfort+ extra-legroom seats on the A350, whereas American's 787-9 offers extra-legroom Main Cabin Extra seats as well as the new premium economy section.
Second, Delta is only installing the new premium economy sections on a small subset of its wide-body fleet. Delta isn't putting premium economy seats on its A330s or its 767s -- at least for now -- and those two aircraft types will account for more than 70% of its wide-body fleet for the foreseeable future.
These two points of differentiation are linked. The A350 and 777 (which are getting the new premium economy seats) are the longest-range planes in Delta's fleet. Delta is betting that customers will appreciate the extra space and amenities of the new premium economy seats on long-haul routes from the U.S. to Asia, Australia, Africa, and the Middle East.
By contrast, the A330s and 767s are mainly used for somewhat shorter flights from the U.S. to Europe and South America. On these routes, customers may be less willing to pay a lot extra for premium economy service.
Thus, while American Airlines is spreading its bets around by putting small premium economy cabins on nearly all of its wide-body planes, Delta Air Lines is making a bold bet on premium economy seating -- but only for its longest, most grueling flights.
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Adam Levine-Weinberg is long January 2017 $40 calls on Delta Air Lines. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.