Delta Plans To Unbundle Business Class…Will American + United Follow?
Unbundling business class would be a big deal in the United States, but it appears that Delta Air Lines is seriously considering it, meaning American Airlines and United Airlines will almost certainly follow. But does it make financial sense for airlines to squeeze more from their most premium customers?
Delta Air Lines Considering Unbundling Business Class…What Will That Look Like And Will United Airlines And American Airlines Quickly Follow?
Unbundling is the practice of charging separately for services that were previously included in the price of a ticket. The goal is to get folks to spend more by buying the extras needed or buying up to a fare class that is is more inclusive.
Business Class Unbundling Is Not All That Uncommon
To an extent, we’ve already seen unbundling in Europe. British Airways has charged for seat assignments in business class for years. Lufthansa is doing with its new Allegris product and SWISS has always charged extra for its throne seats in business class. Most European carriers have change fees for business class tickets as well. In the Middle East, Qatar Airways has a “light” business class fare that has high change fees, no lounge access, and seat assignment fees.
So there is precedent for this, though we have not seen it come to the United States. Until now?
Delta Preparing Us For “Basic” Business Class
Earlier this year at the 2024 Q2 Delta earnings call, JP Morgan Analyst Jamie Baker asked about unbundling the premium cabin:
“This concept of unbundling the front cabin is one that I’ve been thinking about in part because unbundling and segmenting the rear cabin has been such a success for Delta and a few others. I want to be careful about asking about future pricing and all that, but I’m curious what the pros and cons are in terms of possibly going down this path, or is one price for all how we should continue to think about the D1 cabin?”
Delta President Glen Hauenstein strongly suggested that Delta was considering exactly that:
“We’ve talked conceptually about that. I think we’ll be giving you more details as we go, but we’re not ready to talk about the details of those plans moving forward. I think the investor day this year should be very exciting.”
Then in the 2024 Q3 conference call, Hauenstein went even further in suggesting an announcement is imminent:
“But we also think there’s more to go on the premium products. And I think not to keep harping in on saying, come next month and join us for our Investor Day. But I think we’ll be able to unveil why and how we think those can continue to improve over the medium and long term.”
Investor Day will take place on an unspecified date in November 2024.
My Thoughts On What May Come Next For Delta…And Others
I detest change fees and I am so thankful that one small speck of progress during the pandemic was the elimination of change fees on tickets originating in the United States.
One Mile At A Time figures beyond charging for seat assignments, the lowest hanging fruit, one immediate effect could be the return of change fees for folks who buy “basic” business class fares. I think he’s right..and I find that deeply dismaying (though hardly surprising) even though airlines promised that change fees would be gone “forever.”
Other “unbundling” we could see from Delta includes:
Checked baggage no longer included
Lounge access not included
Priority check-in / security / boarding not included
No changes or cancellations (versus simply a return of a change fee)
Meanwhile, View From The Wing notes that the marginal costs of offering things like lounge access and priority security are low and charging customers extra for them may strongly alienate customers, using the analogy of cable TV packages (charging slightly more for the full bundle earns a cable provider more money than charging separately for each channel). I do think there’s some truth to that, though I think Delta is bold enough to try and “have its cake and eat it too.”
Delta is the profit leader of the US airline industry and a trendsetter in many ways. If Delta adopted such changes, I would absolutely expect United and America to follow (not Alaska, which takes a more conservative approach). And I do think we could see a domestic first class product that does not include seat assignments and changes and a longhaul product that does not include Delta One lounge access. That’s my guess.
While I think these changes would invite the scrutiny of United States Secretary of Transportation Pete Buttigieg and may be delayed until the Korean Air – Asiana merger is approved (the US remains the last holdout in approving this merger), if Trump wins next month I think Delta would feel quite emboldened to do this. Even if Harris wins, I would think protections for the “rich” premium cabin travelers would be less of a priority.
CONCLUSION
We should see next month the extent to which Delta is willing to unbundle is premium product. I’m expecting this evolution to be incremental and at first we will see charges for seat assignments–like its joint venture partner Air France–but eventually, we will see things like no lounge access and high change fees on the cheapest business class tickets.
How would you react to the US carriers unbundling business class?
image: Delta