The Economics of Class on Airlines

How airlines format their cabins to maximize profits and why

Posted by Joseph Lawrence on June 21, 2021

Most people are familiar with the typical layout of seats on a plane: a few seats in the front that are more expensive and the majority of seats in the back that are more reasonable. Based on this assumption, a good hypothesis is that the majority of the money made by airlines comes from the back seats, or the economy seats. This would make sense; there are so many more economy seats than first or business class seats in the front that airlines must make more money there. Let’s take a look at an actual layout of a long-haul flight and figure out where the money is actually coming from:

Air France Diagram

The diagram above shows the seating arrangements on an Air France Boeing 777-300ER, a typical plane that flies from Los Angeles to Paris at 6 P.M. every day. Each Economy class seat costs $492. There are 206 Economy class seats, meaning that all Economy seats on the plane have a value of $101,352. Each Premium Economy seat costs $1,392. There are 28 Premium Economy seats, meaning that all Premium Economy seats on the plane have a value of $38,976. This number is considerably close to the total value of Economy seats, despite the ratio of Economy to Premium Economy seats being so high. Each Business class seat costs $2,650, and there are 60 Business class seats. This means that the total value of the Business class seats on the plane is $159,000. This is over 50% more than the total cost of all 206 Economy class seats. Of course, airlines don’t make $300,000 per long-haul flight. Connecting flights and high fares for traveling to popular places like Paris and Los Angeles keep profits far below that mark. Even when reduced, however, profits largely come from premium cabins. More Business class seats are filled because the difference between business and economy is so large. The opportunity to lie down, have a meal, and relax during the flight is not offered in Economy. Airlines know this. It explains why approximately 70% of the cabin of that 777 is filled with Premium seats. Lufthansa, for example, on some flights from Los Angeles to Frankfurt, fill the entire upper deck (essentially half) of their Airbus A380-800 with Business class seats.

A class system has not always dominated the aviation industry. When flying was first introduced, it was the experience of flying that was the luxury, not the lie-flat beds and full course meals. A typical transatlantic flight 70 years ago cost about $675. When adjusted for inflation, this would be equivalent to charging almost $7,000 today for an Economy class seat. A class system was only introduced after 3 major developments: the 747, the Concorde, and the deregulation of airlines within the United States. The 747 introduced a plane that was massive, giving airlines the chance to experiment with different types of cabins all within the same airplane. The Concorde, the first supersonic passenger jet, was the ultimate luxury itself, essentially an all-first-class plane for only the wealthiest to enjoy, and the deregulation of airlines finally gave airlines the actual ability to experiment with prices of seats. The first signs of change came from simply separating the passengers who paid different prices: If someone paid the full fare, they sat in the front, but if they paid a discounted fare, they would be seated in the back. Slowly, the seats in the front became nicer, more spacious, and more comfortable, essentially replicating the business class seats of today. Airlines still avoided first class, because the Concorde was the first class plane for the wealthiest people only. It was only after the failure of Concorde in 2003 that airlines really started to experiment with first class. The most noteworthy first class airlines from the Middle East like Etihad Airways and Emirates have even created mini hotel rooms for their passengers as first class seats.

So what does the future hold for classes in planes? The timeline of the Concorde tells all. A plane for only the richest, the Concorde failed miserably. The idea of the Concorde is effectively the idea of airlines that still use first class. Of the 25+ airlines that make daily flights from North America to Europe, only 6 exist that still use first class. The point is that first class is failing, again. A number of airlines that did not learn from the spectacular demise of the Concorde will restructure their cabins in the future to maximize what is and always will be the most profitable area of a long-haul plane, business class. This isn’t just a trend that can be predicted from a past one. Airlines like Etihad and Emirates are struggling to sell first class seats that are more than double the cost of business class seats. They take up so much more floor space while the difference between themselves and business class seats is really negligible. Paying $14,000 for a little more space when you could pay $6,000 for almost the same thing is, quite frankly, ridiculous. The future of long-haul travel on planes is one without overly-extravagant first class seats and one that focuses on the mid-tier, business-class traveler.