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U.S. airlines doubled down on high-end travel after the pandemic to drive up profits and reduce their vulnerability to economic swings. The strategy is paying off as the margins of carriers selling premium seats have held up despite a slump in overall travel demand. Strong demand from affluent travelers is helping airlines offset a pullback in spending by price-sensitive customers. Delta Air Lines last week reported a 5% year-on-year jump in its second-quarter premium ticket revenue, compared to a 5% decline in main cabin revenue. The 10-percentage-point gap was the widest since the pandemic, helping it post a double-digit margin in the April-June quarter. Similarly, premium cabin revenue helped United Airlines mitigate the financial hit from operational constraints at Newark airport near New York City one of its largest hubs and increase its earnings in the latest quarter. United’s premium revenue rose 5.6% in the June quarter from a year ago. Its overall passenger revenue grew just 1.1%. The industry saw a similar trend in the first quarter when President Donald Trump’s sweeping tariffs raised the specter of an economic recession, hammering airline bookings. “Premium capacity remains resilient,” said United’s Chief Commercial Officer Andrew Nocella. Airline executives have attributed the resilient demand for premium travel to the healthy financial conditions of U.S. households with earnings of $100,000, which account for 75% of air travel spending. While an April selloff in financial markets after Trump announced tariffs raised the risk of undermining that demand, a sharp rebound in U.S. stocks since then has eased those concerns. “Our core consumer is in good shape and continues to prioritize travel,” Delta CEO Ed Bastian said last week. TROUBLE IN MAIN CABIN In contrast, lingering uncertainty about the broader economy and rising living costs have taken a toll on demand from less-affluent customers. Bank of America data shows, while spending by middle- and higher-income households held up in June, lower-income household spending turned negative. Low-fare carrier JetBlue Airways last month told staff that it was planning new cost-cutting measures as soft demand made achieving a breakeven operating margin in 2025 “unlikely,” according to an internal memo seen by Reuters. Summer travel season tends to be the most profitable for carriers. But weak demand for main cabin seats has forced airlines to offer sales to fill planes. Discount carriers such as Frontier and Spirit Airlines are aggressively slashing flights to prevent more discounting pressure. Airline executives say premium cabins have become “the profit differentiator” in the industry. Since premium travelers tend to be less price-sensitive, carriers expect them to be less affected by economic shifts, making their spending more stable and offering a buffer in a downturn. At Delta, premium revenue accounted for 43% of passenger revenue in the June quarter, up from 35% in 2019. It has helped the Atlanta-based carrier become a pre-tax margin leader post-pandemic. The company expects its revenue from premium cabins to surpass that from main cabins in 2027. Diversified revenues, including from premium cabins, have helped shares of Delta and United outperform the broader industry in the past two years. Encouraged by the payoff, carriers are further ramping up investments to make their premium offerings more attractive. United has unveiled new premium suites with privacy doors on its new Boeing 787-9 planes. The suites will have 27-inch screens, luxury skincare amenities, and caviar and wine pairings. Alaska Airlines is on track to increase the share of premium seats on its flights to 29% by next summer from 26% currently. RISK OF SUPPLY GLUT Faced with weak margins, budget airlines are now also trying to tap into the high-end market. JetBlue, which has reported a profit in just two of its last nine quarters, is putting first-class seats on domestic flights and opening its first airport lounges in New York and Boston. Frontier is retrofitting the first two rows of its aircraft with first-class seats. Spirit, long known for its no-frills service, is seeking to rebrand itself as a premium airline to turn around its business. The number of premium seats in the U.S. domestic market has increased by 14% since 2019, more than three times the growth in main cabin seats, according to data from Visual Approach Analytics. The rush to add premium seats is hampering aircraft deliveries. It also risks causing a supply glut, hurting pricing power. But Alaska CEO Ben Minicucci downplayed those concerns, saying premium travel is more about an experience than a seat. “We see it as an end-to-end premium experience that people will pay for and people expect,” Minicucci said in an interview. Rajesh Kumar Singh, Reuters
Category:
E-Commerce
WhatsApp should prepare to leave the Russian market, a lawmaker who regulates the IT sector said on Friday, warning that the messaging app owned by Meta Platforms is very likely to be put on a list of restricted software. Russian President Vladimir Putin last month signed a law authorising the development of a state-backed messaging app integrated with government services, as Moscow strives to reduce its dependence on platforms like WhatsApp and Telegram. Anton Gorelkin, deputy head of the lower house of parliament’s information technology committee, said in a statement on Telegram that the state-backed app, MAX, could gain market share should WhatsApp, used by 68% of Russians each day, leave. “It’s time for WhatsApp to prepare to leave the Russian market,” Gorelkin said, noting that Meta is designated as an extremist organisation in Russia. The company’s Facebook and Instagram social media platforms have been banned in Russia since 2022 when Moscow sent tens of thousands of troops into Ukraine. Meta did not immediately respond to a request for comment. NATIONAL SECURITY THREAT Anton Nemkin, a member of the parliament’s IT committee, said WhatsApp’s fate in Russia was predetermined. “The presence of such a service in Russia’s digital space is, in fact, a legal breach of national security,” the TASS news agency quoted Nemkin as saying. Asked if WhatsApp might leave Russia, Kremlin spokesman Dmitry Peskov said all services must abide by Russian law. Russia has long sought to establish what it calls digital sovereignty by promoting home-grown services. Its push to replace foreign tech platforms became more urgent as some Western companies pulled out of the Russian market after 2022. The Kremlin this week published a list of instructions from Putin, including an order to introduce additional restrictions on the use in Russia of software, including communication services, produced in so-called “unfriendly countries” that have imposed sanctions against Russia. Putin gave a deadline of September 1. Gorelkin, referring to Putin’s order, said WhatsApp was likely to be among those communication services restricted. Gorelkin said he expected Telegram, founded by Russian-born Pavel Durov, to avoid being banned, provided it complies with Russian law. Telegram has started the procedure for creating a Russian legal entity, according to an update from state communications regulator Roskomnadzor this week. Alexander Marrow, Reuters
Category:
E-Commerce
While there is an intention to blend into the workforce, Gen Z also values self-expression. María José Gutierrez Chavez explains more.
Category:
E-Commerce
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