CEO Blog

Unbundling Business Class products: be aware of expectations

Written by Ravindra Bhagwanani on . Posted in CEO Blog

Lounge access11 July 2019

When Emirates recently announced its intention to start to unbundle the Business Class product, an industry-wide discussion was initiated. Such approaches do already exist, however, and the true question is what expectations this creates with passengers.

As a mean of cost savings, airlines such as Emirates or Etihad actually already started some while ago to cut back on the Business Class experience by striping out some elements such as a chauffeur service, notably from passengers using award tickets. It is no surprise that these airlines, with some of the best premium products in the market, have started such moves, given that the remaining elements of their product remain highly competitive and attractive. Nevertheless, it takes out some of the aspirational value of award travel – a not to be underestimated psychological factor when it comes to loyalty theories.

Emirates than started the discussion to unbundle the paid Business Class product, whereby higher mileage credits and lounge access might be the easiest elements to be taken out from the overall product. It obviously remains to be seen whether this would result in a real unbundling – meaning that passengers pay less if they opt out of these services – or rather whether the current prices are maintained for everybody and that passengers wishing to avail of the full experience will have to pay more. The experience with the unbundling in Economy Class shows that the second scenario is more likely.

Other airlines with weaker Business Class products, like Lufthansa, have since then joined the discussion and publicly mentioned corresponding plans, at least as trials.

At the same time, some airlines with lower public profiles have already implemented such approaches. For instance, Russian oneworld member S7 Airlines started in June to offer award flights aligned to its branded fare categories. The only differences between the Business Basic fare and the Business Flexible fare are 1 instead of 2 pieces of checked luggage of 32 kgs – and no lounge access. Award levels for the Business Basic fare are thereby identical to what Business Class award levels used to be. Members wishing to benefit of the full Business Class experience are now required to pay more, for instance 4,000 miles per one-way ticket to Western Europe – unless you benefit of lounge access and additional baggage allowance according to your tier level anyway.

While only time will tell how customers will accept these practices (and whether the additional ancillary revenue will offset the lost revenue due to changed customer behaviour), one issue becomes already predictable: If a customer pays extra to avail of a specific experience, he has (justified) expectations upon the product.

It must have happened to each frequent flyer to have experiences below expectations with certain elements of a premium product. But you’ve probably thought to yourself that you didn’t really pay for that experience (although you did, of course) and forgot about it.

But imagine now that you book a ticket, predict that you will have 3 hours at the airport before your flight and will therefore appreciate to be able to access the airline’s lounge – and pay 4,000 miles or 50 USD extra for that. You’d hardly accept to end up standing in a lounge that is more crowded than the public waiting area outside of the lounge? Yes, the airline will certainly have managed to get that one-time ancillary revenue out of you – but it shouldn’t necessarily expect to see you back. Such strategy can actually very quickly become a highly efficient disloyalty program.

Airlines should be aware that the higher expectations they create, the more consistent the product delivery needs to be. While many airlines have, of course, improved over the last few years in that regard, anything below a 100% perfection will fire back on them when starting to unbundle the product. So before looking into more unbundling approaches, be it with the base product or at the FFP level, most airlines would probably need to do some more homework.

While there is a fair chance that such approach will be a market standard in 5 years from now, the early movers take a tremendous risk here. When low cost carriers started that concept with an Economy Class product, their message was very clear that customers shouldn’t expect anything and they were successful. Such messaging with a premium passenger will hardly work since he continues to expect an overall superior experience, given the price he has to pay for it.

And at the same time, you will have airlines bucking that temptation – potentially even with a superior product – and then things will become really interesting. Interesting for market observers and for passengers really looking for the best value. But certainly less interesting for airlines/FFPs having taken the lead and not meeting customer expectations anymore.

Let’s open the gates and let the lions out!