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Home / Business / United, Delta climbs on demand of the business class

United, Delta climbs on demand of the business class



Airlines are taking advantage of high-paid business travel, adding premium seats and earning more revenue from the front of their aircraft as fuel costs rise.

Jet fuel prices rose 40% last year, putting pressure on haulage companies to earn more revenue per seat to cover rising costs. Major US and Canadian airlines have been charging for baggage and reservation changes in recent months.

Now, some of the largest airlines are generating higher revenue from passengers paying the highest prices, as they risk losing customers to fast-growing, low-cost competitors. Airlines are among the many companies that have benefited from a strong US economy and the lowest unemployment rate in decades, trends that make earlier bets on more premium seats profitable.

United Continental Holdings
Inc.

The initial international investment seats grew by 3.7 percentage points in the third quarter.

Delta Airlines
Inc.


DAL 2.24%

said last week that sales of business cabinets and premium products increased 1

9% in the third quarter while main cabin revenue increased 3% [19659007] "We continue to see a very strong demand," said United President Scott Kirby on Wednesday at a conference call analysts and reporters. "This is one of the best sales environments we've ever seen."

Andrew Nocella, United's Chief Commercial Officer, said he expects business class cabin yields, a measure of paid mileage per passenger, to continue to rise. He said much of the increase in United premium income was due to filling more seats than raising prices.

Business Bonanza

Airlines generate more revenue from business class passengers.

Delta's passenger revenue, 3rd quarter 2018 19659012] Main Cabin

$ 5.9 billion

+ 3% from

previous year

business cabin and

premium tickets

$ 3 , 7 + 19%

"I think we'll both have," he said.

United shares rose nearly 6% on Wednesday and delta shares rose 2.2%.

American Airlines Group
Inc.

The shares, which fell this month, also climbed almost 1% higher.

American will report profits on Thursday in the third quarter. Investors will look to see if the world's largest freight forwarder has also managed to increase sales to cover higher fuel costs, in part with higher premium revenues. American Airlines has installed premium economy seats on many of its planes in recent years. The carrier said it expects revenue growth of 2% to 3% in the third quarter due to stronger domestic prices.

Delta's Business Class and Premium ticket sales increased to approximately $ 592 million in the third quarter – Carrier revenues increased three-thirds in the third quarter.

The introduction of a broader range of seating and price levels is a strategy by which US airlines are keeping their profitability at record levels. The industry also rejected proposals from some members of Congress this year to regulate the fees they charge passengers to change their reservations.

Premium passengers have long been a rich source of revenue for airlines. "The people in the front of the plane have always paid the freight," said Mike Boyd, a Denver-based aviation consultant. "The people in the background go with me."

According to the International Air Transport Association, these passengers accounted for around 5% of international air traffic in the first seven months of the year, but 30% of passenger traffic.

Premium and economy tariffs have torn apart in international markets in recent months, with premium rates "still more resilient" than economy-class fares, IATA said Wednesday.

Competition from discount airlines that sell tickets that start at low base rates and demand more for extras like luggage and early boarding times, have pulled down US airfares. That is one reason why large airlines have accepted fees and increased premium rates.

They have also found success in introducing raw food services at the lower end of the market to compete with discount carriers while continuing to pull more revenue from premium to business travelers on the high end, said Joseph DeNardi, an analyst at Stifel.

"They do not give corporate customers a Spirit Matching fare," he said.

Even

JetBlue Airways
Corp.

, a groundbreaking low-fare provider in the US, has taken the business class and introduced a premium class in 2014.

"It's one of the highest margin fleet types we have," said Joanna Geraghty, Chief Operating Officer at an October investor event, regarding aircraft with the higher cabins.

Delta said that more customers are opening their wallets for bonus seating rather than hoping for free upgrades. The carrier now sells about 60% of seats in its world-class cabins, down from 13% in the past, executives said last week.

Airlines said corporate customers are booking more travel, including last-minute travel, which offer higher fares.

Alaska Air Group
Inc.

Earlier this month, he said sales in the third quarter are expected to be at the higher end of the forecast, "mainly because of better closed Pricing for these bookings Helane Becker, analyst at Cowen & Co.

"We expect continued strength in selling premium products as business demand is strong," she wrote in a customer number.

Carrier also hope for larger, more comfortable seats attract high-end travelers to pay more. As Delta withdraws its aging fleet of MD-80 aircraft and replaces it with the Airbus A321, the airline will add 20% more premium seats, said Delta President Glen Hauenstein in a telephone conversation with analysts and reporters on October 11.

United equips aircraft with new Lie-Flat seats for Polaris International Business Class.

"I can not wait until we have Polaris business class seats on each of our jumbo jets," says Mr. Nocella, the United manager, said Wednesday. "It can not come soon enough."

Write to Alison Sider at alison.sider@wsj.com and Andrew Tangel to Andrew.Tangel@wsj.com


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