Are Complimentary First Class Upgrades Killing US Airlines?

Even for those spending five or six digit sums with airlines around the world, only an upgrade or two per year can be guaranteed with elite frequent flyer status. Most international airlines, like those found in Europe, Asia, Middle East and the Pacific don’t offer regular complimentary upgrades on any flights, and instead only offer one, or at most a couple upgrade vouchers a year for top tier flyers to cash in.

For those in the lower tiers, its simply the use of nicer check in desks, and perhaps an airport lounge.

Countering that – most US airlines, like Delta, American and United, offer unlimited complimentary upgrades on domestic flights, and frequent flyers find themselves traveling up front in “first class”, even when they just pay for economy, more often than others.

That may sound a lot better, but with unprecedented service cuts, perhaps the upgrades are too sweet to last, or not sweet enough to be worth it…

American Cuts First Class Service

American Airlines just announced further cuts to first class service, leaving many, even on flights around 5 hours with nothing more to show for their first class ticket than a “cheese” board, with some fruit. It hardly sounds very “first classy”.

But then again, how many people are actually paying for it?

Airlines are haemorrhaging money at unprecedented rates due the decimation of travel through covid-19, and with that comes empty planes, particularly in first class where business travelers have largely been told to stay home and mute themselves on Zoom meetings at all the wrong times.

Even infrequently frequent flyers are thus enjoying complimentary upgrades practically every time they take to the skies, filling first class cabins with economy class tickets. Them’s the rules of those lucrative frequent flyer programs, and right now elite status has never meant more to those who enjoy a complimentary upgrade.

But what does it mean for airlines trying to increase service levels? For now: increasing losses, and for some, but not all airlines – more cuts. People rarely traveled in first class for the food, but when you take something away, people notice, particularly if the prices don’t drop along with the losses.

It’s hard to be surprised by service cuts when the service is being enjoyed almost exclusively by those who did not pay for it, but that doesn’t mean the cuts should be happening.

Airlines are at a crossroads where diminishing first class service to levels found presently could make it so unattractive that no one will ever buy it again. Airlines typically make the greatest margin on seats up front, so that could become quite a problem. Even then, it doesn’t change the simple fact that the majority of flyers enjoying first class at the moment bought economy tickets.

Before you shed a tear for airlines and excuse their service cuts, just don’t.

The loyalty programs which earn flyers the perks of unlimited complimentary first class domestic upgrades are worth more than the airlines themselves, many to the tune of 3X. In other words, American, Delta, United, JetBlue, Southwest and others are extracting billions from travelers via the loyalty programs, whether they’d like to admit it or not.

United, for example, was recently valued around $7 billion, while its loyalty program was in the $20 billion vicinity. Those flyers may not be “paying” for the first class upgrades on the day, but chances are that something in their consumer behavior made the airline money on many days when the passenger wasn’t flying at all. Just holding an airline credit card makes airlines and their associated loyalty programs billions annually.

So where’s it all going wrong? Contrast the present, to last year. Last year, planes were so full, even the invitation only, elite-elite frequent flyers often needed to pay up for first class, if they wanted to sit there. Planes were full, and airlines were selling cheap upgrades in an attempt to make loyalty worth less, and each flight worth more.

Even cheap upgrades went some of the distance to covering costs, whereas unlimited complimentary upgrades don’t go nearly as far.

Very few complimentary upgrades were making the rounds, thanks to full planes, and it was therefore easy for airlines to ramp up the perks, and make first class great again to entice the extra spending. At the very least, it was competitive enough to be worth buying, particularly on longer flights. If business was paying, why not?

But now business travel is all but dead, most flights are at a fraction of their capacity, and after decades of growing demand for the seats up front pushing more cushy seats onto planes, there are even more of those going empty. The very perks which were designed to encourage high spending loyal flyers seem to be the very cause for the demise of domestic first class we’ve seen for years.

Are complimentary first class domestic upgrades killing US airlines? Who knows, but they’re definitely killing any resemblance to “first class” as it was once regarded.

European airlines may not even offer a better seat than economy, but there’s still champagne and multi course meals, even on the shortest flights, and yes – even during covid-19. Another key factor? Business or “first class” in Europe brings lounge access along with it, which helps to justify perks to businesses and leisure travelers seeking extra comforts. In the US, it does not, nor does elite status for most.

In covid-19 times, a guaranteed blocked middle seat and a lounge to tuck into is arguably more attractive as a selling point than ever. The food and drinks may not move the needle much, but they create the feeling of a first class experience, and brand perception isn’t for nothing.

People in Europe and the rest of the world are buying business class as a way to ensure greater social distancing during covid-19, but in the US there’s no need. The elite frequent flyers can get it for free…