American Airlines To Introduce Domestic Premium Economy In 2017

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Scott Kirby, President of American Airlines, was presenting at The Bank of America Merrill Lynch 2016 Transportation Conference this morning and, while there wasn’t too much in his talk that we haven’t heard from American before, one thing that came out of the Q&A stood out for me – Premium Economy cabins are coming to domestic American Airline flights in 2017.

I knew that Premium Economy would be coming to American’s international fleet (and I’m not a big fan of that idea!) but Premium Economy cabins on American’s domestic fleet was definitely news to me.

What Scott Kirby Told Investors In His Talk

During his talk Scott Kirby touched on a lot of different areas without going into too much detail on any of them so it’s probably easiest if I post some bullet points of what he had to say.

• Technology at American Airlines is lagging behind competitors and needs investment…which is what the airline is currently doing.

• Echoing what Doug Parker said back in March, Kirby noted that the airline was focusing on a “cultural transformation” where the aim is to build “the best employee engagement in the industry” by focusing on improved contracts and profit-sharing with employees as well as getting to a place where employees were proud of where they work.

• The credit card deal with Citi expires next year and, going off what has happened with competitors, Kirby predicts the new credit card deal (whenever that may happen) should see ” 2 to 3 points of RASM growth” for the airline.

• The new revenue based frequent flyer program is on the way…although, depending on how literally we should take what Kirby said, we may not see it this year after all (emphasis mine):

We’re going to put a new revenue frequent flyer program in place next year which will be good for the airline and good for our customers

It’s possible that American will miss the very loose “towards the end of 2016” target they set for the introduction of the new loyalty system but I suspect that Kirby just meant that 2017 will be the first full year of the new loyalty program.

• International Premium Economy is still on track for implementation at the end of 2016 (presumably when new aircraft deliveries start coming in) and Basic Economy fares will be brought in before 2017 as well.

Scott Kirby

What Came Up During the Q&A Session

I often find that it’s during the Q&A sessions that you get the more interesting information…and this time was no exception.

When asked what sort of impact the introduction of Premium Economy and Basic Economy fares will have this is what Kirby had to say:

Segmentation of the coach cabin is a big deal

The economic impact certainly is in the hundreds of millions

I, personally, will be disappointed if it’s not in the billions, north of a billion, for an airline of American’s size.

It was when the subject of American’s new cabin segmentation came up that Kirby first made a mention of Premium Economy on domestic routes….but in a way that made me think he’d simply misspoken (emphasis mine):

If you want to sit in Premium Economy which has more legroom and might have more ability to upgrade to First Class you can do that”

If Premium Economy was to only be found on international routes this seemed like a strange thing to say – you can’t upgrade to First Class from any cabin other than Business Class…and American Airlines doesn’t even have that many aircraft with International First class any more.

Then things became a lot clearer when another question came up asking about the timings for the implementation of Basic Economy and Premium Economy (emphasis mine):

Basic Economy will come some time at the end of this year. We don’t have an exact date yet.

Premium Economy, domestically, will come some time in 2017 but we still don’t have exact dates.

That’s pretty definitive and definitely news to me.

I took a look at American Airlines’ Premium Economy webpage and there’s no mention of anything other than Premium Economy on international routes.

Why The Big Deal?

This could be a huge deal to American’s frequent flyers because it could completely change the value of the various Elite status levels – especially top-tier Executive Platinum status.

As things stand, Executive Platinum status holders get complimentary upgrades from Coach (Economy) to First Class (on domestic 2-cabin flights) and from Coach to Business class (on domestic 3-cabin flights)…but the introduction of a Premium Economy cabin could change all of that.

Executive Platinum flyers are already bracing themselves for the inevitable “no free upgrades from the cheapest fares” when Basic Economy fares are introduced later this year but Scott Kirby’s comments could mean that it’s actually worse than that.

It’s entirely possible that, with the introduction of Domestic Premium Economy cabins, only a small subset of Coach fares (the expansive ones) will be eligible for free upgrades to First Class….all the other coach fares will, at best, be upgradeable to Premium Economy.

The better case scenario is that this will only be introduced on select domestic routes (the ones operating with wide-body aircraft) but if they find a way to roll it out fleet-wide it would be very bad news indeed.

If this turns out to be the case, and I appreciate that this is all conjecture right now, it will be a huge devaluation to Executive Platinum status at American Airlines.

Bottom Line

I’d love to know if anyone else already knew about this (and I’d just missed the announcement) or if this is news to everyone else as well.

I was already seriously considering whether or not it was worth flying enough miles in 2017 to renew Executive Platinum status for 2018 but, if Premium Economy comes to all of American’s mainline domestic fleet, it’s one more reason for me not to bother – It’s probably a lot more sensible to just fly whichever airlines gives me the better deal (in Economy and Premium cabins). If nothing else it should give me a lot of new airlines to review 🙂