Five Things We’ve Learned About AA’s Premium Economy

Aug 15, 2017

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Airline investor earnings conference calls are always a fascinating look into the true motivations behind airlines. While carriers may say one thing to its passengers, it might be telling its investors something completely different. For example, AA focuses on customer choice when presenting basic economy to passengers. Meanwhile, airline management tells its investors in these calls of the $1 billion in incremental annual revenue the airline will get from charging customers more for the same product as before.

American Airlines recently held its second quarter 2017 investor earnings call. In addition to revealing its plans to take basic economy nationwide by the end of September, we learned five new things about AA’s continuing roll out of premium economy:

1. AA is “very pleased with the customer adoption” of premium economy. While it seems that American was initially having trouble filling premium economy seats, it seems that AA is happy with the adoption so far — at least from what its telling its investors and financial analysts.

2. Premium economy has had an “average upsell rate of more than $400.” Airline management didn’t clarify if this was one-way or round-trip. But, this is much better than the $23 fare premium that AA disclosed for basic economy when an analyst inquired.

3. AA will have 63 aircraft with premium economy by the end of year and 77 by the end of March 2018. From what I can tell, AA currently has just 10 aircraft with premium economy: nine Boeing 787-9s and one Boeing 777-200. If my numbers are correct, AA is planning to crank out another 53 retrofits in the next five months. That’s more than a retrofit every three days through the end of the year — before slowing to just one per week in the first quarter of 2018.

4. AA expects “to have most of our other widebody aircraft retrofitted with this highly differentiated seating choice for international customers by the end of 2018.” Back in May, AA released a schedule showing that retrofits would be complete by the end of June 2018. Now management is saying end of 2018. It’s not clear whether this represents a new delay in the retrofits, or if AA just wants to give itself a little breathing room in its public statements. Also, this statement specifically notes “most of our other widebody aircraft.” We learned a few weeks ago that AA won’t retrofit its nine Airbus A330-300s, but it’s unclear if there are any other widebody aircraft that won’t get a premium economy overhaul.

5. AA has no plans to launch premium economy domestically. After being sold on the positive “customer adoption” rate and $400 upsell rate, the natural question for analysts to ask: Does the airline “have any plans to expand the Premium Economy into the U.S. market as well?” Three different members of AA’s management all tried to confirm at once that, no, “there’s no plan now… to go domestically.”

Bottom Line

American Airlines may be lagging behind its domestic competitors in several performance aspects. However, AA is blowing away the pack when it comes to revolutionizing its fleet — both with top-tier international business class products and this premium economy overhaul. Meanwhile, Delta is finally launching a true premium economy for the first time this fall, and United seems to still be waffling on whether or not it should go down the premium economy path.

Have you tried American Airlines’ premium economy product?

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