In the background of weak overall travel demand, the two major U.S. airlines – Delta Air Lines and United Airlines – rely on premium cabin services (such as first class and business class) to maintain profitability, indicating that high-end travel investment strategies post-pandemic are beginning to pay off.
According to reports from Reuters, airlines have been actively promoting high-end services post-pandemic to strengthen profit structures and reduce dependence on price-sensitive customers. Now, this strategy is proving effective: the stable demand from affluent passengers helps offset the pressure of declining bookings in economy class.
Take Delta Air Lines as an example, the revenue from high-end tickets in the second quarter of this year increased by 5%, while economy class decreased by 5%. This 10-percentage-point difference is the largest since the onset of the COVID-19 pandemic, contributing to double-digit profit margins in the months of April to June.
United Airlines also relies on revenue from premium cabins, easing the financial pressure caused by operational limitations at Newark Airport. In the second quarter, its revenue from high-end cabins increased by 5.6%, significantly higher than the overall passenger revenue growth of only 1.1%.
Top airline executives generally believe that American households with incomes exceeding $100,000 are financially stable. Although they represent a low percentage of households, they contribute to about 75% of airline spending. Even though the stock market saw a temporary decline in April due to tariff issues, subsequent rebound has alleviated concerns about affluent consumers cutting back on spending. Ed Bastian, CEO of Delta, stated, “Our core customer base is in good shape and still prioritizes travel.”
However, low- and middle-income groups are affected by uncertain economic prospects and rising prices. Data from Bank of America shows that spending among low-income households has seen negative growth, while middle- to high-income household spending remained stable in June. Low-cost carrier JetBlue Airways warned employees last month that if demand does not improve, achieving financial balance in 2025 may be difficult, and further cost-cutting measures will be necessary.
Summer is traditionally peak season for airlines, but weak demand in economy class has forced operators to lower prices and offer promotions. Budget airlines like Frontier and Spirit have reduced flights to prevent further deterioration of ticket prices.
It is widely recognized in the industry that premium cabins have become a “key profit differentiator.” Compared to economy class passengers, high-end travelers are less sensitive to prices and have more stable spending habits, which helps airlines withstand economic downturn risks.
For example, at Delta, revenue from high-end cabins in the second quarter already accounts for 43% of passenger revenue, higher than the 35% in 2019, making it a leader in pre-tax profit margins post-pandemic. The company expects that by 2027, revenue from premium cabins will surpass that of economy class for the first time.
This strategy has also propelled Delta and United Airlines stock prices to outperform the industry average over the past two years. Encouraged by this trend, operators are continuing to invest in high-end products. United Airlines’ new Boeing 787-9 deliveries come with premium cabins equipped with features such as privacy doors, 27-inch screens, luxury skincare products, and caviar with wine service.
Alaska Airlines also plans to increase the proportion of high-end seats on board from 26% to 29% by the summer of next year.