The Great Business Class Unbundling Is Coming

David Kaplan
Jul 29, 2019 - 6 min read

Given Emirates’ continued unveiling of fare tiers tied to their business class amenities, could the larger airline unbundling revolution be poised to spread from economy to premium? 

Emirates’ introduced in June a new special fare for business class travelers that represents its most limited product bundle yet.  As its fare families edge closer and closer toward an a la carte offering rather than the customary all-inclusive fares of old, will this move someday be remembered as the moment the “great unbundling revolution” began to expand beyond airline economy fares?

As first reported in One Mile At A Time, Emirates’ business class fares are now divided into  “Special” fares, a pricing system which joins their other business class fares, including Saver, Flex, and Flex Plus. The newly-designated “H” fare class includes only a seat in the business class cabin of Emirates flights.  Notably, it omits extras that had previously been bundled into pricier packages such as lounge access, chauffeured rides to and from the airport, upgrades to first class, pre-assigned seat selection, and extra mileage points/rewards.  While some customer segments will continue to value such amenities, and still have the option to book them in higher fare classes, other travelers may welcome this unbundling.   

Indeed, the move appears to make sense on many levels: after all, how many business travelers want to pay for a chauffeur, additional mileage awards, or even discounted lounge access, when they merely want a more comfortable seat in a quieter section. And for those who do wish to pick their seat assignment as opposed to leaving it to chance, Emirates is probably correct in assuming that a sizable number of business travelers would be willing to pay extra to do so.  As for airline revenue implications, the potential upside will depend on the airline's ability to stimulate new demand for business class seats while preventing such H class bookings from diluting the higher yields normally nested within J class inventory. 

Clearly, the unbundled H fare is designed to create value differentiation vs the traditional offering and this may well be enough to avoid cannibalizing higher fare demand.  If those protections work out, then the upside for Emirates comes from enticing upsell opportunities that arise for passengers otherwise booking the high end of economy class. 

Are Unbundled Premium Fares as Viable as Economy?

But, could this move by Emirates precipitate broader experimentation by other carriers?  Perhaps, but not necessarily.  Emirates’ situation is unique and different from many carriers which may give it incentives to experiment with unbundling where others might resist.  Due to its massive A380 fleet and heavy concentration on leisure and migrant traffic routes, it has a vast pool of business class inventory that often goes unsold, which is not always the case for other premium carriers. 

Overall, Emirates’ move represents a natural extension of the unbundling revolution, says Steve Hendrickson, director of Advisory Services at Kambr Inc., Kambr Media’s parent company. And if it catches on with other airlines, it’s not likely to stop with the exclusion of the premium items that Emirates chose to omit, such as the chauffeured ground transport and discounted lounge access.  

As other airlines study Emirates’ business class unbundling experience, we anticipate similar experiments will be tried elsewhere.  After all, there is potentially far more value to be unbundled from a premium cabin product than was ever unbundled from coach products in recent years.  So, for an industry that believes unbundling enables greater market segmentation, the unbundling of premium cabins could open tremendous revenue opportunities.  It reminds us how the finest restaurants offer a la carte menus rather than “combo platters.” 

Looking back at the unbundling of economy fares, it paved the way for ancillary offers that create several micro-upsell opportunities along the value chain.  And that has been embraced by many.  But, until now, a passenger who got to the top of the coach cabin value chain found that, instead of being offered a continuum of more gradual steps upward, they would be confronted with a daunting jump in price to fly business class.  And, for many business passengers subject to corporate travel policies, that leap in price can often put a road warrior’s desire for comfort and productivity at odds with the budget goals of their employers. 

Emirates' Business Class Cabin: The look might not be changing, but the cost of services for those who are seated here are.

Building A Bridge to Appease Corporate Travel Policies 

Undoubtedly, if premium cabin fares begin to embrace unbundling and discounting, the upsell from economy becomes easier...for any customer.  But a bigger question is the potential to fit improved value-for-money into the scope of corporate travel policies that otherwise might forbid premium cabin travel.   

“This premium cabin unbundling may eventually create a bridge to that next level of value, a new set of baby steps that one can ponder without breaking the bank,” says Hendrickson. “Corporate travel policies will be interesting to watch.  Traditionally, many firms forbid employees to book business class under certain circumstances, but they might rethink that proscription if that comfy chair is available at a reasonable price.” 

Ancillaries in Business Class 

Revenue dilution risks are always a concern for airline revenue managers when unbundled, lower fares are introduced.  Certainly, the unbundling of economy has already faced that reality, learned from it and found the right adjustments to remix ancillary offers that can offset lower fares.  But, will the formula for successful unbundling in premium classes be the same?  Perhaps, but most likely with some key differences. 

For one, many corporate travel managers were reluctant to book their people into basic economy products.  There was simply too much wear and tear on their travelers from back-of-the-bus creature discomfort...and inflexibility cost them dearly in cases of itinerary changes.  So the basic economy products saw immediate pushback from corporations and clear preference for economy plus products, and for very good reasons. 

But reducing a business class fare to little more than a superior seat is another thing entirely.  Onboard creature discomfort is not an issue.  At the extreme, even if airlines go as far as trying to sell inflight meals and beverage with an a la carte approach, the corporate traveler likely has his meals and incidentals budget in place for such purchases.  One might ask, why pay for the dinner and champagne if you are just looking to lay flat and sleep? 

“We’ve already seen how the cheap unbundled coach seat is often a loss leader that ropes you into subsequent ancillary add-on spending decisions,” says Hendrickson.   “The question is, could that happen in an unbundled premium cabin environment as well?   Done right, we think it could be viable.” 

“Perhaps a company will pay for an unbundled lie-flat seat, but nothing else,” he says. “Then, if the corporate traveler wants something extra, like lounge access, they might purchase a day pass, perhaps from their company’s entertainment budget, or maybe even from their own pocket.   That logic could even apply to upcharges for premium food service, priority boarding, etc.” 

Blurred Airlines 

The ultimate judgment will come in terms of how well Emirates’ refines its reputation for lavishness and comfort and whether those changes bump up against passengers’ perception of the brand. 

Given that Emirates’ brand is cloaked in luxury, could an unbundled business class dent the airline’s image? Although one may think that offering more exclusive features at a higher price point will actually serve to distinguish one group of elite travelers from another, Clyde Hutchinson, a partner in management consultancy Journey Partners and head of Viva Air’s Innovation Lab, sees some difficulty in selling the new piecemeal model, once the domain and signature of low-cost carriers. 

“Low-cost carriers started the whole unbundling process, where you unbundle luggage, you unbundle paying for the return fare” Hutchinson told Kambr Media. “It goes back down to what's important for the traveler. So, passengers traveling in business are usually concerned with two things, well three things. They want to be in the lounge, they want to have seats so they can sleep, and finally, it's the loyalty program, how they collect the points and mileage”.  

“Those are the three elements,” Hutchinson added. “People tend to not care where they’re sitting, as long as it's not beside a screaming child when you just want to sleep”.   It's interesting to me, coming from the LCC side, to see that legacy carriers are starting to say “Well actually, we need to be more democratic. There's a lot of service that people don’t want in business class or in general.” 

In the end, airlines have little choice but to embrace unbundling in areas like business class, Hutchinson noted. 

“The problem is, you can try to do it, but you need the philosophy and the system around it... that is core to what an LCC is,” Hutchinson said. “A legacy airline can't suddenly decide ‘As of now, I'm going to take on the philosophy of an LCC,’ because the culture within these airlines don't match. 

“A lot of legacy carrier CEOs like to say, ‘We're agile, we're an agile organization,’” Hutchinson said. “But agile is probably one of the most overused terms. Suddenly you can say you're agile, but unless you have the processes and mindset involved, it's just talk.”

Of course, a few long-haul LCCs have already embarked upon some unbundling of their own in premium cabins.  Norwegian’s simplified premium is one example, and AirAsia X offers a fare product where passengers get a flatbed but virtually everything else associated with business class is a la carte.   

And yet, the fares these airlines sell their premium products for may indicate the price point needed to stimulate demand for a ‘special business class’ is lower than what Emirates and other full-service carriers may expect or need.  It all points to some potentially fascinating market trials in the future...a future that may see unbundling spread more broadly to the front of many aircraft. 


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