LONDON, April 2 (Reuters Breakingviews) - United Airlines (UAL.O), opens new tab is giving new meaning to sitting at the “front” of the plane. The $31 billion U.S. carrier held a splashy event in late March to showcase its planned ​premium services – one of which has so many upmarket seats, opens new tab they stretch all the way to the back of the wing. ‌It’s part of a wider global battle to lure wealthy fliers by offering fancy pyjamas, vintage champagne or extra space. The move seems to jar with austere warnings of potential jet fuel shortages from the likes of Finnair. But recent history suggests that racing upmarket in troubled times makes sense.

The post-pandemic “premiumisation” trend has been ​a blessing for groups like United, $44 billion Delta Air Lines (DAL.N), opens new tab and $22 billion British Airways owner IAG (ICAG.L), opens new tab. Business travel was whacked by ​Covid-19, and videoconferencing means much of it may never return, with IAG’s finance chief dismissing comparisons, opens new tab with 2019 ⁠as “ancient history”. Fortunately, wealthy holidaymakers wanting to travel in style have more than offset the shortfall, with Air France-KLM (AIRF.PA), opens new tab CEO Ben Smith last ​year pointing, opens new tab to “unbelievable” spending from Americans vacationing in Paris. Catering to the better-off has been a winning strategy, with shares in more premium-oriented Delta and ​United outpacing rival American Airlines (AAL.O), opens new tab in recent years.

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True, focusing on swanky lie-flat seats might seem odd given the global industry’s current backdrop. Jet fuel prices averaged $195 a barrel in the week ending March 27, according, opens new tab to IATA, almost double the level a month earlier. United has made plans that assume oil rises as high as $175 ​a barrel, while airlines in more Gulf-dependent regions like Europe and Asia are worrying about shortages. Vietnam Airlines said it would suspend, opens new tab several routes ​for lack of fuel. Oil prices rose around 7% on Thursday, as President Donald Trump said the U.S. would keep up attacks on Iran without committing ‌to a ⁠specific timeline to end the war.

Nonetheless, recent history shows premium resilience even in times of economic stress. In the third quarter of 2022, amid higher oil prices following Russia’s invasion of Ukraine, Delta reported main cabin revenue 2% below the same period in 2019. Premium sales were 8% higher. When regular U.S. consumers braced for turbulence after last April’s “Liberation Day” tariffs, IAG reported a disappointing summer for transatlantic economy travel. More ​upmarket seats, however, held up well.

There ​are still risks. In a ⁠March note, JPMorgan analysts pointed out that, around the time of the invasion of Iraq in early 2003, British Airways’ premium traffic underperformed the economy cabin. It’s also possible that sustained high oil prices could ​hit equity markets hard, leading to a negative “wealth effect” that dents animal spirits and therefore travel ​among the world’s richest ⁠fliers. Still, markets are not quite there yet. And higher fuel costs necessarily call for higher fares. Leaning on those better able to afford it simply makes financial sense.

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Context News

• United Airlines said on March 24 that it expected to take delivery of more than 250 new aircraft by ⁠April 2028.
• The ​U.S. carrier said it planned to launch new, more premium services on regional ​and transcontinental routes, adding that its long-haul Boeing 787 with an “Elevated interior” would fly internationally starting on April 22. The jet features 99 premium seats out of a total ​222, or around 45% of the aircraft.

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Editing by Liam Proud; Production by Shrabani Chakraborty

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Oliver Taslic

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Oliver is Breakingviews’ EMEA production editor. He also writes about European airlines and civil aerospace. Oliver joined Breakingviews in 2019.

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