The Economics of Airline Class 

Sorry for doubling up on aviation videos! Normally I wouldn’t do two videos of similar topics back-to-back but the video I was going to do just ended up not being interesting enough so I scrapped the script. I didn’t have time at that point to do a research-intensive video so I decided to do this topic that I already knew a good bit about. Also I know this is a pretty loose interpretation of economics, but hey, I liked the title. Also, one clarification on something I realized might be confusing during editing: airlines absolutely had first class in the 60s and 70s. It just wasn’t anything like the long-haul first class’ you see today. It was pretty much like domestic US first class today. The impact of the Concorde was the perceived competition it created for the highest-class of traveller. Some airlines decided to close their first class cabins and not compete while others improved their cabins in order to compete. Lie-flat seats or even angle-flat seats really didn’t become ubiquitous until the last 10-15 years with the demise of the Concorde. Also, first.

"Everyone in economy, in the end, is just there to fill the plane." .... ... ... ... I've been called worse.

Economy class in planes is the most expensive way to feel poor.

Once upon a time, I was a lost Air Force Airman in an airport. I was in uniform fresh out of basic training...I asked this guy who was wearing a suit waiting for the same flight if I was on the right flight. He said yes, and then he took my ticket and came back with a 1st class ticket. They were offering me wine in the air and I was only 19. lol I will never forget that mans kindness...

Concorde may have failed economically, but from an engineering view it was unrivalled, even today.

I was upgraded to first class when I flew for the first time alone at 16. The woman checking my boarding pass changed my seat number and I didn't realize until the flight attendant pointed me towards the front of the plane. It was an amazing experience and the flight time was over 8 hours.

no, we are not there to fill the flights. we are there just to make the plane balance

Can't even imagine spending 2k+ on a plane ticket, didn't realise there were so many rich people out there

As a customer service at a travel agency, I can never understand when people just go "ok" when I confirm with them that the cost of class upgrade is like a thousand dollars

I fly the plane. I call it captain class.

“In the beginning of commercial aviation, there weren’t really any classes...” *Karl Marx has joined the chat.*

The observation about direct flights being more expensive is really interesting. Before they got married, my cousin's husband lived in London. When he went on holiday to the USA with her family, he realised that his flights from London were far more expensive than their flights from Belfast, even though they would be crossing the Atlantic on the same plane, and their tickets included additional flights across the Irish Sea. In the end, he found it was significantly cheaper to fly from London to Belfast the day before and then fly from Belfast with his girlfriend and her family.

This focused entirely on Revenue. The cost to service each seat is massively different between each cabin. Would've been interested to hear analysis that took net profit into account

Something tells me you like planes...

That Sure hurts, "Everyone in economy is just there to fill the plane!"

Many of the seat in all of the premium cabins are comped to frequent flyers and road warriors. Once I attained top tier stats with my preferred carrier, I don't remember a time where I wasn't comped an upgrade. So, a lot of those "revenue generating" seats are sold at the price of the lower tier seats. The math still works, but the margins are significantly diluted.

Very interesting! Would love to see a follow-up on the side hustles of airlines: frequent flyer programs, extra fees for basic services, airport lounge clubs, presale of miles to credit card companies, co-branded credit cards, and fuel hedging.

I like business class because it can make economy class a lot cheaper.

The brilliance of these videos....visual simplicity, easy to digest for most, relatively short. Most importantly, they give the average person months of cool personal research learning about airports, the airline industry, business philosophy, geography.... well done.

"You can't make half a million dollars on a 6 hour flight across the Atlantic" Middle eastern airlines: well well well

even with economy seat, I'm still feeling the luxury experience of flight

I just hide in a suitcase and fly for the $50 extra bag fee.

I didnt realize 40% of an aircraft's passengers were in premium cabin. I always wondered who can afford $5-$7,000 seats, I guess everybody but me......

Remember, even if you can't fly first class, your destination will remain the same.

Spirit Airlines: "Bet you we can make a class below coach."

United also offers a super discount! If you pay only $10, they'll throw you out of the plane when then fly over your destination.

One thing you failed to mention....a lot of the business class seats are filled because the airline sends them comp upgrades and they get to ride in business class but only purchased a coach class ticket. I saw it when I worked in the industry people don’t spend a dime on tickets. Their company flys them all over and they reap the benefits of comp upgrades....

As someone from the UK, I've just learnt that I should start in Stockholm if I ever want to go to Washington...

I have to add something to this video, which you left aside completely. On one hand you are basically right: airlines sell flights from point A to point B. But there is much more to it. I work for a major European airline and those are the two main points that were missing in my opinion. Business Class tickets are much more pricey for a reason: Weight: Each business Class passenger is allowed to carry 2x8kg pieces of hand luggage + 2x 32kg trolleys in the belly. The weight of the luggage alone is as much as an average person. Also, each business class seat, the immense amount of cutlery, plates, extra (premium) beverages (alcohol in glass- instead of plastic bottles) and extra (premium) food, the space you need inside the galley, more lavatories per passenger, special decorations and so on and so forth. Weight is a major issue in aviation (more weight = more fuel consumption), so there is that. Extra service: staff costs have a huge impact on the ticket price. Letalone the great variety of exclusive lounges operated by my Arline in many different airports. As a business class passenger you can perform your checkin in person (vs. online checkin only) and with the help of our very kind service staff (and there are lots of them!). Usually Business Class passengers have access to priority security checks at the airport (which the airline pays for as well). Being on board we usually have one Flight Attendant for a max of 12 business class passengers for a more exclusive and restaurant-like service. Arriving at our home base, business Class passengers also have access to a special welcome lounge, where they can (once again) enjoy a variety of food and some exclusive drinks. In the end, the demand (which we can't complain about) causes big fluctuations in flight prices as well. Economy Class passengers are NOT there to fill the seats as an airline has a much less sophisticated job to do for an Economy Class passenger. A tourist-class only airline can compete with any other airline out there if done correctly.

You missed out the revenue from cargo. The "below the floor" economy.

Ive never been in a plane with a special first class section, they always have 6 seats in the very front with a bit more leg room. But tbh I rather sit at the emergency exit cuz that space has a shit ton of leg room and it doesnt cost much to have a garanteed place there! (Sometimes we get it for free cuz someone couldnt sit there)

Tip: Generally speaking you can do one upgrade at the airport. When traveling internationally I usually purchase premium economy and then request an upgrade at the airport to Premium/Business (depending on airline it is called different things). It usually costs about half the difference between the two classes if I bought the higher class online initially, sometimes less. If it is more than half, I don't upgrade. I find the difference here the best in terms of bang for buck. Seats with your own arm rests, much more comfy, more more leg room, unlimited complimentary beverages and the staff is always around to refill. Fails if the upgrade class is full or is in such high demand (only a couple seats left) that it is not discounted much at the airport. Then I just take prem economy. Also if you fly internationally for business and your company limits you to economy, typically prem economy is still covered, and the same trick works, I just pay for the upgrade out of pcoket.

I'd love to one day be able to fly first or business class. Not cuz I give crap about being fancy. I just would love to be able to travel in comfort without having to worry about being crammed next to people with minimal comfort. Don't get me wrong, a three hour flight is nothing, but if I'm flying from NY to Germany, I want to be able to sleep in peace.

I work for a major airline in revenue management and this is basically spot on. I would say that now a days business travelers is more 70/30, instead of 80/20. Also, this was the economics of a legacy airline, airlines like Ryan Air, Spirit, Frontier, etc... these airlines are very different in how they make money. They do not target business travelers they target leisure travelers and rely on ancillary revenue rather then ticket prices. I feel like that could be a good vid to do as well for aviation videos if you need ideas. Anyway, great vid, you earned yourself a sub!

You forgot to mention the 1 first class suite in ethaid up front is called the residence and cost 20000 dollars. It comes with a living room, bedroom with an actual double bed and your own bathroom with a personal shower. And all of these are connected together. And they are private for your personal use.

This is the most thoughtfully written and presented educational video I have come across in years. This is porn for economists. Thank you thank you!

In other news airbus have recently patented the idea of flying capsule hotels. So instead of a cramped seat you'd have a bunk bed box.

I had a presentation at university today based on the airline industry. I cannot thank you enough for your insight into aviation industry. Must have watched your your aviation videos multiple times. You make it complex subjects easier to digest. Keep it up brother!

Very informative. Many times I've wondered how the pricing worked, so thank you for that.

just came back to canada from flying to england to see the love of my life again, i dont care im in economy to fill the plane if it gets me to him and him to me every few months

wowow “ after all, everyone in economy class is just there to fill the plane” My poor ass feels attacked

For people who are aviation buffs, this site is awesome. After years of flying first class with only one or two others in the cabin, when airlines introduced lay down flat sleeper seats in Business class, I said first class was coming to an end. The only reason people flew first class was to get that lay down flat sleeper seat on long rides. Slightly better quality food and drink could never justify the enormously higher cost of first class.

Also to add, tiers are there to keep balance with the masses. First class tickets might bring in more revenue, but economy class (majority) provides relevance and marketing.

Great video and very educational. Thanks for sharing and keep up the great work.

Some airlines (5 star) have excellent economy seats. All USA airlines I feel are 20-30 years behind travel experience. They don't want to make an airline or buy airplanes on the scale of Singapore Airlines, Emirates and Cathay. Anytime I travel back to America, I absolutely never take United or AA.

For domestic travel, I love Southwest. The “no hidden fees” as well as “two checked bags and carry-on fly free” policies make them an attractive option. I have flown in their ‘economy class’, and in ‘business select’. There isn’t much of a difference between them, except that in business select, you are among the first seated, you get a free alcoholic beverage coupon, you earn far more Rapid Rewards points, and you obviously pay more. That said, economy almost always sells out first...but if you fly frequently, the premium options may be more benefitial.

Those old photos brought back some memories. As a former airline crewmember in the late 60's and early 70's, i can attest that your analysis is spot on. The Airline Deregulation Act killed the airlines. We used to have 30 or so "major" and a bunch of regional airlines. Now we are down to only 3-4 majors (AA, DL, UA, and SW). Service and maintenance has gone to crap, as has on-time performance. The only solution is to bring back full regulation by a new CAB. Outstanding video and explanation of aviation history!!

Alitalia (airbus) from nyc to Rome was the best flight ever. I felt nothing at takeoff and landing, no turbulence at all, very comfortable economy class, great selections on screens, delicious foods and pastries, and much more. I was impressed.

It's on my bucket list to fly first class at least once.

jokes on them we in economy might be there only to "fill the plane" but those in first class are basically a great big crumple zone to protect us during a crash landing the impact forces are far lower in the back of the plane than in the front and the strongest part of the airframe is right over the wings (which seems to be where all the airlines in my country place their economy seats) flying in economy might just save your life

I think the cost of empty seats should always be calculated. Filling the plane is sometimes more important than higher first/business class ratio. One thing this pandemic has really taught us!

This was a truly amazing report! Thank you!!

Really interesting, thank you. My dad was telling me how when he was a kid, his parents made the whole family dress in their "Sunday best" when they flew. And observing that nowadays people tend to dress very casually, because flying is relatively cheaper for the middle class, and not considered as prestigious an experience.

Do airlines upgrade People to higher classes for weight distribution on the flight? Or Is it marketing to give People a taste of first class so next time they might buy it?

Using this for my game, Airlines Manager 2019. Thanks!

At 6:49 this video gets brilliant. Subscribing to see when else you do this level of stammering analysis. Excellent.

Nice video! What you failed to mention is that most people in first class and even business class don't actually pay the full fare. They are usually upgraded from frequent flyer miles or loyalty. A lot of times also if you get bumped they will offer to put you in first or business. Thats why we are seeing the "premium economy" market growing because they can make more money.

I just can't fathom spending $5,000+ on a plane ticket

thank you for this - have only ever flown economy except for one flight in business that was a gift from a friend who used her rewards to upgrade the ticket - I hadn’t really appreciated the cost difference - yes the legroom was better much better - but on a short flight (Toronto to Montreal 🇨🇦) everything else was only marginally better than economy - had an uncle who regularly flew Toronto to Europe for business in the 60’s - 80’s - he only ever flew economy - when asked he said since the front end of plane landed seconds before the rear end (cleaned up his language 🤣😂 ) he wasn’t paying what business cost - wonder if he would have flown business if someone else was paying - will be interesting to see price differences once things open back up after COVID - have one more trip left in me - thnx again 🙏😷

I'm planning to fly business class this December on Philippine airlines. I've researched it thoroughly and find it suits my needs on a 13 hour flight from SFO on a Boeing 777-333er. I'm paying approximately $2,300 per ticket but its definitely worth it, better food, seats lay out completely flat so you can sleep peacefully during the entire flight. The sliding dividers between the seats in business class for added privacy also adds to a pleasant experience. Can't wait! Thanks for the video.

The classes are wrong in this video if you fly united the classes go first, business and fight club

Great video! I think you overlooked something. When flying First class on a lot of airlines (especially through their main hubs) the passenger has access to a high-end club where services like food, faster WIFI, alcohol, etc. are included in the airline ticket price. So that profit per square foot for a first-class ticket is actually lower because they have to pay for everything else (all services, employees, and space in the airport). Make another video on airport economics!

2 years later, still dominant in aviation videos. Love it actually.

All I learned from this video, you're a genius in you own class!

i can watch since im in the middle of a blizzard

I worked on the pricing system for a major international airline. The picture you paint is a simplistic one, and incorrect. For any flight, it would be in the airlines interest to sell all the tickets in advance at the full fare, but that is not what happens. There may be 20 or 30 different ticket classes, each with their own price. The algorithms that determine the number of seats in each class are extremely complex and based on the probability of the seat being sold at a particular price versus the possibility that the seat may remain unsold. In the end it's better to have some revenue for a seat rather than it remain empty (subject to cost recovery for carrying the weight). The pricing systems are dynamic, and can change the various tickets prices several times daily. As the date of the flight approaches, the possibility of empty seats increases and so ticket prices generally get cheaper. We all are aware of standby tickets, and that it is a lottery as to if they become available. That is a reflection of the ticketing software: if no standby tickets are available, it has worked to optimise the revenue for the airline. As an aside, very few people pay for first class tickets. In my experience, based on extensive analysis of fares paid, most first class seats were either upgrades from business class, of airline staff. It sends a poor message to see the first class cabin empty.

I’m watching this at 2 am because I can’t sleep, but I am learning so much right now.

One important thing to consider is missing: the frequent flyer programs of the airlines. One airline employee once explained to me that their airline is getting rid of the first class, because only 10% in first class actually pay full price for a first class ticket. 90% are people who get bumped up due to their status, or paid their ticket or upgrade with frequent flyer miles.

If I was insanely rich I might go first class but tbh you will be on there probably about 8 hours and the amount extra isn't really worth it

When I fly for work my employer just gives me money to buy a first class seat. I usually just buy a coach ticket and keep the extra money.

I’d quibble on one point: You say the “product” is the flight from A to B. I’d rather argue that, for example with British Airways in your video, the airline is selling four products: economy, premium economy, business, and first. Those four products have bundles of characteristics, and are priced by the bundles. When an airline sells economy tickets at different prices, then it’s closer to the truth to say, as you do, that airlines have figured out how to sell the same product to different people at different prices, though even then, I’d argue that one of the “sticks” in the bundle of a low-price economy ticket is “purchase 30 days in advance subject to a change fee” while the “stick” in the high-price economy ticket is “purchase whenever, change if you like”. But your basic point is very well taken: A biz or first seat today is priced about what all seats were priced in the 60s, so the evolution is in lower costs of operation, permitting the sale of economy tickets today, opening up travel on a large scale. When I was a kid, I could only afford the Greyhound bus from Baton Rouge, LA to Providence, RI to attend school. I know very few kids who’d do that today, since air travel is so cheap. Thanks for your great video and explanation. Cheers!

Wendover: airlines make more money in the minority upper classes. Low-cost airlines: Am I a joke to you?

My mom used to say, being on economy, business or first class doesn't matter. As long as you all arrive safe.

This is a perfect example of "price discrimination" to show during a microeconomics class!

I was wondering about the lack of first-class while geeking on SeatGuru, thx!!

Having watched a zillion airline videos lately, I've seen some first class and business class flights that offered little more than better legroom and better food for a greatly inflated price, though also some where the added cost was a good value. A few offer extreme opulence for what amounts to the annual income of many workers. For most of us, just basic comforts will suffice for the few hours we are on the plane.

So the average person is dirt to an airline? That's comforting...

i learn more in these videos than i do in a whole semester of school

I remember as a child in 1972 getting "bumped" into first class on an Eastern 727 "Whisperjet" (at 120dB, that's some cruel joke!) I was excited: "Tablecloths!" Mom would dress us up to fly, and it was a classy scene back then. Even in coach.

Brilliantly explained. Bravo

Ideally, what you say is true: Premium seats generate more money than economy seats. However, it's more likely that a plane fills out the entire economy class rather than filling up the whole first class. This actually happens a lot and that's why if you're aiming to get a better seat, you should wait until the same day of the flight to ask if you could upgrade your seat. It will cost less than if you pre-purchased the same upgrade months before the flight.

Nice video ! One other reason for the "first class" desapearing is that, given the price of the tickets, it is hard for businessman to present a bill with "first class" written on it to his company. Especially when there is a specific class, cheaper, called "business". So, slowly, many airlines began to call the former "businness" : "premium" and the former "first class" : "business class". Nowadays, the differences between a 1st class seat in one company that still has one and a business class in some others are scarce. (the levels of luxury involved vary between companies a lot, of course) Nice explanations ! "Economy seats are just there to fill the plane" ... ouch ! that hurts lol

Love the man how to speak to audien, no fast or slow that make me understand

Focusing on the ticket price is obscuring all the other ways money is extracted from economy class passengers. From parking, to premiums on taxis or train tickets, to providing no seating in the waiting area that isn't in an over priced cafe, to baggage fees. These all add a flat per-passenger profit to the airport (and thus the airline mostly through reduced costs) which makes the overall profit per economy passenger closer to the business passenger (but still not equal). This is especially true in routes that are closer to volume-limited rather than closer to weight-limited (as very long haul flights are). This is why you see economy-only layouts on many shorter routes.

I could be in first class, but instead I'm in math class.

In a full flight, yea...First and business class makes a lot of money. But do they ever fill? For a fair comparison you need to take average booking of first, business, and economy classes then compare. For example, if a plane can fill 100 of $10 economy but only fill 25 'out of 50' of '20' first class then it's actually the economy that generates the better revenue. The reason first class 'generates' more money only is because it is expensive, but it is not the most efficient way of generating revenue. Economy is, which is why low cost airlines are popping up every corner of the world.

Incredibly interesting. Thank you!

Great Video, thanks! The last sentence is true. If you think about the A321XLR one could expect that one day Airlines get the Idea to just fly a full Business class XLR with like 70 seats instead of a much larger Premium heavy 777-300 with 70 business and 150-170 Economy seats. Way cheaper to operate, even without Cargo I would guess.

Although you have shown us that business and first class get more revenue, you have not focused on the net revenue which is how much is earned minus the money spent by the airline on each passenger from different classes. I find this video incomplete as many other factors are missing such as the actual percentage of seats occupied on average in each class and so on. I'm interested to know your view on this.

this was really neat I am flying for the first time in years and when I saw the business class seat I was so confused as to me it was what I thought of as first class (the little pod seats) I've learned that Economy for the most part is the same (depending on age of the aircraft) Economy Premium is either Economy with a little extra leg room or Business Class Light Business Class can be Business Class, First Class Light or even (jet blue mint) full on First Class without the menu. While First Class can be Business Class with a nicer menu and candy coating, First Class, or Ok you are just trying to hard. While each plane will have 1-4 classes what those classes entail changes drastically based on the airline without the price changing.

excellent. well done!

The numbers used in the video are the ticket sales prices, when what's really interesting is the net revenue per seat; that would show, for instance that the assertion that business class makes the airline more than first class is true (if it is). To be specific; if there are 120 economy seats at $800 that means ticket sales of $96,.000. From this we need to deduct all costs such as meals, fuel, the two-three stewards working economy class and so on and then divide whatever we come up with with 120 to know the net revenue per seat the airline makes. If we do this for each class we get a figure that is worth comparing.

For peasants like me. Ryanair is just fine thank you! We only fly 2/4 times a year for 3 hours each. For that dirt money i can sit on my ass and take it. Rather spend more during a week of holiday than to blow it on some 3-5 hour flight.

Beautiful presentation, thank you! My wife and I are going to Beijing next week on Hainan Airlines, they have wonderful amenities and are definitely set up for long distance flights, even standard fare seating is like business class on any domestic airline here in the states.

Wow, a very good illustration of airline classes and fares. Most people have it completely backwards. As you pointed out, in 1950 a regular fare was the equivalent of a First Class fare today. Yet people talk about how "airlines treated you right, and you had more space, better meals, etc. in those days. Now they pack you in like sardines and give you pretzels." What everyone fails to take into account is that the same experience as the 1950s-era is still an option, and in the same adjusted price range - if you want the "old fashioned" experience, you have to pay "old-fashioned" fares and fly modern First Class! What people don't appreciate is that Economy classes were ADDED to the business model in order to allow more people the experience of flying. But the minute those reduced fare passengers get on the plane, instead of being glad they can fly for an affordable fare, they grumble because they have to put up with fewer comforts. If they were priced out of flying altogether - like in the "Good Old Days" - they would be grateful for the chance to fly overseas for a few hundred dollars - something UNHEARD of in the 1950s!

BA has a business class only flight from London city airport to JFK.

There is a British airways Airbus A318 that is entirely business class and flies transatlantic from London City airport to JFK with a stop in Shannon in Ireland to pass through US immigration and refuel. pretty unique flight.

"Everyone in economy is just there to fill the plane" - They should give out free tickets then :P

Very interesting, thank you for the video

Very good video, shout out to all involved