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Why Is American Airlines Ditching First Class? Could Other Carriers Soon Follow?

On Friday, American Airlines Chief Commercial Officer Vasu Raja caused a stir by saying that the airline will be ditching its first class cabin.

After clarification, it became clear Raja was only confirming September’s announcement that international flights will pivot to their new business class offering, Flagship Suites, but that first class will continue on domestic flights.

American Airlines New Business Class Suites Set to Appear on the Airbus A321XLR and Boeing 787 aircraft.

Nonetheless, the step from American Airlines raises the broader question: are the days of first class travel numbered?

Speaking plainly, Raja confirmed to American Airlines investors that there is simply not enough demand to profitably maintain the service. Demand has pivoted towards the business class offering across the industry. “First class will not exist on the 777 or for that matter, at American Airlines for the simple reason that our customers aren’t buying it,” Raja told investors.

Raja highlighted a change in demand as the major driver behind the move. “The quality of the Business Class C has improved so much, and frankly, by removing it, we can go provide more business class seats, which is what our customers most want or most willing to pay for.”

Business class travel is vital to the profit margins of airlines. Business and first class travellers only make up 12% of airline passengers but their higher rates mean that for airlines such as Emirates they account for 40% of revenue.

However, first class ticket sales have been on the decline for over a decade. In 2008, Delta offered almost 400,000 first class seats, now they offer just 200,000. Similarly, United have removed 200,000 first class seats since 2010. Other than at Dubai-based Emirates airlines, this trend is universal across the industry.

What’s behind this decline? It is certainly not that luxury travel is out of demand. The first class offering has become even more lavish - with showers and bars available through select airlines; 5 Star hotels and resorts are expected to increase 158% in the next ten years; and Forbes estimates the number of billionaires has doubled in a decade. Indeed, in order to meet growing demand, American Airlines plan on increasing their number of premium seats by 45% before 2026.

But the demand for first class is simply not there. When British Airways introduced lie-flat seats to first class in 1995, industry demand spiked as luxury travellers and businessmen sought the allure of extra sleep. But as the quality of business class travel has developed, the gap in pricing has been seen as decreasingly necessary. American’s new business offering, for example, includes a lie-flat bed and a privacy door – precisely the kind of experience once reserved for first class. Moreover, upgrading passengers to first class is now believed to appeal less to business clients than improved airport lounges and meal packages.

The pandemic has impacted both the volume and demographic of travellers. Business travel in particular has taken a serious hit, with demand in 2021 remaining 70% below pre pandemic levels and the increased popularity of video conferencing prompting experts fear to predict that demand may never fully return. The type of passenger booking business class is also changing, with leisure travellers appearing more willing to pay the difference. American Airlines believe 40-50% of business class demand is now “blended demand” – trips with both work and leisure elements – while the rest is leisure customers willing to pay the additional fees.

Ten years ago, almost all long-haul aircraft models would have had a first class cabin, now it is only around 20. With business class pivoting to a blended clientele, and offering a more luxurious service, the days of first class travel may be numbered.

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