Delta says segmentation coming to high-end cabins

Delta Air Lines is studying new types of airplane tickets — this time in the premium cabins at the front of the plane.

Airlines spent years slicing up their coach cabins, from extra legroom seats to bare-bones basic economy fares that don’t allow changes or include a seat assignment. Delta was a pioneer in the U.S. when it launched basic economy fares more than a decade ago with rivals United Airlines, American Airlines and others following suit.

But now airline executives are turning their focus to their premium cabins, where demand is holding up better this year than in the back of the plane.

“Premium has certainly been where our margins have continued to expand, and so we’re highly focused on continuing to provide improved service to those customers and more segmentation,” Delta President Glen Hauenstein said on an earnings call with analysts on Thursday. “The segmentation that we’ve done in main cabin is kind of the template that we’re going to bring to all of our premium cabins over time because different people have different needs.”

Delta’s revenue from premium seats like business class rose 6% in the first half of the year to $10.6 billion, while main cabin economy ticket revenue dropped 4% to $11.7 billion. The carrier, the most profitable U.S. airline, has said for years that its share of sales from high-end seats and its lucrative loyalty program has been growing.

U.S. carriers have largely ditched international first class in favor of larger business-class cabins, where lie-flat seats have more amenities than seats of past decades.

Hauenstein declined to detail possible changes to the premium seats. It’s not clear whether Delta would consider a cheaper first- or business-class ticket that might not include perks like lounge access or seat assignments, or a potentially bigger seat that could come with add-ons that standard tickets don’t have.

But Hauenstein said Delta is testing some possibilities on customers and surveying travelers.

“We haven’t rolled it out yet, not because we don’t have the technological capability, but we want to make sure that customers understand what we’re putting in market and that they find value in it,” he said.

Henry Harteveldt, travel consultant and president of Atmosphere Research Group, said he’s not convinced that Delta would consider a stripped-down premium fare.

“Airplanes are expensive … and it’s a lot easier when you give your passengers a reason to pay you more for your product than to pay you less,” he said.

Other airlines are working to outfit their top-tier cabins to offer a few seats that have extra room and even space for a visitor, like United’s planned update to its long-haul Polaris cabin and American’s new seats on some of its Boeing 787 Dreamliners.

Delta’s partner, Virgin Atlantic, offers the “Retreat Suite” at the front of its Airbus A330’s Upper Class cabin that can be converted “so up to four people can enjoy an intimate dinner together in their own private social space.”

When asked whether Delta will update some of its highest-end seats, CEO Ed Bastian told CNBC Wednesday that “the premium products have had life cycles … and what we thought was state of the art six or seven years ago no longer is.

“We’re continuing to upgrade and update it. So that’s part of the cost of business,” he said. “But our product will be very, very nice.”