Delta's bet on 'premium' seats and prices is paying off

As lucrative business travel plunged early in the pandemic, Delta Air Lines shifted its focus to leisure passengers seeking a better experience — a bet that is paying off as travel rebounds sharply this year.

Delta, which is the dominant carrier at Minneapolis-St. Paul International Airport, for years relied on business travel for the bulk of its profits. But when the pandemic forced airlines to the ground for months in 2020, Delta executives started planning for a faster return to the skies by leisure travelers.

Their big bet: that a sizable number of leisure passengers would pay with their own dime for better seating in the sky.

"While our business travelers have not been traveling, we found many new customers, many new high-value leisure as a new category that have been in those seats because they're investing in themselves," Ed Bastian, Delta's chief executive, said when he explained the strategy to investors late last year.

"We know there's a growth of 'premium' in this country," he added. "People are spending and investing in premium brands for themselves and their health and their wellness at a level like never before."

The result of the bet was clear in Delta's first-quarter results, announced earlier this month. Domestic premium revenue was nearly 100% back to 2019 levels in March, executives said.

"Over the next few years, we expect premium seat growth to continue to outpace main cabin, and we're confident in the consumer shift towards higher-quality products is here to stay," Glen Hauenstein, Delta's president, said on the day the results were announced.

Delta declined an interview request for this story.

Next month, the airline will begin flying the Airbus A321neo, which is configured to have nearly one-third of its seats in premium-price classes. "These will be the best aircraft we fly for our customers and generate the highest returns for our owners," Bastian told investors earlier this month.

"For an airline like Delta, if they can make more money on selling a premium product for more money to a premium traveler, business logic says that's where they will focus their attention," said Henry Harteveldt, a travel industry analyst in San Francisco.

In 2015, Delta added a new class of main cabin seats called Comfort Plus with expanded legroom, earlier boarding and other perks. Two years later came Delta Premium Select, with a larger entertainment screen, wider seat with more recline plus adjustable footrest, located between Delta One and the main cabin. But it was put on a limited number of long-haul routes.

In December, Hauenstein signaled Delta Premium Select is being expanded. By this summer, more than 80% of Delta's transatlantic flights will have Delta Premium Select, he said. It's geared for leisure travelers, as well as business travelers whose corporate policies don't allow them to buy the airline's first-class seats, he said.

Once a passenger books a flight, Delta peppers them with offers to move to higher classes at rates that vary. About 30% of the airline's premium seat revenue comes from passengers who upgrade themselves after initially purchasing a cheaper seat, Hauenstein said earlier this month.

"This is a synthetic cabin," said Bob Mann, an airline analyst in New York and former industry executive. "It's not a physical cabin like first class."

The amenities offered by airlines to the premium leisure traveler also vary. They can include earlier boarding, a reserved seat with better recline and more legroom, a dedicated flight attendant and a location closer to the front of the plane and the exit.

"There's a market that wants a more comfortable experience — a bit more room, a bit more attention, but they don't want to go whole hog into first class, or what they call Delta One," said Bob Harrell, a New York-based airfare consultant.

Airlines evolve their flight classes every decade or so, Mann said. "The only thing that hasn't changed is the coach experience, which has gotten worse," he said.