Icelandair Wisely Removes Premium Economy

Last week, its version of premium economy, Economy Comfort, off its fleet. This is entirely understandable and somewhat predictable, but don’t expect this to be the beginning of a trend. This is a one-off move that uniquely makes sense for Icelandair.

Icelandair’s backbone has been the 757 for years. It has a few different configurations, but in general, it looks like this:

In the back you have a pretty standard coach class though with a generous 32 inch seat pitch. Up front you have Saga Class which is pretty much just like a domestic first class. In the middle, you see Economy Comfort. Economy Comfort is a regular coach seat, though it has a few extra perks including:

  • Blocked middle seat with a tray table
  • 1 extra inch of seat pitch
  • Priority check-in
  • Lounge access
  • Free drinks and meals (coach pays for meals)

It’s a nice fairly nice product, but it’s also a problem for Icelandair in a few different ways.

The Squeeze
With most airlines, premium economy fills what has become an ever-increasing gap between coach and business class. Business class has flat beds while coach has… well, you know what coach has. But on Icelandair, Saga is nowhere near being a flat bed. It’s just like domestic first class which, frankly, is a lot like international premium economy on most airlines. Saga fares are consequently far lower than flat bed business would be able to command.

Meanwhile, last year, Icelandair announced an Economy Light coach fare which wouldn’t include a checked bag and would have a higher change fee. That pushed Economy Standard fares up and there are Economy Flex fares as well with, well, more flexibility. So the squeeze is on. Look at Boston to Keflavik, for example. Here are the lowest filed one-way fares (including taxes/fees) for travel in May (if you can find availability):

Class Fare
Economy Light $202.40
Economy Standard $246.40
Economy Flex $437.40
Economy Comfort $592.40
Saga $1132.40

It should be noted that it’s rare to have the lowest coach fare selling, especially during peak season. So what you find is that there isn’t all that much room for Economy Comfort in this fare structure. The spread between coach and business is worth maybe $2,000 each way at the least in a typical long-haul cabin, often higher. That gap just doesn’t exist with Icelandair.

The Airplane
There’s also a problem with putting premium economy on a narrowbody airplane. Think about it this way. On a 757, as well as on the 737 MAX, the future of the Icelandair fleet, you can put 6 across in coach but only 4 across in premium economy. That’s a loss of 33 percent. Meanwhile, on, say, a 777, you can do 10 across in coach and 8 across in premium economy, a loss of only 20 percent. So operating a narrowbody is already tough to do with premium economy just because of the width of the cabin.

But with Icelandair getting the new 737 MAX, that was an opportunity to rethink the onboard product anyway. Icelandair initially said it would take its 737 MAX 8s with 160 seats, but that seems fluid. I saying it was going to end up with 16 Saga seats, 12 Economy Comfort seats, and 128 Economy seats. That’s only 156 seats. Now, looking in Sabre, I can see Icelandair is selling 12 Saga seats, 4 Economy Comfort (the bulkhead), and 144 Economy seats. That’s 160. Presumably once Economy Comfort goes away, they’ll sell 162 seats (unblocking the middle).

Selling 162 seats on a 737 MAX 8 sounds decent, but then again, American is going to sell 172, so it’s still fairly lightly-loaded. That’s a big problem because…

Look across the Keflavik airport and you’ll see a purple army of Airbuses flying for WOW. WOW has A320neos which are slightly smaller than the MAX 8, yet they hold 180 people. WOW flies a lot of the same routes that Icelandair does, but with so many more seats on the airplane, WOW can drive down coach costs and help justify its low fares. The pressure is on.

Icelandair looked at the entire situation and realized it just needed to lower its unit costs and be able to sell more seats for cheap. Sure, there are people who want Saga seats, and that’s fine, but Economy Comfort was a tweener that wasn’t worth the real estate.

Like I said at the top, this is a unique situation for Icelandair. For most of the rest of the world, I assume we’ll continue to see premium economy become more and more prominent as time goes by.

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