The airline business is usually a terrible business, at least if you want to make money. You’ll need a lot of labor. You’ll need a lot of capital. Be ready for intense competition and incessant government interference. And if anything really bad happens in the world—a pandemic, a natural disaster, a war—it’s the airline industry that typically takes the first (and hardest) punch.
But cheer up airlines. In 2024, a powerful tailwind led to unusually strong industry profits. It’s in large part thanks to what turned out to be the most important story in the air this year: White-hot demand for premium travel.
It was also the most important story for airlines on the ground. Travelers showed an unmistakable preference not just for in-flight comforts but also for priority treatment in the terminal. Perks such as airport lounges and enhanced boarding privileges moved mainstream.
Trading Up is Big Business
According to industry trade body IATA, airlines worldwide will collectively earn nearly $32 billion in net profits this year, accompanied by some of the highest operating margins in the past two decades. What’s going on?
Give some credit to a global aircraft shortage that’s constricting supply. But the true hero of 2024 was premium demand.
Take it from Delta: “Consumers are continuing to prioritize premium experiences… premium products are really doing much better currently than coach.”
Or British Airways, which said it “performed particularly well with its premium cabins.”
Or Latam: “There’s more capacity on our premium cabins today… I think this is a testament that there is demand for premium travel in South America, for sure.”
Or Air New Zealand: “In any industry that you look at, whether it’s events or consumer products, there’s this shift towards premiumization.”
Or Air Canada: “Our premium offering remains robust with growth in premium cabin revenues outpacing the overall revenue growth.”
You get the point.
Notably, it’s not just long-haul network airlines that are taking advantage of this increasingly lucrative segment. Low-cost carriers are marching in the premium parade too.
IndiGo announced a new business-class product this year. In 2025, Southwest will offer premium seats with more space for the first time. Even ultra-LCCs like Spirit and Frontier are taking a premium shift with major changes due in the coming months.
Will the Premium Trend Continue?
While aircraft are highly nimble assets, overhauling cabin interiors across a large fleet is a massive exercise. The considerations and challenges are huge, including enormous capital expenditure.
With billions being plowed into long-term premium investments, a fundamental question remains. Will the trend continue?
Some worry that an economic downturn could spin the trend into reverse. Airlines, however, are betting big that the premium preference will endure. It reflects a clear change in consumer behavior and a growing slice of the population with money to travel, time to travel, and most importantly a burning desire to travel.
Airlines are also becoming more skilled at merchandising and showcasing their premium products through sophisticated distribution channels. As JPMorgan airline analyst Jamie Baker writes, “[The] premium market is here to stay; passengers increasingly want better experiences.”
More Than Just Corporate Types
The trend might not even be all that new. Though demand for premium air travel has increased strikingly since the end of the pandemic downturn. JetBlue’s president Marty St. George said at the Skift Aviation Forum this fall that he first started seeing it more than a decade ago. “We’ve looked at the premium revenue trends back into the [2010s], and this really started probably in 2011 or 2012.”
JetBlue, interestingly, is primarily a leisure airline. Historically, premium air travel was the domain of business travelers, especially those working for large corporations. Indeed, the premium leisure segment led the way in 2024, delivering full front cabins and big-time revenues even on flights to holiday destinations like the beaches of Mediterranean Europe.
More recently, corporate demand has started to revive too, adding additional thrust to premium’s growing contribution.
Convinced of the trend’s staying power, airlines are expanding and upgrading their premium offerings, investing heavily to stay competitive. British Airways, for example, plans to retrofit its A380s with 22% more cabin space allocated to premium seating. Singapore Airlines is introducing new first- and business-class cabins on its longest-haul A350s. Air France is preparing to launch its new La Premiere cabin in the spring, while the Cathay Pacific chairman recently told Skift that its new first class is “mindblowing.”
Next year, IATA expects global airline revenues to surpass the $1 trillion market for the first time. If so, the premium boom will deserve a lot of the credit.
Watch IATA Director-General Willie Walsh at the Skift Aviation Forum 2024:
Airlines Sector Stock Index Performance Year-to-Date
What am I looking at? The performance of airline sector stocks within the ST200. The index includes companies publicly traded across global markets including network carriers, low-cost carriers, and other related companies.
The Skift Travel 200 (ST200) combines the financial performance of nearly 200 travel companies worth more than a trillion dollars into a single number. See more airlines sector financial performance.
Read the full methodology behind the Skift Travel 200.
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