Sky high: Premium airfares increase much faster than economy class

Premium economy fares have skyrocketed by up to 128.6 percent on major domestic routes such as Delhi-Mumbai and Mumbai-Bengaluru since 2019

The ‘premium economy’ class on domestic flights in India has transformed in the past five years, evolving from an overlooked option to a sought-after service. Once a little-known cabin with prices only marginally higher than standard ‘economy’, this intermediate offering has now become a major revenue generator for airlines.

According to aviation analytics firm Cirium, premium-economy fares have skyrocketed up to 128.6 per cent on major domestic routes like Delhi-Mumbai and Mumbai-Bengaluru since 2019. This surge far outpaces the up to 41.3 per cent increase in economy-class fares on the same routes, highlighting a remarkable turnaround for a service that airlines once struggled to promote.

Air India introduced the premium-economy class on select domestic flights this month, following the path Vistara blazed nearly a decade ago.

The Delhi-Mumbai route, India’s busiest, illustrates the aforesaid trend. Five years ago, average economy and premium-economy fares were nearly identical. Cirium data shows that while the average economy fare on this route increased by 12.2 per cent to $92 between March 2019 and March 2024, the average premium-economy fare jumped by 62.5 per cent to $143.

The contrast is even starker on the Mumbai-Hyderabad route. In March 2019, economy and premium-economy fares were $45 and $49, respectively. By March 2024, the economy fare had risen by 33.3 per cent to $60, while the premium economy fares had more than doubled, increasing by 128.6 per cent to $112.

Vistara pioneered premium economy in India in 2014, introducing it on its inaugural aircraft. Initially, the new cabin class struggled for recognition. Vistara executives reported offering complimentary upgrades to economy passengers to promote the unfamiliar offering.

This strategy, while necessary for building awareness, kept premium-economy fares low for years. The cabin class occupied an uncertain middle ground between economy and business class, with Vistara initially struggling to define its value proposition, according to executives.

However, as passenger awareness and demand grew, Vistara capitalised on the trend, significantly increasing fares for this now-popular option.

Following Vistara’s lead, Air India is introducing premium economy on select domestic flights this month. This move aligns with the Tata group’s aviation strategy, as Vistara is a 51:49 joint venture between Tata and Singapore Airlines, while Air India is wholly owned by Tata. The two airlines are scheduled to merge by the end of 2024.

An aviation analyst highlighted the unique market position these airlines hold. “Unlike economy class, where competition among major airlines is intense, Vistara and now Air India are the only carriers in India operating premium economy. There is no competition in this segment, giving them complete control over pricing in this cabin class,” the analyst elaborated.

Neither Air India nor Vistara responded to Business Standard’s queries on this matter.