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The Future of First Class

With passenger numbers in a free-fall, some notable global carriers -- like Qantas -- are cutting back on their first-class seating options.
Premium seating on an Emirates 777.
But today's New York Times also reports that some airlines are upgrading seating, particularly in premium sections, as they try to hang on to some of the most-valuable passengers they've got.

The Times says "even struggling airlines like American say the first-class cabin is an important tool for keeping its highest-spending customers loyal." It quoted Richard Hedges, a London-based spokesman for American, who said: "We use our premium cabin as an incentive for frequent fliers and corporate accounts."

Airline ticket prices, of course, are a great example of what economists call price discrimination: Someone who pays $2,110 for a first-class seat gets from New York to London just as fast as someone paying $812 for an economy ticket. The only difference is the first-class passenger is paying more than double the economy price. To justify that kind of price premium, airlines have to create a premium experience.

Given that, investing in a bit of luxury -- say a lie-flat seats or even a personal suite -- is worth it, especially if it keeps that premium flier on your airline and off of a private jet.

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