Who really wants to fly business class in a CRJ200, anyway?

It doesn’t matter.

Earlier this spring, United Airlines announced the CRJ450, amid a slew of other product updates across its fleet. The airline is reconfiguring the 50-seat all-economy CRJ200 into a three-class 41-seat regional jet.

The new configuration will have seven seats in business class (three-abreast), 16 Economy Plus, and 18 economy seats. The 50-seat jet has the highest seat costs in the fleet, and United Airlines just decided to increase those already highest seat costs by another 22%.

And it’s genius.

First, let’s talk about seat costs. If you take a 50-seat airplane and turn it into a 41-seat airplane, seat costs rise by 22% (maths!). But why did the 50-seat jet have the highest seat costs to begin with? Because it had the smallest number of seats (also maths!).

Consider that, even with the highest seat costs, the 50-seat jet delivers the lowest overall trip costs. Point being, this aircraft never existed to deliver lower seat costs; that’s what the A380 is for. The 50-seat jet delivers the cheapest way to keep dots on a map by air (tip of the hat to Landline absolutely killing it flying by ground).

Where do you deploy the aircraft with the lowest overall costs? Anywhere you want to keep the network intact. That means that if it’s worth United to connect a market with only 35 passengers per flight, the 50-seat jet is the most economical way to do that. For those who think only in seat cost terms, it requires a different way of looking at planning.

Why would United want to keep a 35-passenger flight? The better question is: does United make money on that 35-passenger flight with the highest seat costs?

It still, doesn’t matter.

First, let’s talk about the costs of turning a 50-seater into a 41-seater. It costs money to convert the aircraft. That’s a real thing. But the lost revenue of pulling out nine seats is the real cost. Only, these are the smallest aircraft in the network, meaning they are doing the work of not only 50-seat markets, but all markets smaller, as well. In fact, the CRJ200 runs the lowest load factor in United’s fleet at only 74%.

74% of 50 is 37. 37 is less than 41.

If United is moving an average of 37 passengers on its CRJ200 flights, might as well put 41 seats in them, right?

Kind of. The 37 number is an average, so there are some flights on some days that see 50 passengers. Not many, but some. And those flights will now be capped at 41. So it’s not “free” necessarily, but it’s about as close as you can get from an opportunity cost perspective. Oh, and you have 23 new premium seats to do stuff with. So limited down-side, and you end up with an aircraft with more premium options than economy. That’s some juicy up-side.

Networks are not the sum total of each flight. That’s what makes them networks. It’s why the term “network effect” is a thing. United offering a flight to cover a 35-passenger market likely brings far more benefits beyond that flight. The easy example is the myriad of other flights those 35 passengers later connect to. That’s 35 seats filled with paying passengers.

But what if just one of those 35 passengers is headed overseas in business class? That could be a $7,000 passenger - if you have business class. Again, a simple example, and one that overlooks that airlines will happily still sell you a business class ticket with a leg of the itinerary in economy.

And yet, each of these simple examples makes one assumption that we cannot necessarily make: that passengers are paying cash.

If you’ll remember from our newsletter just a few weeks ago, cash isn’t the only currency accepted. There are those sweet, sweet loyalty points.

And this is where the CRJ450 really shines. Yes, United can offer swanky new business class fares to more customers in more small communities. But that’s just gravy. The main course comes from the airline being able to offer all sorts of upgrades into all sorts of smaller communities - the same communities where residents are least likely to have the United Airlines MileagePlus credit cards.

The CRJ450 allows travelers in those markets just a little bit more to spend their points on. That little bit more really matters when trying to decide which airline credit card to get, and then which to use. And it’s the using of the credit card that earns United the cold hard cash - regardless of whether the passenger ever flies United.

But when they ultimately do redeem those points, even more revenues are unlocked, now at higher rates because - well - business class! So United earns revenues when the credit cards are used and points are created, then again when the points are redeemed.

Then there are the soft benefits. Upgrades will be handed out like candy on these aircraft. That just incentivizes more people in those small market to choose United. Might as well get the credit card…

Look, there are a ton of other benefits to this, including simply keeping product momentum, the brand benefits of more premium, etc. But, try as I might, it all comes back to credit cards as the great differentiator. Quick, back-of-the-napkin math shows an airline earns average of about $300 for each credit card - and that’s just the straight-from-the-bank commissions on an average $20,000 annual spend. Considering another approximately $300 is available to the airline when the points get used, that’s $600 per year per credit card - and that’s just our back-of-the-napkin math. Chances are with annual fees and other beneficial terms to the airline, the average revenue is even higher.

We’re just piling assumptions on assumptions at this point. The bottom line is, credit cards good. More premium brings more credit cards, which is good-er.

So, yes, some passengers will buy business class tickets on connecting flights. Cool. But the value here is a small but incremental reason to consider United when choosing sides in the airline credit card loyalty war.

“But wait,” you say. What about the ERJ-145? Why is that 50-seat jet flying the highest load factors in the system while the CRJ200 is driving the lowest? Isn’t this proof passengers prefer the ERJ?

While small regional jet preference may be a thing, it’s still akin to picking the cleanest shirt in the dirty laundry.

Besides, you’re very unlikely to be able to choose between the two aircraft these days on a given route, anyway. The reality is the ERJ-145 is deployed differently in United’s network than the CRJ200.

Houston and Dulles focused, the ERJ fills the old connector role well. Regardless of the correlations you may be inclined to find, the easier answer is this is just how United builds its network differently in Houston and Washington versus Chicago and Denver (and a little Houston and San Francisco for flavor).

Still, I wouldn’t necessarily place any bets on Polymarket that the higher ERJ load factors would keep the aircraft safe from a CRJ450-esque premiumization of its own.

Which brings us back to the terrible, no good, awful economics of the CRJ450, and how it’s still genius. Consider the 22% increase in seat costs is nothing when compared to the 40% leap in seat costs United willingly accepted by turning a 70-seat CRJ700 into a 50-seat CRJ550.

And it worked.

Because in the end, whether you would pay extra to sit in business class of a 25-year-old CRJ200 doesn’t really matter. In fact, this decision simply plays into the increasingly singular decision all airlines are making:

It’s all about the credit cards.

Notably absent from the stock charts this week is Spirit Airlines, up over 150% after the U.S. government signaled a bailout for the airline.

We like to create valuable charts. But it’s not easy to come up with new ideas amid the endless hours spent delivering data-driven edge to our customers. In our quest to provide a valuable weekly newsletter, we can keep guessing what you find most valuable, or you could just tell us.

If you have an idea for data visualization, reply to this email and let us know what analysis you’d find most valuable. We’d love to hear from you and will happily name-drop.

As valuable as it is, don't worry; it's entirely free. If you would like to receive analyses like this regularly, subscribe below.

Then...

You can pay it forward by sending it to your colleagues. They gain valuable insights, and you get credit for finding new ideas!

Win-win!

Subscribe here