Competing with increasingly aggressive low-cost carriers while balancing the expectations of loyal customers has become a full-time focus for legacy airlines and full-service carriers. Now, the latest strategy is to cover all areas through clever segmentation of the aircraft cabin and ticket prices.

American Airlines is just the latest carrier to make public its intentions to change the types of seats and tickets it offers to passengers later this year. It comes hot on the heels of announcements from Delta Air Lines and United Airlines on their planned segmentation.

So what does segmentation involve? In an announcement last week, American Airlines President Robert Isom confirmed that up to five different seating cabins and levels of service would be introduced to its aircraft later this year. The choices range from a high-end premium product to the most basic seat option with the lowest price; the latter is the option that aims to go head-to-head with carriers such as Spirit Airlines, which American is already competing heavily with on price from its Dallas-Fort Worth hub.

American's own plans for its aircraft cabins include:

  • First Class and Business Class: both with lie-flat beds, privacy and premium service
  • Premium Economy: with more room and more amenities
  • Economy: which allows seat choices plus food and baggage add-ons
  • Basic Economy: which is essentially a randomly-assigned seat and no extras

The number of choices will depend on the aircraft size and type of flight being offered, particularly with First Class and Premium Economy cabins.

"I think it will allow us, no matter the environment to be able to compete," Isom told The Dallas Morning News.

The potential to boost ticket prices in the economy cabin saw airline stock prices rise earlier this month as investors welcomed the news about segmentation, as reported in the Wall Street Journal. American, Delta and United all gaining over low-cost carriers such as Spirit and Southwest.

Airlines will also be able to use statistics gained on their routes to match aircraft configurations with the best markets, offering greater capacity of basic economy seating on low-income routes with high demand, or larger premium and business cabins on routes that are more often frequented by business passengers.

The decision by the top three U.S. carriers to implement some kind of segmentation strategy indicates this new way of classifying passengers and their on-board experience is here to stay. It is certain to cause a pain for the low-cost carriers who thrive on attracting high numbers of customers who simply want to pay the lowest fare for a seat and convenient timings.

However, for the customers who always choose a mainline carrier, the move risks upsetting their loyalty by adding confusion and unwelcome extra charges, not to mention the potential overhaul of frequent flier mile earnings, depending on which of the cabins you book.

The concept of segmentation is not new. Airlines in Europe have offered premium economy cabins for a number of years as a way of upselling extra comforts to passengers who aspire to fly Business Class but can't quite afford it.

It is a sensible move to allow passengers extra choice and is sure to improve the bottom line of airlines, particularly on longer sectors and international flights.