Why is India's biggest budget airline expanding its business class offerings?

Indigo, India's largest airline operator got big with its budget no-frills model. In November 2024, it introduced business class seats on twelve domestic routes, marking its departure from an all-economy cabin. Basis success on this launch, it is set to expand this offering by 2026.

So, why is Indigo doing this? Revenue Optimization Strategy.

In Economics, this is through a principle called price segmentation.

Price segmentation works by charging different prices to customer groups based on their **willingness and ability to pay.** Companies divide their market into smaller segments and set individualized prices for each group to maximize revenue. The primary goal is to capture maximum value by tailoring prices to different customer segments' price sensitivities, ultimately improving overall profitability.

Premium cabin segments are particularly lucrative, business class typically draws 33% more revenue per square foot than traditional economy, balancing razor thin margins in a largely unprofitable airlines business.

Other examples: A cinema might charge different ticket prices for seniors, students, and working adults, while a software company could offer free licenses to students to build future customer loyalty. Senior citizen and student discounts in public transport or family and fast pass tickets in amusement parks.