In response Intan Salim’s blog post on Lufthansa, I agree that their decision to remove first class due to weak demand on most routes is the right decision to make.

Premium cabins collect about 35 percent of its revenue in general. But the removal of first-class cabins saves more cost. At Lufthansa, it saves about $68 million. They realised that the entire worldwide market of travellers able to pay for such services is only just at 1 million people in total. This is an example of a niche market.

A niche market is a specific and well-defined target market. They are usually very small and hence, it limits the number of customers in the market. By operating in this market, there are very few opportunities for Lufthansa to exploit economies of scale. I believe it is better for them to remove first class accommodations and focus on other aspects such as fleet upgrades and balance sheet reorganisation.

Source: http://www.businessweek.com/articles/2013-10-04/lufthansa-finds-first-class-seats-dont-always-pay#r=nav-r-story