Published March 18, 2009

Bumpy ride for airlines as premium ticket sales fall

Number of people flying first or business class fell 16.7% in January

By VEN SREENIVASAN

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THE slide in premium seat sales that started to hit airlines about six months ago has turned into a virtual collapse, with Asian carriers affected the most.

Airlines hit: What started as a 5% fall in premium seat sales in September 2008 after the Lehman Brothers collapse has worsened substantially as the global financial crisis bites harder

The number of people flying first or business class plunged 16.7 per cent in January this year, continuing a trend that began in September 2008 and extending a 13.3 per cent fall in December that year.

The latest figures from the International Air Transport Association (Iata) show a continuing move by travellers - particularly corporate customers - to downgrade from premium to economy seats.

What started as a 5 per cent fall in premium seat sales in September 2008 after the Lehman Brothers collapse has worsened substantially as the global financial crisis bites harder.

This has serious implications for the likes of Singapore Airlines and Cathay Pacific, which used to derive almost half of their income from premium ticket sales.

'We estimate that revenue from premium passengers was down by at least a quarter in January, wreaking significant damage on network airline yields and profitability,' Iata said. Routes to and from Asia are worst affected.

Intra-Asian premium travel fell 23.4 per cent in January, while across the Pacific the decline was 24.7 per cent. Premium travel between Europe and Asia was down 21.2 per cent, as international trade and investment shrank.

'What started as a financial crisis in the Western economies has now become a manufacturing crisis, hitting the export-dependent economies of Asia hardest,' Iata said.

Economy travel within and to Asia fell 8.6 per cent in January, after a 16.9 per cent dive in December 2008. But January's slower shrinkage was largely due to a one-off boost from Chinese New Year travel.

The second-weakest premium traffic region in January was Europe, which experienced an acceleration in the seat 'downgrading' phenomenon that began years ago as budget carriers began stealing market share from full-service players.

After a 16.3 per cent fall in December 2008, premium ticket sales in Europe fell 22.2 per cent in January this year. Economy class seat sales fell 6.2 per cent in January, after a 3.9 per cent drop in December.

With passenger demand falling, fares have followed suit. By December, average premium fares were down 6 per cent, after rising strongly earlier in 2008 when fuel costs were surging.

Iata said: 'For network airlines focused on serving this passenger segment, the decline in premium revenue is particularly damaging to yields and profitability. Business travel is highly sensitive to economic growth and developments in international trade and investment.

'In the past, this passenger segment has been less sensitive to fare levels. The fact that average premium fares are falling faster than discounted economy fares in some markets - for example, within Europe - is a measure of how severe the downturn in business travel has become.'

With economic conditions still deteriorating despite bank bailouts and fiscal packages, premium ticket sales have yet to bottom, according to Iata.