Int'l Premium Class Air Traffic On The Rise
Driven by business traveler demand, premium class air traffic once again is poised for growth this year with a solid economic foundation and refreshed front-of-plane products from international carriers. The International Air Transport Association said first- and business-class traffic volumes grew by 4.3 percent in 2006, according to its Premium Traffic Monitor. Although the figure falls short of the 7.4 percent growth in economy traffic volumes, it points to a healthy demand market that contributed significantly to last year's earnings growth among international carriers, IATA said.
Premium class traffic between Europe and the Far East grew by about 11 percent in 2006. Transatlantic and transpacific routes and travel within the Far East also made strong gains in premium traffic last year.
"The North Atlantic is the second-biggest international market—16 percent of premium traffic," IATA chief economist Brian Pearce said last week. "The Europe-to-Asia market is about half that size. However, routes to Asia have been growing tremendously fast, particularly the Europe-to-Asia market, which has been growing at over 10 percent consistently for the last couple of years."
Premium travel within Europe—which accounts for 31 percent of international premium traffic, making it the largest international market—continued its decline amid the growth of European low-cost carriers and a declining appetite for shorter-haul premium travel.
"It's not an exaggeration to say within-Europe premium traffic has collapsed," according to Pearce. "It's down 50 percent since 2000. Last year, within Europe, premium traffic was down 0.2 percent, compared with the longer-haul markets to the Far East and Middle East, which are growing by double figures."
Demonstrated by intra-Europe performance—and also many corporate travel policies that allow first or business class travel only if flight durations exceed a threshold—Pearce noted that the appetite for premium class travel grows with the length of the flight. "Comfort and service become much more important on longer-haul routes," Pearce said.
Pearce said the outlook remains strong for premium international demand, and much of that is tied to economic factors that drive businesses—and their travel patterns.
"It's pretty good at the moment," he said. "Despite the falling financial markets, corporate profits are at all-time highs internationally. You're seeing very strong corporate investment—foreign direct investment—and increasing outsourcing of production facilities. It's those structural shifts that drive a lot of this travel. Globalization is particularly important to driving these trends, particularly to Asia. There's no sign of that stopping."
To lap up the growing demand, many international carriers in the past year began to reinvest in their premium class products, in some cases after years of neglect. The goal, the carriers noted, was to court and maintain high-yielding customers.
American Airlines, British Airways, Delta Air Lines and Singapore Airlines—among many others—are in various phases of rolling out refreshed products.
"There is a cyclical phase, and we've been through two to three years of very strong traffic and revenue growth," Pearce said. "In many ways, the fact that fuel costs rose so sharply delayed and limited the extent airlines were able to do that, but now is the time that airlines are using the strong revenues that they've seen to invest in their product. It's more difficult than it has been in previous cycles because fuel costs have taken away most of that cash flow."
Meanwhile, to increase yields from price-sensitive coach passengers, airlines also have created new classes of service. Pearce noted that airlines continue to offer hybrids of premium and economy products, often called premium economy, on aircraft.
The categories give customers varying degrees of comfort on an incremental pricing scale. The most recent example is Japan Airlines. The carrier this year plans to introduce its new Premium Economy class service on international flights. JAL said Premium Economy will primarily serve Japan-Europe and Japan-U.S. routes and will be available for booking in the fall. The seats on the new class include 38 inches of pitch, which is 20 percent larger than regular economy seats.
"Indeed, the airlines have been quite successful in encouraging passengers to shift to those high-yielding seats," Pearce said. "A lot of those airlines have very successful services by giving passengers that had been traveling coach slightly better service and a slightly bigger seat, which they're willing to pay for on the longer journeys."