Premium class ticket use declined 13.3 percent year-over-year in December as business travel significantly dropped off toward the end of 2008, according to the International Air Transport Association's Premium Traffic Monitor, released today. December's premium class battering follows November's 11.5 percent decline. Economy travel also suffered, albeit on a far lesser scale with a 5.3 percent decrease in December.
IATA expects further traffic declines in the first few months of 2009, as the economic crisis makes a further impact on global air travel, and in turn airline balance sheets.
IATA estimates that premium revenues in December were 20 percent lower than December 2007 levels, which amounts to a 3 percent or $15 billion loss in the airline industry's annual revenues. Premium seats historically account for about 8 percent of passenger numbers and 15 percent to 20 percent of annual revenues, according to the trade group. "The extreme weakness of demand combined with an inability to shrink capacity to match is now causing fares and yields to decline," IATA said in its report. "Even the less price-sensitive premium segment of the market is facing excess capacity to the extent that average premium yields began to fall in November."
Asia/Pacific appears to be the epicenter of the premium demand decline. According to IATA, Far East premium travel fell 25.1 percent in December compared with the prior year. Premium class bookings on Europe-Far East routes decreased 17.3 percent.
FCm Travel Solutions transaction values in Greater China are down 20 percent to 25 percent, according to FCm executive general manager of Greater China David Fraser. "Travelers are looking at taking a lot more heavily discounted tickets that aren't as flexible or changeable," he said. "They are trading on flexibility and comfort to still travel as much but to be able to do it much cheaper."
Premium travel across the North Atlantic, which is experiencing significant capacity cuts in the first quarter of 2009
(BTNonline, Feb. 2), fell considerably with an 8.8 percent decline in December. Intra-Europe premium bookings were down 16.3 percent.
Premium class bookings increased at some points in 2008, but during the last three months experienced a steady decline. Buoyed by a strong front-half of 2008, premium travel fell 2.8 percent in the year from 2007.
Carlson Wagonlit Travel had an 18 percent year-over-year drop in North America- originating international business class transactions in the fourth quarter of 2008, according to CWT Solutions Group Americas global project manager of air consulting Matthew Patterson.
Patterson said his clients are analyzing the benefits of policy changes, including bumping up premium class thresholds, applying different policies for overnight and daytime trips and, where available, trading down from business class to economy plus, which can save on average 30 percent to 40 percent per ticket.
Due to the lack of demand for front-of-the-plane seats, Patterson said carriers are accelerating the segmentation of pricing for premium seats with multiple price points. On the lower scale of the business class-pricing spectrum, travelers who book 40 to 50 days in advance with some ticket restrictions can buy a ticket at 40 percent to 50 percent less than the full fare published business class ticket.