European Carriers Rethink Business Class Commitment

European airlines have started a drastic restructuring of their short-haul business class services amid plummeting demand and a growing acknowledgement that the ground is where corporate travelers truly welcome differentiated treatment.

Aer Lingus announced in spring 2005 it will axe business class entirely on short-haul routes. SAS, by contrast, is to introduce what it calls a three-class service on intra-European flights beyond Scandinavia. The new third class, economy flex, gives the passenger an economy seat along with such expedited ground services as priority checkin and lounge use. Other benefits include free rebooking and refunds, advance seat reservation, complimentary food and drink onboard and fast-track security at Copenhagen and Stockholm airports. Ordinary economy passengers have no ticketing flexibility and must pay for their food and drink.

SAS will introduce economy flex with the start of the winter 2004 timetable. The initiative resembles a similar move announced one year ago by KLM. Ironically, SAS only offers a single class, called Scandinavian Direct, on flights within Scandinavia.

For Aer Lingus, getting rid of business class is a momentous decision since the carrier may have to pull out of the Oneworld alliance on account of no longer offering premium cabin through-ticketing. However, the Irish carrier, under continuing pressure from local low-cost rival Ryanair, said it has no choice because only 6 percent of its short-haul travelers fly in business class.

These figures are exceptionally low, but the decline has been steep throughout Europe. BTI UK, the largest travel management company in the United Kingdom, said 48 percent of the short-haul reservations it handled between April and June 2002 were in business class. This plunged to 37 percent in the same quarter in 2003 and again to 32 percent this year.

"Short-haul business class has declined dramatically with competition from no-frills carriers and our own economy cabins," said Ian Heywood, U.K. & Ireland head of corporate sales for British Airways. "The decline has started to be averted, but we need to accept that numbers may not recover."

Nevertheless, Heywood added that there is no question of following Aer Lingus by scrapping business class. "We will keep it," he said. "We have to look constantly at what the product is, but there is a significant market for it now and in the future."

A curious development earlier this year in Switzerland bears out the belief that an unshakeable, if much reduced, demand exists for business class in many markets. Customer demand prompted the airline Swiss to reinstate a premium cabin on aircraft of fewer than 50 seats, which it only the year before had removed.

Spencer Smith, head of BTI Consulting, said customers continue to value business class on short-haul routes but for different reasons than in the past. "What they value now is little to do with what is on the airplane but everything to do with what is on the ground," he said.

Chris Reynolds, U.K. travel manager for Siemens, agreed. "Whether we get a cheese sandwich or a smoked eel sandwich does not bother me too much," he said. "One cabin is fine. What we want for the extra money we pay are things like a guaranteed seat, wait-list clearance and access to a lounge. We also need to have recognition."

However, some companies no longer are prepared to pay for full fare economy, let alone business class, on short haul. One such corporation is BOC, which flies its travelers in business on long-haul flights but on restricted economy tickets for intra-European trips.

"More business class cabins will be scrapped," said Chris Rose, the company's supply manager for strategic sourcing and travel. "The main reason our travelers want it is for the lounge access, but a high percentage of our passengers have that anyway through their British Airways frequent flyer membership."

BTI Consulting's Smith said airlines should restructure frequent flyer schemes to reward corporate passengers with enhanced ground benefits instead of mileage.

Toby Joseph, TQ3 Travel Solutions COO, predicted a hybrid of the SAS and Aer Lingus solutions will emerge in the next year. "Airlines could remove their business class seating but offer an enhanced economy service," he said. "This would retain all the much-valued ground services that get business travelers through the airport quickly."