Airlines Seek To Improve Premium-Cabin Profits

British Airways and TWA have devised new ways of bringing in revenue through their first-class sections following a two-year blitz of improvements in business class.

But the task is a daunting one, considering the vast majority of corporate travel policies have forced first class to take a back seat to business class, even on most international trips. Some analysts believe first class is a declining market in the long term, catering only to celebrities and the most senior executives.

Meanwhile, as the number of frequent flyers and the number of miles they own continues to grow, airlines must be careful not to cannibalize the value of those miles. Business travelers love upgrading into first class using mileage, but these types of upgrades are now failing many travelers as the number of people who qualify for upgrades--especially in and around hubs--continues to increase.

The alternative for many high-ranking executives is to use negotiated, guaranteed upgrades. But the carriers--in an attempt to get people to actually pay for first class--have begun cutting back on such programs.

"There aren't as many guaranteed upgrade certificates as there used to be, especially internationally," said Frank Dinovo, president of Omaha-based agency Travel & Transport. "Upgrades in corporate contracts come in waves; it's all subject to the economics of the airline industry."

British Airways early last year cut back on the number of upgrades negotiated with corporations, as well as the amount of overrides paid to agencies for first class and the Concorde. The moves angered some longtime BA customers (<I>BTN</I>, June 10, 1996), but the airline won't be going back.

BA's executive vice president of sales and marketing for the USA, Dale Moss, said that while there have been a few company-by-company changes since last year, the carrier is "not getting more liberal."

"Our first-class product is getting remarkable support," said Moss, calling it the engine that is driving higher yields. "We want to be sensible in how we incentivize customers."

For some airlines and with some customers, free upgrades are being replaced by deeply discounted first-class fares. These often come in the form of a negotiated first-class rate that is different from the coach and business discount rate.

"Over the last year or so, some airlines have begun to move away from across-the-board discounting," said Valerie Estep, president of Portland, Ore.-based Topaz Enterprises, an auditing firm. "Now there are different discount levels for different classes. For example, first class could be as much as 50 percent off."

Estep said that while she doesn't think a good first-class rate would change many corporate policies, "you might as well throw it in there if you can get it, for the senior-level executives."

The practice is not yet widespread enough to have affected Topaz's quarterly audits; first-class segments as a percent of all negotiated segments have remained constant at 2 to 3 percent over the past three years.

Using a different strategy, TWA has made paid-for upgrades available to the public at large through a program it created in October that allows domestic passengers to pay for an upgrade based on length of trip, within two hours of departure. For flights under 500 miles, for instance, a first-class upgrade from coach is $50.

If one thing is clear, it's that none of these programs are likely to increase the number of first-class tickets bought by travelers operating under tight corporate policies. According to The Corporate Traveler, a survey of 1,600 frequent travelers (<I>BTN</I>, Nov. 11, 1996), only 12.4 percent said they regularly fly first class internationally; 58.2 percent choose business class.

Domestically, buying first class is virtually unheard of. "The next time someone buys a domestic first-class ticket, the airlines and travel agents should have a joint celebration," Dinovo said.