Cabins Put As Policies Take

<B>Cabins Put As Policies Take</B>

By David Jonas

Two seemingly opposite trends are at work in the premium class sector of air travel. Carriers, both domestic and international, continue to invest in first and business class improvements while more and more corporations restrict usage of those cabins by their normally high-yield travelers.

Even some of the largest travel buyers have cut off access to premium cabins. Arthur Andersen tightened its travel policy on first class booking, Lockheed Martin last year instituted an across-the-board no first class rule and Procter & Gamble currently is exploring similar modifications for both first and business class. PricewaterhouseCoopers, meanwhile, raised from 50,000 annual flown miles to 75,000 the threshold at which its 30,000 frequent travelers can achieve road warrior status, and so have access to premium cabins.

Michael Lynch, director of corporate strategies for Rosenbluth International, said some of the agency's U.S. clients are compromising with travelers. "There is a trend toward business class outbound only on the transatlantic, since business travelers need to be ready for meetings when they arrive. It is not as important on the daytime flight back home."

Meanwhile, John Heilner, a consultant with Management Alternatives/MSIG in Princeton, N.J., said many of his East Coast clients are requiring travelers to book coach class to closer European destinations, including London, Paris, Madrid, Lisbon and even Germany in some instances.

Despite more stringent corporate policies and in an effort to keep pace with one another and attract high-paying business travelers to their upper-end offerings, carriers recently embarked on numerous premium cabin improvements.

"I believe airlines are investing in these cabins in the age old, and eventually futile, attempt to steal market share from their competitors," Heilner said. "Yes, the piece of the pie to be stolen or shared is getting slightly smaller as some companies tighten travel policy, but the revenue yields for premium services continue to escalate rapidly, and on some routes are a significant multiple of coach/economy fares."

For example, American Airlines, following up on its well-received coach class legroom expansion, is planning a similar improvement to its domestic business class. Currently, the carrier is planning to add 10 to 12 inches of space per row on more than 80 aircraft. No timetable has been set. Meanwhile, in first class, American's Flagship Suite is being installed on Boeing 777s flying to Europe and South America. The cabin features lie-flat sleeper seats and completely updated service and amenities.

American also is building a premium customer service facility at London Heathrow Airport. The area, adjacent to Terminal 3 for first class and business class passengers only, enables checkin, baggage checks and other services while bypassing the main terminal area. Meanwhile, starting last week, American began distributing enhanced amenity kits to first and business class passengers on most international routes. Also, premium passengers on many flights now have access to complimentary inflight DVD players.

Virgin Atlantic said new sleeper seats in its revamped Upper Class will be ready in major business markets between the United States and London by year-end and throughout the entire fleet by June. Aside from new sleeper seats, the refreshed cabin includes a new inflight bar, beauty center and menu options.

John Riordan, Virgin's vice president of sales and marketing, has not seen much of a migration among corporate customers away from the premium cabin. "Since our top product is pitched at a business class price, it is an advantage for us as competitors further constrict their first class capacity."

Swissair earlier this year completed the rollout of its new first class cabin throughout the long-haul fleet. Combination seats and ottomans transform into full flat beds and passengers can select dining choices from a completely new menu. Swissair partner Sabena, meanwhile, has installed a new business class throughout all long-haul Airbus 330s and 340s.

South African Airways in December will begin to improve first and business class cabins on all 20 of the carrier's long-haul Boeing 747 fleet. First class sleeper seats are based on the design employed by Swissair, while both premium cabins will include new video-on-demand entertainment systems and other enhancements. SAA earlier this year unveiled a new first class passenger lounge and first class curbside checkin at its hub in Johannesburg International Airport. The lounge includes a business center, several "snooze" rooms and many other services and amenities.

LanChile by this month will have completed refurbishment throughout its Boeing 767 long-haul fleet. Business class will be upgraded to equal the previous first class while first class gets all new sleeper seats.

Other recent carrier improvements include new menus in Continental Airlines' BusinessFirst cabin, and interactive video entertainment systems on all Japan Airlines flights out of United States. Singapore Airlines is even considering inflight showers.

British Airways, meanwhile, is in the midst of nearly $1 billion worth of fleet improvements. Its new Club World business class, including lie-flat sleeper seats, already is up and running between New York JFK and London Heathrow. "It clearly is our intention to provide a value-add for the corporate traveler," said Dan Brewin, BA's executive vice president of sales and marketing, USA. "We certainly hope these developments improve our penetration in the corporate market."

Brewin added that competitors likely will imitate BA's product enhancements and that a revamped business class could have an impact on the carrier's first class. "Removing first class altogether is a consideration," he said.

Several airlines, including Continental and Delta, already have ditched first class for a hybrid first/business class cabin (BTN, Sept. 6, 1999). Delta earlier this summer brought its BusinessElite service to the Boston-Los Angeles route.

United installed a fourth class of service. Its EconomyPlus product, while offering more legroom, physically is still part of the economy cabin.

BA's World Traveler Plus--a fourth class of service between economy and business featuring a dedicated cabin, more legroom and wider seats--is scheduled to arrive in October between New York and London. SAS also is planning to launch a middle-ground cabin between business and economy. Virgin pioneered premium economy nine years ago. "The many carriers going in this direction are a vindication of the position we took then," Riordan said, noting renewed marketing efforts are expected soon.

BA already is seeing an improvement in premium class revenues, which is a pillar of the airline's strategy moving forward. For the first quarter of its fiscal year, BA reported an 8 percent jump in first and business class revenues despite overall quarterly losses.

Continental, too, recently reported strong business traffic numbers. Business passenger share inched over 48 percent last quarter, a 2 percent year-over-year increase.

However, when looking at premium cabin performance, upgrades must be considered. "Every large corporation has upgrades on a discretionary basis for top travelers as part of their air contracts," said Rolfe Shellenberger, senior consultant at Runzheimer International. "Premium cabins are full because of free and purchased upgrades. Because of upgrade policies by TWA and Northwest, many travelers who cannot otherwise upgrade are making reservations late enough to pay full coach and then get upgraded."

Whether landing in a comfortable premium seat via booking or upgrading, business travelers will begin experiencing new seats and amenities as inflight service competition heats up. However, he suggested these attempts by the carriers will be ineffective in the long run because of the copycat nature of the airline industry.

"In the short run, premium class customers benefit as everyone rushes to install better seats/beds, entertainment, Internet links, incoming phone service, etc.," Heilner said. "But in the end, employers must pay the bill as fares rise to cover costs.