Monday, May 18, 2009

International Premium Traffic Plunges Further; Airlines Wonder, Where's the Bottom?

I was just chuckling over a quote in a story in this morning's paper from Jeff Zucker, the boss at the NBC network. It reads: "Although 'we have have seen the bottom,' he said, 'we don't see an uptick.'"

I couldn't help wondering: Isn't that arguably another way to say, "We may be sunk."?

Anyway, here comes the International Air Transport Association this morning with some very bad news for the airline industry (which of course is already well aware of the implications, since they've already counted the money): International premium-class traffic, which has been falling for at least six months, fell even more sharply in March, when 19 percent fewer passengers bought business-class or first-class tickets on international routes (as compared with March 2008).

Here's the Reuters story out of Geneva. Oddly, IATA adheres to the self-defeating habit of releasing news abroad first, rather than simply posting it on its Web site so we Americans can see it at the same time it gets disseminated to the Continent.

"We have not reached a floor to the fall in air travel," IATA said in a statement quoted by Reuters.

As international premium traffic plunges, airlines have been running big fare sales on overseas business-class and first-class seats. So while the gross decline in the number of premium-fare passengers is stark, the decline in revenue from those cabins -- now being sold off at half price and less in many cases -- is even more stark. IATA estimates that premium-class revenues were down 35 to 40 percent in the first-quarter, according to Reuters.

In recent years, major U.S. airlines made big bets on a future of robust international premium-class traffic, renovating front-of-the-plane long-haul cabins and shifting capacity from domestic to overseas flying.

My own guess is that in time, given inexorable global travel demand patterns, this important segment of the market will recover, and probably even to a greater extent than domestic traffic, which may settle in permanently at a 15 percent capacity reduction.

But I seriously doubt that the days of $11,000 business-class fares (even at half off for major corporate discounts) will return any time soon.

Airlines that made those big bets on overseas premium seats know they have to buckle up, as it's going to be a bumpy ride.


No comments: