Friday, July 31, 2009

British Airways, Air France, Lufthansa Struggle With Business Travel Drop; B.A.: No Fare Increases in '09

Bad news for airlines; good news (at least in the short term) for travelers, and especially those looking for bargains in international business-class travel.

Discussing his airline's latest quarterly loss (of $174.7 million), B.A. chief Willie Walsh said that the strategy for the rest of the year is to try to drive up passenger volume, which can't be done with any increase in fares this year, given the climate.

That means that big discounts on business-class fares will continue through the fall and at least into early winter as British Airways and its competitors on the long-haul international routes struggle to achieve a balance between supply and demand.

But even if that balance is achieved with further capacity reductions, the market has spoken on sky-high international premium fares that routinely sold at $10,000 and up in recent years: Nuh-uh. No way. Ain't happening. Those days are gone, even after the economy rebounds.

As a result, all major carriers that depend on high-volume premium long-haul traffic (and I see you back there trying to keep your heads down, Delta, American, Continental, Virgin Atlantic, United and the rest of yez) are going to need to take costs out of the service (cutting back on not only staff but in-flight amenities) and significantly reduce capacity to accommodate the new reality of long-haul premium fares. It is a buyers' market.

(By the way, in the link to the Virgin Atlantic story in the Guardian in the paragraph above, ignore the goofy out-of-date financial numbers, which inexplicably are given for the year ended in March for British Airways. British Airways' most recent results, announced today, show a loss of $174.7 million for its first fiscal quarter which ended June 30).

Largely reflecting the plunge in premium traffic, B.A.'s revenues were off 12 percent in the quarter ended in June. It was even worse at Air France-KLM, where revenues dropped 20.5 percent, and at Lufthansa, down 19.5 percent.

B.A.'s Willie Walsh said in a statement today that there are "no visible signs of improvement" in revenues, but "some signs of improvement" in passenger demand. Walsh -- who has been commendably up-front in calling things by their right names -- didn't say so, but any improvement in demand reflects fare sales.

And in what I predict will be a more common strategy among airlines in years to come, Walsh said that British Airways is increasing its efforts to offer package deals --- flights combined with hotels, car rentals and other travel services. This initiative "has led to bookings of ancillary products and packages more than doubling compared to last year," he said.


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