Tuesday, August 18, 2009
Overseas Premium Travel Decline Slowing Slightly, Yet Airline Revenues Worsen On Those Routes
The International Air Transport Association put out new figures for June worldwide travel showing the first tiny, tiny evidence in a long while that the decline in international business travel is "moderating slightly." Ever so slightly.
That's a very wispy bit of better news for the airlines, domestic and foreign, that have invested so mightily in premium cabins in recent years. But on the other hand, the IATA figures also underscore what many experts, among them the British Airways CEO Willie Walsh, have been telling me for months. International premium travel will come back eventually, to some extent. But those sky-high fares -- like the $10,000-$11,000 RT walkups between New York and Europe -- are probably gone forever.
Adjustments will be made in terms of service and capacity. Costs must be removed from the systems. And you can quote me on this: Those adjustments will be far-reaching and long-term if not permanent. They will represent the international component of an fundamental reorganization of the air-travel industry.
Some highlights from the IATA Premium Traffic Monitor for June:
--The numbers of passengers traveling internationally in coach had been stabilizing since March, but the trend "seemed largely due to business travelers switching from premium to economy seats, rather than any other stabilizing of demand."
--In June, however, the decline in the overall number of passengers traveling on premium fares moderated. Not that the airlines are breaking out the good champagne here. Maybe a cold bracing beer instead. The moderation was very slight. In June compared with June 2008, premium traffic was off 21.3 percent. That's a slight improvement over the decline of 23.6 percent in May compared with May 2008.
--This tiny, tiny apparent improvement in premium travel demand is nothing more than a reflection of the sharp discounting international airlines have been doing in their premium cabins. Yields absolutely suck. As IATA pointed out, "revenues from premium travel fell an estimated 33 percent in Q1 and 41 percent in Q2." Furthermore, revenues from premium fares were "declining at a rate of close to 40 percent in June."
If you're an airline executive who bet the farm on robust international premium yields, and you know who you are out there, you are not having a good time this year, no matter how often you crank that adding machine.