An hour before his morning flight departs, Frank Palmer enjoys some of the perks of his business-class ticket as he relaxes at an exclusive airport lounge. For the chief executive officer of advertising agency DDB Canada, everything – down to his routine of complimentary coffee, yogurt and toast – is as it should be.
Except for one thing.
After boarding, he notices the front of the plane is half-empty – a graphic illustration of the problem faced by airlines that depend on business-class road warriors like Mr. Palmer.
“Everybody is looking at costs and being more frugal in general,” he says.
Even though DDB Canada prefers to meet face to face with clients, it has slashed its travel budget by 20 per cent over the past year, part of a worldwide trend of companies cancelling or scaling back premium bookings during tough times.
Thus the traditional reliance on business class as a cash cow is undermining the prospects of legacy carriers – the large, decades-old airlines that once ruled the skies unchallenged. If the travel market continues to be hammered by high fuel prices and tepid demand from executives, there will be bleak years ahead for the airline old guard and a shift in power toward discount carriers, industry experts say.
“The legacy carriers are in deep trouble,” says Kevin Mitchell, chairman of the U.S.-based Business Travel Coalition, which represents the interests of corporations buying business trips. “God forbid that we get another huge runup in oil prices. It's going to be disastrous. The sustainability of the global airline industry is going down, down, down.”
A premium-class seat can be four to six times more profitable than an economy seat, depending on the route flown. But as of June, international premium travel had declined for 13 consecutive months. In June itself, the number of premium passengers tumbled 21 per cent from a year earlier, according to the International Air Transport Association (IATA). By contrast, the number of economy passengers fell only 5.5 per cent.
“The legacy model is really under attack. If business travel demand stays anemic, there's better than a 50-per-cent chance that we're going to have failures,” says Mr. Mitchell, who predicts that travel budgets will stay tight even after the economy recovers.
Debt-laden legacy carriers are worried that if they rip out business-class seats and expand the economy cabin, they'll miss out if travel booms again. But if premium seats are left in place and the slump lingers, “they'll be screwed that way, too,” Mr. Mitchell says.
The ranks of the legacy carriers – all of them still committed to business class – include Air Canada, British Airways, Cathay Pacific Airways, Deutsche Lufthansa, Air France, Delta Air Lines, US Airways, United Airlines and Continental Airlines. Many of these firms have recent experience with red ink and, in the case of Air Canada and the U.S. companies, creditor protection.
Budget carriers would be the winners in an industry shakeout. This class of newer, and generally lower-cost, carriers includes WestJet Airlines Ltd. of Calgary and Dallas-based Southwest Airlines in North America, Ryanair and EasyJet in Europe, and Spicejet in India, to name just a few.
ELITE ALLURE
A business-class passenger reclines in his seat and tilts his head back so a flight attendant can drop grapes, one by one, into his mouth. Amid gales of laughter, champagne corks pop and a tray of steaming lobsters appears.
It's the opening of a vintage TV commercial that satirizes the differences between business and economy class in an airplane cabin: Decadence in the front, deprivation in the back.
“A guy is smiling when he first boards, thinking it's going to be a great flight, but then he walks through the curtain to the back of the plane,” tourism industry consultant Debra Ward recalls. “He realizes that economy class is like steerage on a boat. There are peasants with burlap bags and even a live chicken.”
