As corporate policies put premium travel in the spotlight. Bob Papworth discovers who is still daring to fly in the front
TEN YEARS AGO THIS MONTH, in April 2003, the travel management industry received a metaphorical shot in the arm. Doormats across the nation reverberated with the thudding arrival of the first-ever issue of something called Buying Business Travel. The then-youthful editor Mike Toynbee described the “bright new bi-monthly” as being in “an easy-to-read format” and some wet-behind-the-ears whippersnapper called Bob Papworth contributed a feature on the impact of low-cost carriers on airline pricing policies.
Legacy carriers, he reported, had slashed economy class fares as low as commercially feasible. To make up the shortfall in revenues, they would have to lower business class fares to entice more people into premium cabins. The margins would be smaller, but the droves of punters heading towards the front of the plane would more than make up for that. Fast-forward to 2011, and IATA was asserting that “there has clearly been a structural shift away from travel on business and first class seats towards economy", citing a fall from 9-10 per cent to 7.5-8.5 per cent of premium travel's share of the international total since the recession started.
However, OAG statistics, produced exclusively for Buying Business Travel, show first and business class capacity appears, at first glance, to be holding up well despite the recession. Back in 2001, the world’s airlines put a total of 134,985,006 business class seats on the market. This figure was 151,319,102 in 2012, a rise of more than 16 million. Figures for first class – 67,016,689 in 2001 – show a tiny increase of 10,000 by last year. That’s not to say premium seats grew proportionally – OAG’s figures show total available seats rose from 2.93 billion in 2001 to just over 4 billion in 2012.
But the fact remains that airlines have been adding premium cabin capacity, indicating there is a market for it. So who and where are those big spenders? Major growth has come in Asia, where OAG’s figures tell us that in 2001, out of a total of 582 million available seats, 541 million were in economy class, 33.8 million were in business class and only 6.7 million up front. By 2012, the grand total was nudging 1.2 billion, with 1.1 billion in economy, 47.5 million in business and nearly 18 million in first class. However, Asia’s enthusiasm for the pointy end of the plane is far from the global norm.
Even in the Middle East, known for its fair share of ‘high net worth individuals’, over that same 2001-12 timeframe, the number of first class seats on the market has slipped from around 3.1 million to fewer than two million. Business class capacity, in contrast, has shot up from 2001’s three million to more than 11 million last year.
In North America, first class capacity has remained fairly consistent, with 49 million seats for sale in 2001 and 41 million on the market last year. Here in Europe, the total airline seat capacity has risen dramatically since the turn of the century. In 2001, OAG data shows airlines had more than 702 million seats to sell; last year, that figure had risen to more than one billion. But while the number of economy seats has risen from just under 640 million to nearly 957million over the same period, a rise of roughly 50 per cent, the number of business class seats has risen less than 12 per cent, from 60 million to 67million. The number of first class seats has dropped – from 2,376,292 in 2001 to 2,204,684 in 2012.
So who is filling these first-class seats? Not one of the travel managers questioned by BBT at last month’s Business Travel Show admitted to paying front-end fares, with one financial sector buyer claiming: “We don’t need to. A few [first class travellers] use their frequent flyer points, but the rest qualify for an automatic upgrade.”
FCM Travel Solution's Jo Greenfield is inclined to agree. “I think when you go into a first class cabin, you are looking at a lot of upgraded passengers,” she says. “First class is almost like a business class cabin for gold card-holders.”
Capita Business Travel sales director Matt Selby, whose career includes 13 years with Cathay Pacific, says: “When I was at Cathay, there was always a set of folk – and they’re still there – who simply want to be in first class and who are prepared to pay for it. From a general corporate travel perspective, however, I can’t see a need for it – business class has improved so much over the past ten years or so, first class isn’t worth the extra cost.”
Carlson Wagonlit Travel (CWT) director Nigel Turner begs to differ. “As business travel has grown, so business class has become less exclusive. We will ignore the upgrade market, but there are still the board members of certain companies for whom it is part of the job,” he says. “They’re paying for more than just a better seat – the environment you a
re in, the privacy, the personal service – that all adds up. Among our own clients, we still see a percentage who travel first class, and that hasn’t changed. It’s a small percentage, but it’s fairly constant.”
American Express Business Travel director Prashanth Kuchibhotla says clients tell him that offering premium travel helps to differentiate employers in the competition to win and retain talent. “If travellers are on the road four or five times a week, they want to know the business they work for is prepared to pay for them to travel in comfort,” he says, adding: “While return on investment for premium travel is difficult to measure, anecdotally we hear from customers that it allows for a more effective workforce, as travellers turn up to meetings refreshed and focused. Financially, premium travel is a small part of the costs associated with business travel, and we hear from clients who use it that the benefits far outweigh the costs.”
It is not all a bed of premium-class roses, however. Kuchibhotla says traveller experience “varies greatly from carrier to carrier and from region to region”, a fact that CWT’s Turner believes could affect the way airlines allocate their first-class capacity. “It makes no commercial sense to offer a very expensive product on a system-wide basis if that product suffers – or is perceived to suffer – as a result. Airlines are increasingly shifting capacity, featuring first class service only where the market demand warrants it. First class will probably become more route-specific – it can only continue to exist on the basis of supply and demand.”
Right on cue, Buying Business Travel sister company Seatplans.com reveals that when British Airways takes delivery of the first of its Boeing 787 Dreamliners, the plane will come in a three-class configuration: World Traveller economy class, World Traveller Plus (BA’s premium economy brand ) and Club World business class seats – no first class.
That sort of fine-tuning is crucial, given the costs involved. By the end of next year, Lufthansa will have spent around €3 billion upgrading its first and business class product, while Air France is investing “several hundreds of millions of euros” in premium cabin upgrades over the next two years. British Airways is in the middle of a £5 billion spending spree that includes a much-improved first class product, both in the air and on the ground.
That kind of investment needs to be carefully targeted – an area in which United Airlines is fast becoming a specialist. “The economic downturn has brought pressure on travel budgets within companies, but most businesses know they have to ‘seal the deal’ and that means visiting their customers,” says Bob Schumacher, United’s UK sales managing director.
“Our first class cabin continues to have relevance, but on some routes more than others. In respect to the future, we will continue to watch global trends closely. There will always be demand for all cabins but, again, some more than others.
“We want to be able to respond to customer demand and deploy aircraft of the right size and right configuration for each route.”
Much older, and marginally wiser, Bob Papworth declined to comment.
PREMIUM CABIN UPDATE
Tom Otley looks at what’s new for 2013 in the premium cabins
Air Canada will receive five new B777-300ER aircraft in the next two years with a new three-class configuration. The existing herringbone layout will go, and a new premium economy cabin will be introduced. Business class will be configured with six or four-across, with a total of 36 seats. The new aircraft will enter service on the Montreal-Paris CDG route in July, with London seeing it at a later date.
US carriers have finally caught up in terms of international long-haul seating, and nowhere is this more apparent than with AA. This month it introduces its new B777-300ERs on to the London route with fully-flat seating in business and first. Towards the end of the year, the B777-200ERs will be retrofitted with a new fully-flat business seat, and have first class removed.
BA revamped its first class in 2010 and this, admittedly quite slow, process continues. Business class (Club World) remains the same, even on the carrier’s A380s and B787 Dreamliner aircraft, which are due to enter service this year.
Also introducing new business class seating, Cathay is replacing its controversial herringbone seating (likened to coffins by many because of its high walls and feet sticking out into the aisle on ottoman-style seats) with a fully-flat and forward-facing (though at an angle) business class seat. The carrier retains first class, and this has been in place for some years.
Delta may have agreed to buy a 49 per cent stake in Virgin Atlantic, but for the moment its business and first class remains distinct from that carrier. Delta has almost completed its roll-out of the fully-flat Business Elite seat on its B777, B747-400 and B767-400ER aircraft, as well as 13 of its B767-300ERs, making it available on flights from the US to 11 countries across EMEA, including the UK. More routes featuring the seat will be added; by mid-2014 all of Delta’s 140 wide-body international fleet will be fitted, The carrier is also adding wifi to long-haul routes.
There is a refresh of fully-flat business class for Etihad, and wifi is being rolled out long-haul. There’s an increase in capacity for Dublin from July as the B777-300ER aircraft goes six times weekly to Abu Dhabi (an A330 flies a further four times weekly).
Troubled Iberia is introducing a new long-haul business class on its A330-300 aircraft this year and will retrofit the new fully-flat seat on its 17 A340-600 aircraft.
New business and first class seating onboard JAL’s B777-300ER (and new economy and premium economy) serving London from Tokyo Narita, and a new joint business with British Airways on the route (which serves Narita daily, and Haneda), makes this route one to watch. With the devaluation of the yen, Japan could be on the comeback trail.
A complete transformation here, not only in having fully-flat seating in business class and first, but also a double-daily schedule that has moved from the B747-400 to the A380. The introduction of the superjumbo means an increase in weekly seat capacity of 16 per cent, from 5,971 seats to 6,916 in each direction, which includes more business class and first class seating. Bear in mind you can fly down to Australia with MAS on the A380 in business (or first) and the prices are keen. Worth considering.
Lufthansa has introduced a new fully-flat business class seat, but only on its B747-800 aircraft (the extended and enlarged B747). For the rest of the fleet, including the carrier’s ten A380s, it’s the same lie-flat version your travellers will have encountered in the past, though the new A330-300 deliveries do have the new fully-flat seat onboard.
The carrier put its first B787 Dreamliner, with new economy and business class, on the London route and then immediately had to withdraw it because of the battery problems experienced by JAL and ANA. At the time of writing there is no date for its reintroduction.
Despite the merger with Continental, you will find both Continental and United business class and first class products flying around for some time to come. This year United increased its transatlantic service from London to its hub in Houston. The double-daily flights to Houston were of Continental stock, the third one is United through-and-through, and has its new Global First product in addition to business and economy.
All change for Virgin this year, as it works to align its transatlantic services with Delta. For regular fliers, there may be no immediate difference, for although Virgin has just 5.4 million seats each year compared with Delta’s 165 million, it will provide 75 per cent of the capacity in the joint business courtesy of its six flights daily between Newark and JFK and London Heathrow.
THE PRICE OF PRIVILEGE
NEW REGION-BY-REGION analysis of business class travel trends suggests travel managers with the best bargains at their fingertips are also the least likely to book their travellers into a premium cabin. According to Carlson Wagonlit's latest CWT Perspectives report, Travel Management
Priorities for 2013, buyers in Latin America enjoy some of the most competitive intercontinental business class deals – and are least likely to use them.
CWT’s research suggests that the average price paid in Latin America for an intercontinental business class ticket is US$4,581, just over three times the US$1,403 price-tag for the economy class equivalent. But only 25 per cent of the region’s intercontinental air bookings are for seats at the front.
Similarly, in the Asia-Pacific region, the average price paid for an intercontinental business class ticket is US$4,667, just less than four times the US$1,242 for the same deal in economy class. Only 34 per cent of bookings are for the premium cabin.
By contrast, in North America, the average intercontinental business fare works out at US$6,055, nearly four times the average economy ticket price of US$1,567. The differential is no deterrent, however, with 37 per cent of corporate air travel booked in business class.
The most profligate buyers are to be found in EMEA, where, despite the fact that the average US$6,523 intercontinental business class fare is more than quadruple the US$1,617 for the economy equivalent, 39 per cent of bookings are for premium cabins.