The end of First Class?
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You are assuming that everyone will be willing to spend $1,925 for premium economy and 38" pitch and not only $1,077 regular economy with only 31" pitch.
This is probably not the case as for most of the Y passengers the $852 is a significant amount.
There are a certain number passengers, or their companies, willing to pay for first, a certain for business and a certain for economy. The seat mix needs to match that.
BA did a very good job in measuring that mix during the boom times and did well. The mix changed recently and so did BA's profits.
Also, in my example. Y will yield about $0.085/mi while F yields $1.37/mi . So each F is worth about 15 Y seats. The odds of filling one F are probably more than 15Y
This is probably not the case as for most of the Y passengers the $852 is a significant amount.
There are a certain number passengers, or their companies, willing to pay for first, a certain for business and a certain for economy. The seat mix needs to match that.
BA did a very good job in measuring that mix during the boom times and did well. The mix changed recently and so did BA's profits.
Also, in my example. Y will yield about $0.085/mi while F yields $1.37/mi . So each F is worth about 15 Y seats. The odds of filling one F are probably more than 15Y
Paxing All Over The World
I read that the major cause of the loss of profitability in BA was fuel. Although they certainly have lost premium pax too.
It's too early to say how long the recession will last and who is going to be most affected, leave alone which strategy will get a company through it with the least damage. Since class Prem Econ? Nope, never going to happen. All Biz and all Econ - Yes.
It's too early to say how long the recession will last and who is going to be most affected, leave alone which strategy will get a company through it with the least damage. Since class Prem Econ? Nope, never going to happen. All Biz and all Econ - Yes.
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I always got the impression premium eco is the class with the highest load factor. There will always be people who want the cheapest, and people who want something a bit better but cant afford the Biz fares. With the offers going around maybe these people can now stretch to it but how will it affect in the long term?
As to the drop in Biz, when corporates downgrade travel, what actually happens is that the company people stop flying - most see it as a bit of a perk and cant be bothered with a long-haul in the back.
I did wonder if there really were enough people able to pay the money demanded to support the First class cabin. I've been fortunate enough to get kicked up into it a few times and it was always half full at best.
As to the drop in Biz, when corporates downgrade travel, what actually happens is that the company people stop flying - most see it as a bit of a perk and cant be bothered with a long-haul in the back.
I did wonder if there really were enough people able to pay the money demanded to support the First class cabin. I've been fortunate enough to get kicked up into it a few times and it was always half full at best.
Paxing All Over The World
mib I think that you are right - the P.E.does have high load factors for the reasons you state. But I am not convinced there is enough demand to make the cost of converting a/c to this format and promoting it. Given that, once converted, the a/c cannot easily be used on other routes. One of the advantages of multi-cabins is that any a/c can serve any route, I know that VS usually run the airbus to KNB but you will sometimes get a 744. Obviously, once an airline gets enough a/c they can dedicate some configurations to some routes. My guess is that an all Biz or all Econ, is more useful than an all PE.
I don't see the point of PE and wouldn't pay money for it. I'ld either fly economy or save up for biz.
I would, however, pay a little extra to fly with someone with greater economy seat pitch than the standard cramped economy pitch. But probably not enough extra to make this a viable business case!
At the end of the day it is a maximum of 15 hours sitting in an uncomfortable and cramped seat. I would normally far rather save the money on the flight and spend it when on holiday.
For business travel our company's rules are that it is economy class when under 3 hours and biz if it is over 3 hours and you have to work on the flight or as soon as you get off the flight.
I would, however, pay a little extra to fly with someone with greater economy seat pitch than the standard cramped economy pitch. But probably not enough extra to make this a viable business case!
At the end of the day it is a maximum of 15 hours sitting in an uncomfortable and cramped seat. I would normally far rather save the money on the flight and spend it when on holiday.
For business travel our company's rules are that it is economy class when under 3 hours and biz if it is over 3 hours and you have to work on the flight or as soon as you get off the flight.
Paxing All Over The World
James 1077
That's what American Airlines found when they stripped out rows in Y and gave greater seat pitch. After a couple of years they found that all they had achieved - was to have fewer seats on the planes.
I have heard that said by many. As (usually) a single traveller, I can afford PE for myself or I buy Y and upgrade but PE is seen as a niche for those biz travellers who cannot afford/will not pay for C and for the few pax that will pay for more out of their own pocket. But not enough to fill an a/c.
I would, however, pay a little extra to fly with someone with greater economy seat pitch than the standard cramped economy pitch. But probably not enough extra to make this a viable business case!
I would normally far rather save the money on the flight and spend it when on holiday.
I used up some miles on American Airlines last week. Besides routing me to Dayton via Dallas and Chicago, rather than LHR - DFW - DAY, the only choices available were F or Y. So I went F. Can't say that I was impressed as compared with BA F class. Interesting, too, that I looked at the cost of a return from LHR to ORD in September. F on American was more expensive than F on BA, which itself was around Ł2600. Considering that my first trip to the US in 1979 in BA Club World was about Ł1700, that's a mighty big drop!
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I don't see the point of PE and wouldn't pay money for it. I'ld either fly economy or save up for biz.
I would, however, pay a little extra to fly with someone with greater economy seat pitch than the standard cramped economy pitch. But probably not enough extra to make this a viable business case
I would, however, pay a little extra to fly with someone with greater economy seat pitch than the standard cramped economy pitch. But probably not enough extra to make this a viable business case
PE is for those who want/need the legroom and width and are happy and able to pay the extra (like me), probably 10% or so of PAX (plus the Biz class people downgraded by thbeir companies in current economic climes also like me,
), hence the invariably full PE Cabin.
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Apart from the physical comfort aspect, how does your single class cabin separate the business traveler from crying babies and screaming kids?
Sorry, it's flawed.
Sorry, it's flawed.
I used to think Club World was a good product, then switched to Virgin who don't differentiate between First and Business - their Upper product is superb.
As for PE throughout, I think there is room for both E and PE products. I know a lot of E travellers who upgrade to PE just on the way home; the thinking being that you'll put up with E for 8 hours on the way out because you are going on holiday and the "prize" at the end is worth it, but coming home you want a bit of shut eye and some comfort especially if you are landing in the early hours and going in to work that day.
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Now Qantas drops first class on 3 long haul routes
Seems that Qantas has "temporarily" withdrawn first class from its Sydney-Buenos Aires, Sydney-San Francisco and Melb-HKG-London routes:
Qantas scraps first-class airline seats on long-haul flights
Apparently, the F seats will still be there on some flights, but will be sold as business class and the cabin service will be business class. (Sounds like a good deal for the lucky few.)
My own bet for the future is that the savage rivalry in business-class offerings will continue to push standards and prices up, causing first class to wither and die, and things will settle down into a new three-class standard: economy, premium economy, and business. Within ten years, these "new" classes will be indistinguishable from the eco-business-first offerings of the late 1990s/early 2000s. Then some bright spark will identify a market for something in between economy and premium economy, and the whole cycle will start over.
We could call this phenomenon "class creep". It is similar to the tendency for a given model of car to get bigger with each generation (e.g. VW Golf), eventually leading to a new smaller model being introduced which is similar in size to the original (e.g. VW Polo).
Qantas scraps first-class airline seats on long-haul flights
Apparently, the F seats will still be there on some flights, but will be sold as business class and the cabin service will be business class. (Sounds like a good deal for the lucky few.)
My own bet for the future is that the savage rivalry in business-class offerings will continue to push standards and prices up, causing first class to wither and die, and things will settle down into a new three-class standard: economy, premium economy, and business. Within ten years, these "new" classes will be indistinguishable from the eco-business-first offerings of the late 1990s/early 2000s. Then some bright spark will identify a market for something in between economy and premium economy, and the whole cycle will start over.
We could call this phenomenon "class creep". It is similar to the tendency for a given model of car to get bigger with each generation (e.g. VW Golf), eventually leading to a new smaller model being introduced which is similar in size to the original (e.g. VW Polo).
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Then some bright spark will identify a market for something in between economy and premium economy, and the whole cycle will start over.
What some bright spark invented is a sub-standard Economy class, and the marketing geniuses (sp) persuaded us it was called Economy instead of Inferior Economy.
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So true S O'R
Absolutely correct. The airlines have conned the majority of the flying public into believeing that current Economy Class standards is all that can be provided for the money.
If you look at my earlier figures you can see that a one class aircraft with seats pitched at 38 inches in 2-4-2 rows will earn just as much as a three class aircraft and at a fare that is well within the range of all the Economy Class fares for the example journey I was able to identify that day.
Another poster likened it to the way models of cars grow bigger and then get replaced with a new 'small' model. This is true. Remember when Business Class was first introduced, the seat pitch was 38 inches. First Class was a lot smaller too.
No, sorry, its an airline con but, sadly, it is one of those cons that will perpetuate whilst passengers on lang haul flights can only take or leave the seating they are offered.
As for the statement that (so-called) Premium Classes are what make airline profits (this most recently from the BBC TV Business correspondent), I would remind us all of the demise of EOS, Silverjet and the like. If the business model and fare structure really was profit making then why did they fail? The fate of BA's Business only New York to London City service due to start soon will be interesting to watch.
If you look at my earlier figures you can see that a one class aircraft with seats pitched at 38 inches in 2-4-2 rows will earn just as much as a three class aircraft and at a fare that is well within the range of all the Economy Class fares for the example journey I was able to identify that day.
Another poster likened it to the way models of cars grow bigger and then get replaced with a new 'small' model. This is true. Remember when Business Class was first introduced, the seat pitch was 38 inches. First Class was a lot smaller too.
No, sorry, its an airline con but, sadly, it is one of those cons that will perpetuate whilst passengers on lang haul flights can only take or leave the seating they are offered.
As for the statement that (so-called) Premium Classes are what make airline profits (this most recently from the BBC TV Business correspondent), I would remind us all of the demise of EOS, Silverjet and the like. If the business model and fare structure really was profit making then why did they fail? The fate of BA's Business only New York to London City service due to start soon will be interesting to watch.
Last edited by Xeque; 27th May 2009 at 08:21.
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For sure when BA were privatised Economy seat pitch went from 34" down to 31". BUT and its a big but, those of us who flew at that time knew just how restrictive and prohibitive the fares were under the government monopolies. Pex, Apex and Super Apex - thats your choice of tickets Sir. Back in the early 80s I paid over Ł400 economy return to Barcelona - so we paid massively for those extra 3 inches of space.
Reality is in the long term no model works. As US Investment Guru Warren Buffet is quoted along the lines of, 'if the Wright Brothers had crashed it would have saved investors alot of money'
Reality is in the long term no model works. As US Investment Guru Warren Buffet is quoted along the lines of, 'if the Wright Brothers had crashed it would have saved investors alot of money'
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Yes that's very true. In balance I'm far happier with a much cheaper inferior economy service. The airlines also need us cheapos to fill their airplanes more than they care to admit. If it wasn't for us their bloated organisations wouldn't be around to charge inflated fares for seats up the front. One also suspects that it's the likes of NetJets which is the profitable future for premium traffic, not 1st class suites on a 380. Maybe it's already here?
Too mean to buy a long personal title
I do see the point of premium economy and will gladly pay the bottom rung fares for it. I only travel for "leisure" and can't afford business class fares. But I am often doing trips like LHR-HKG on Friday night after a full day at work, going straight from the office to the airport, and then HKG-LHR on Sunday night, going straight into the office from the airport on Monday morning to start a full day's work. And that is much better in premium economy than in economy. It's worth the extra money, even if I am paying double for only 150% of the real estate on the aircraft.
You and I are different kinds of passenger. And the airline has to try to cater for both of us, as well as the many other kinds of passenger as well. One size cannot fit all, in this business.
If you look at my earlier figures you can see that a one class aircraft with seats pitched at 38 inches in 2-4-2 rows will earn just as much as a three class aircraft and at a fare that is well within the range of all the Economy Class fares for the example journey I was able to identify that day.
Your "earning" figure assumes that the fare is $1,925 per passenger. But if you charge every passenger that amount, about half of them won't pay it because it's too much. They're the passengers who will pay maybe $1,000-$1,200 for an economy ticket, but beyond that will either travel with someone else or not travel at all.
If you start graduating your fares so that you capture some of these passengers with such low fares, you'll have to charge more to some of the other passengers. And they won't pay substantially higher fares to you; they'll go off to the competition and get a business class seat for the price that you want to charge them for premium economy.
Of course, it might be different if every airline offered only premium economy, and only at your price. But that business model was probably last seen on Aeroflot 30 years ago.
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Tried the BA open skies product from AMS recently, which is half business flat beds (BA style), and half prem economy (but better than regular BA) with bigger seats and 51"" pitch.
One of the big advantages I found was that as this set up had no economy, and was on a 757, there was actually only a small number of pax. So, lots of overhead lucggage space, no queuing to board, and a really good experience overall.
In my experience, flying BA prem econ with a silver card gives you almost all the benefits of club, minus the flat bed.
One of the big advantages I found was that as this set up had no economy, and was on a 757, there was actually only a small number of pax. So, lots of overhead lucggage space, no queuing to board, and a really good experience overall.
In my experience, flying BA prem econ with a silver card gives you almost all the benefits of club, minus the flat bed.
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FYI...
The 17hr SG flight between SG and NY is 1/3 Econ and 2/3 Business. Note, no F at all.
Clearly different configs do make sense for different routes. That config has been flying for at least 5 years and SG were still ordering the A380 with its First and First/Sleeper/Sex Room package so its clearly a route thing.
The 17hr SG flight between SG and NY is 1/3 Econ and 2/3 Business. Note, no F at all.
Clearly different configs do make sense for different routes. That config has been flying for at least 5 years and SG were still ordering the A380 with its First and First/Sleeper/Sex Room package so its clearly a route thing.
Transport has always tended to go for multiple classes. The early railways across Europe in the 1840s settled down to three, which after a long decline of the intermediate level (and improving the base level to what the intermediate had been) tended to two after WW2, but still a third even higher level (Pullman) continued to poke up here and there. Ocean ships have always had a very wide range of different standards in cabins, because they have the space to offer it.
In the 1930s long-distance German trains had 3 classes. The Nazis, in addition to building the Autobahns, launched some streamlined high-speed diesel expresses, the first of their type. No first class, second and third only. In fact the seats were better than the equivalents in other trains. You recognise this approach in aviation; Virgin Atlantic established themselves this way (shame they have let all their advantage go in recent years).
Aviation was different in only offering one class until the early 1950s, when a wider range developed, both the classic F/Y arrangement on scheduled operations, and charter flights for those at the bottom level, accommodated on different flights and by different carriers. If you look say at the 1960s, the average British family with kids rarely set foot in Heathrow, but whether annual holiday to Palma or meeting their cousins from Canada, were to be found with the charters down at Gatwick.
So having three or four classes is standard stuff. Of course the demand varies between routes. London to South Africa, because it is 11 hours and overnight both ways, will always have a higher demand. UK to Canada has always had far less premium class demand than routes to comparable cities just across the border in the USA. This is a challenge for operators who only want to have one layout of their cabins for operational convenience, and one for Ops and Commercial to sort out between themselves for the optimum solution.
Do not think any current situation will last. Things will change, evolve, and change again. This has always been the way. Business Class in Europe on carriers like BA has been steadily degraded by niggardly cost-cutting to the catering, etc, to the stage where pax cannot see a premium product any more. BA will lose out on this traffic to the likes of Aeroflot (yes !), always champagne and caviar in business class on the high-yielding London to Moscow, and now also better seating and punctuality, less lost baggage and newer aircraft as well. Such losses to BA will last until the commercial people get a grip at board level over the cost-cutters who think that is the only way to go. And that is what BA will have to wait for.
If you look back to the 1970s transatlantic First Class was just in SEATS ! No flat beds here. They look better than Premium Economy, a but wider and a bit more recline, but not even as good as you get in Business nowadays. In fact TWA, an early adopter of three classes, started off by using the seats they took out of their First Class when they installed their first sleeper seats to create a new intermediate cabin.
The only thing certain for the future is change. Will it be more class choice in larger aircraft, or more departures in intermediate-sized aircraft ? Could be either. Will the alliance brands rise to dominate the individual airline brand names ? Will Aeroflot take over BA and offer champagne and caviar on London to Frankfurt ? Who knows.
In the 1930s long-distance German trains had 3 classes. The Nazis, in addition to building the Autobahns, launched some streamlined high-speed diesel expresses, the first of their type. No first class, second and third only. In fact the seats were better than the equivalents in other trains. You recognise this approach in aviation; Virgin Atlantic established themselves this way (shame they have let all their advantage go in recent years).
Aviation was different in only offering one class until the early 1950s, when a wider range developed, both the classic F/Y arrangement on scheduled operations, and charter flights for those at the bottom level, accommodated on different flights and by different carriers. If you look say at the 1960s, the average British family with kids rarely set foot in Heathrow, but whether annual holiday to Palma or meeting their cousins from Canada, were to be found with the charters down at Gatwick.
So having three or four classes is standard stuff. Of course the demand varies between routes. London to South Africa, because it is 11 hours and overnight both ways, will always have a higher demand. UK to Canada has always had far less premium class demand than routes to comparable cities just across the border in the USA. This is a challenge for operators who only want to have one layout of their cabins for operational convenience, and one for Ops and Commercial to sort out between themselves for the optimum solution.
Do not think any current situation will last. Things will change, evolve, and change again. This has always been the way. Business Class in Europe on carriers like BA has been steadily degraded by niggardly cost-cutting to the catering, etc, to the stage where pax cannot see a premium product any more. BA will lose out on this traffic to the likes of Aeroflot (yes !), always champagne and caviar in business class on the high-yielding London to Moscow, and now also better seating and punctuality, less lost baggage and newer aircraft as well. Such losses to BA will last until the commercial people get a grip at board level over the cost-cutters who think that is the only way to go. And that is what BA will have to wait for.
If you look back to the 1970s transatlantic First Class was just in SEATS ! No flat beds here. They look better than Premium Economy, a but wider and a bit more recline, but not even as good as you get in Business nowadays. In fact TWA, an early adopter of three classes, started off by using the seats they took out of their First Class when they installed their first sleeper seats to create a new intermediate cabin.
The only thing certain for the future is change. Will it be more class choice in larger aircraft, or more departures in intermediate-sized aircraft ? Could be either. Will the alliance brands rise to dominate the individual airline brand names ? Will Aeroflot take over BA and offer champagne and caviar on London to Frankfurt ? Who knows.
Ecce Homo! Loquitur...
Thread Starter
The Times, 14th June: Flight from first class puts airlines into a nosedive
The airline industry has never generated sustained profits — by some estimates if you add up all the profits and losses since the Wright brothers flew from Kitty Hawk in 1903, the net amount would be written in red ink. This year will be no different. The global industry will lose an estimated $9 billion, after losses of $10.4 billion last year.
The question now is, which carriers will survive the downturn, and with what sort of schedules and service? It’s not an easy question to answer because two forces are at work: the current, temporary cyclical downturn, and a permanent change in travel habits.
Press reports are not much help. One day we learn that the industry has suffered huge losses in every year since 2001, with the exception of 2007, the next that United Airlines is ready to place a $10 billion order for 150 new jetliners. One day British Airways announces that it won’t configure any new planes to offer first-class service, and Qantas scraps first-class service on three of its long-haul routes; the next day Lufthansa and Air France-KLM announce plans to use their new A380 super-jumbos to expand their premium service offerings, even though premium travel (first and business class) is down about 20%.
There is no question that the recession is hitting the airline industry where it hurts – in the premium service category. This is especially true on the transatlantic routes on which BA is so heavily dependent for its profits, and in the Asia-Pacific region. There aren’t many bankers and lawyers jetting back and forth between London and New York (or anywhere, for that matter) to do deals, and those who are find that economy class is more in tune with constrained company budgets and is less likely to attract criticism from politicians who don’t want taxpayers’ bailout funds used to finance luxury travel.
Suddenly, business travellers are being offered price cuts. BA is offering a two-for-one $1,300 per person return ticket to New York (the regular fare is $11,717). Some price-cutters are making up for lost revenues by requiring obese passengers to pay for a second seat, and for bags, extra leg room and just about everything they can unbundle from the basic fare. But if oil prices continue to rise, if interest rates follow, as seems likely given heavy borrowing by governments, and if the fall in premium travel proves more than a cyclical phenomenon, losses will mount rapidly and we might see some American carriers arguing that what’s good for General Motors and Chrysler is good for us, and get access to some free, taxpayer-provided capital – with the unions cut in for a large share of the handout.
The good news, of course, is that during the recession no airline of any consequence has gone out of business. The bad news is that because no airline has gone out of business the industry has substantial excess capacity, especially outside America, a condition that has plagued it for decades. Old airlines never die, they emerge from bankruptcy, or get subsidies from prestige-seeking governments. Throw in the expansion plans of the new state-supported Middle Eastern carriers, and there is little prospect that a lean, mean industry will emerge from the downturn. Well, at least not a lean one. And at least not in America or Britain, where the pilots’ unions are unlikely to follow the lead of their KLM counterpart and allow their underemployed members to volunteer for baggage-handling work to keep summer hiring and costs down.
A former BA chief executive once told me that when he flew between New York and London he would always meet the unions at JFK and at Heathrow. The American unions were tough-minded, but understood that he had to deliver profits if BA was to survive. At the Heathrow end, the unions viewed profits as an unnecessary deduction from their pay cheques. So Willie Walsh, the chief executive, has his work cut out and just might have to weather a round of strikes – or worse, work-to-rule and sick call-ins – if he is to pare his staff down to a size commensurate with what he apparently sees as the grim long-term prospects of BA, which lives and dies with the volume of premium traffic on the transatlantic routes.
United takes a cheerier view of its prospects, witness that order for 150 new planes. It is true that the new aircraft will be more fuel efficient than the planes they replace, and more able to meet the pollution standards that the EU is preparing to impose on all carriers using European air space. True, too, Airbus and Boeing are so desperate for orders that they are likely to offer attractive prices and cheap financing to capture this business.
But it is equally true that the traditional business model, known as hub-and-spoke to describe the system that feeds travellers into a few large cities and flies them out to their final destinations, might prove unable to compete with point-to-point low-fare carriers such as Southwest and their counterparts in other countries.
Moreover, the cost cutting triggered by the recession means that business spending on air travel might never return to the levels of the old days. One chief executive told me his managers have finally learnt to use teleconferencing effectively, enabling him to cut his annual travel budget from $750m to $250m, “and it isn’t ever going to go back up”. So competition for premium business travellers will be intense.
These are the people who put a high value on service. Which is why Lufthansa is sprucing up its lounges and planes, and other airlines are upgrading customers to otherwise empty seats in first class and business class in the hope of building brand loyalty. Whether Walsh’s cost-cutting strategy or Lufthansa’s increased hospitality will win the day on the Atlantic routes remains to be seen.
Perhaps the BA chief might keep in mind Gordon Bethune’s warning, issued when he was serving as chief executive of Continental: take too much cheese off the pizza and you won’t have any customers left....
The airline industry has never generated sustained profits — by some estimates if you add up all the profits and losses since the Wright brothers flew from Kitty Hawk in 1903, the net amount would be written in red ink. This year will be no different. The global industry will lose an estimated $9 billion, after losses of $10.4 billion last year.
The question now is, which carriers will survive the downturn, and with what sort of schedules and service? It’s not an easy question to answer because two forces are at work: the current, temporary cyclical downturn, and a permanent change in travel habits.
Press reports are not much help. One day we learn that the industry has suffered huge losses in every year since 2001, with the exception of 2007, the next that United Airlines is ready to place a $10 billion order for 150 new jetliners. One day British Airways announces that it won’t configure any new planes to offer first-class service, and Qantas scraps first-class service on three of its long-haul routes; the next day Lufthansa and Air France-KLM announce plans to use their new A380 super-jumbos to expand their premium service offerings, even though premium travel (first and business class) is down about 20%.
There is no question that the recession is hitting the airline industry where it hurts – in the premium service category. This is especially true on the transatlantic routes on which BA is so heavily dependent for its profits, and in the Asia-Pacific region. There aren’t many bankers and lawyers jetting back and forth between London and New York (or anywhere, for that matter) to do deals, and those who are find that economy class is more in tune with constrained company budgets and is less likely to attract criticism from politicians who don’t want taxpayers’ bailout funds used to finance luxury travel.
Suddenly, business travellers are being offered price cuts. BA is offering a two-for-one $1,300 per person return ticket to New York (the regular fare is $11,717). Some price-cutters are making up for lost revenues by requiring obese passengers to pay for a second seat, and for bags, extra leg room and just about everything they can unbundle from the basic fare. But if oil prices continue to rise, if interest rates follow, as seems likely given heavy borrowing by governments, and if the fall in premium travel proves more than a cyclical phenomenon, losses will mount rapidly and we might see some American carriers arguing that what’s good for General Motors and Chrysler is good for us, and get access to some free, taxpayer-provided capital – with the unions cut in for a large share of the handout.
The good news, of course, is that during the recession no airline of any consequence has gone out of business. The bad news is that because no airline has gone out of business the industry has substantial excess capacity, especially outside America, a condition that has plagued it for decades. Old airlines never die, they emerge from bankruptcy, or get subsidies from prestige-seeking governments. Throw in the expansion plans of the new state-supported Middle Eastern carriers, and there is little prospect that a lean, mean industry will emerge from the downturn. Well, at least not a lean one. And at least not in America or Britain, where the pilots’ unions are unlikely to follow the lead of their KLM counterpart and allow their underemployed members to volunteer for baggage-handling work to keep summer hiring and costs down.
A former BA chief executive once told me that when he flew between New York and London he would always meet the unions at JFK and at Heathrow. The American unions were tough-minded, but understood that he had to deliver profits if BA was to survive. At the Heathrow end, the unions viewed profits as an unnecessary deduction from their pay cheques. So Willie Walsh, the chief executive, has his work cut out and just might have to weather a round of strikes – or worse, work-to-rule and sick call-ins – if he is to pare his staff down to a size commensurate with what he apparently sees as the grim long-term prospects of BA, which lives and dies with the volume of premium traffic on the transatlantic routes.
United takes a cheerier view of its prospects, witness that order for 150 new planes. It is true that the new aircraft will be more fuel efficient than the planes they replace, and more able to meet the pollution standards that the EU is preparing to impose on all carriers using European air space. True, too, Airbus and Boeing are so desperate for orders that they are likely to offer attractive prices and cheap financing to capture this business.
But it is equally true that the traditional business model, known as hub-and-spoke to describe the system that feeds travellers into a few large cities and flies them out to their final destinations, might prove unable to compete with point-to-point low-fare carriers such as Southwest and their counterparts in other countries.
Moreover, the cost cutting triggered by the recession means that business spending on air travel might never return to the levels of the old days. One chief executive told me his managers have finally learnt to use teleconferencing effectively, enabling him to cut his annual travel budget from $750m to $250m, “and it isn’t ever going to go back up”. So competition for premium business travellers will be intense.
These are the people who put a high value on service. Which is why Lufthansa is sprucing up its lounges and planes, and other airlines are upgrading customers to otherwise empty seats in first class and business class in the hope of building brand loyalty. Whether Walsh’s cost-cutting strategy or Lufthansa’s increased hospitality will win the day on the Atlantic routes remains to be seen.
Perhaps the BA chief might keep in mind Gordon Bethune’s warning, issued when he was serving as chief executive of Continental: take too much cheese off the pizza and you won’t have any customers left....
