Coporate Travelers Start their Return to Business Class

It isn't a big trend yet, but the new year has brought the first signs of long-haul travelers moving back to the business class cabin. Will more follow, and what will it mean for pricing?

Business class travel is not what it used to be. Figures from the International Air Transport Association for November 2009 (the most recent available) show premium cabin passenger numbers were down 20 per cent on early 2008. Since November, several carriers, including bmi British Midland, Cathay Pacific, Qantas and Virgin Atlantic, have announced the removal or reduction of business class seats from their aircraft.

Taken at face value, these facts appear to settle one of the big corporate travel debates of last year: will business class recover as the global recession eases? Yet they do not tell the whole story. Several airlines have reported since the beginning of 2010 that passengers are slowly returning to the front of the aircraft, while the IATA figures also confirm that demand for premium in November, while 6.7 percent lower than the same month in November 2008, was 5 percent up on May 2009.

So what is the true picture? Based on bookings by its customers, BCD Travel can confirm the first signs of a move back to business class - though only for long-haul flights. Bob Brindley, vice president for BCD Travel's consulting wing Advito, believes it is a recovery which will gain momentum in 2010 and through into 2011.

Here is what Brindley thinks will happen to supply, demand and price in business class for the year ahead.

Supply
Recent business class seat reductions include:

Cathay Pacific Announced November 2009 that it is replacing 14 business class seats on its Asian regional Boeing 777-30 fleet with 27 economy seats. However, the 777s will still have 45 business class seats, the same as Cathay has for other aircraft on regional routes.
Qantas Announced November 2009 that it will remove an unspecified number of seats.
Virgin Atlantic Announced December 2009 that it will replace ten Upper Class seats with 33 economy seats on the upper deck of 747-400s flying from London Heathrow.
bmi Announced January 2010 it will scrap business class on all UK domestic flights.

Looking ahead, Brindley thinks more airlines may cut business class seat numbers, especially on short-haul routes, but he does not expect any to eliminate business cabins on long-haul services. There is even a chance capacity may increase again. "In the short run, airlines may make downward modifications but in the long run they could recover," he says. "On long-haul, flying at the front still has important advantages for corporate travelers and that means a business class seat remains a worthwhile investment."

Demand
British Airways reported a 1.6 percent increase in long-haul premium traffic for December 2009, even though the airline's total traffic was down 4.0 percent. For the same month, Finnair reported an increase in business class passengers to Asia, where it is an important niche carrier.

Lufthansa told Business Travel News recently it is seeing the first evidence of US-based corporate customers returning to business class for long-haul flights. Brindley agrees. "In early 2009, companies cut back on travel and some changed their policies," he says. "Additionally, even where companies did not change their policies, some travelers voluntarily downgraded to make budgets stretch further."

"Those travelers who downgraded voluntarily are now moving back to business class. We also have clients which downgraded their policy asking if they should upgrade again. Some are only shifting back as far as premium economy, where it is available, but others are contemplating a move all the way back into business class," said Brindley.

However, the return will not be rapid. Brindley believes business class passenger numbers in the first half of 2010 will exceed the exceptionally low levels of 2009, but "by the end of 2010, the best case is that we will be back to the levels of Q4 2008, which is when business class demand started to fall," he says. "I think it will return to the levels of early 2008 eventually, but not until 2011."

All of Brindley's remarks relate to long-haul traffic. Brindley does not expect short-haul premium cabins to recover because the business case for using them is weak and competition from low-cost carriers is strong. Where they do survive, they will be mainly for premium long-haul transfer passengers and as upgrade perks for leading frequent fliers.

Price
Airlines typically have multiple published fare levels in business class. During 2009, carriers did not necessarily drop their published fares. Instead, they left the lower fare levels open closer to departure in the hope of stimulating demand and holding on to passengers considering trading down to economy. "In 2010, as demand starts to increase, airlines will start to close off the lower fares earlier," says Brindley. This combined with a likely increase in fuel surcharges will make air travel more expensive.

The good news? "It is still a very competitive market, so negotiated corporate discounts remain attractive," Brindley says. "With lower published fares being closed out more quickly, we may see a move back to corporate fares."
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