Premium Market Continues To Die
Qantas’ half year earnings highlighted the airlines changes to its fleet, ousting many First Class seats and instead replacing them with economy seats.
CityJet has recently joined in as one of the first regional/short haul airlines to drop its business class in favour of premium economy.
As noted before, the tectonic shift away from premium cabins continues to make its presence felt across airlines.
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British Airways third quarter earnings showed an 11% drop in yields, Qantas’ yield plummeted 23% (YoY) while fare sale discounting has thus far stemmed volume from falling further. IATA’s states that December 2009 saw an increase in premium traffic year-on-year but fails to account for the huge drops seen prior to the global financial crises.
Yes, premium traffic rose, but this is a blip, not an upward trend and remains far below levels seen in mid-2008.
The reality is that as more customers seek bigger and better bargains, legacy carriers such as Qantas are now trading yield for volume in an effort to make airplanes like the A380 work for them. The oft-touted “65% break even” remark made by Airbus John Leahy is clearly at odds with what’s happening in the market place - indeed, had it not been for Jetstar, Qantas’ earnings would have been even weaker, particularly as its low cost off-shoot sucks traffic away from its parent.
Gone are the days of luxurious travel, and in its place, premium economy has risen to the forefront for customers willing to pay that little bit extra for comfort, but not much more than that as airlines attempt to derive revenue through ancillary cabin amenity charges.
As airlines drive costs down, reconfigure airplanes and engage in more cut-throat, volume chasing price competition, how long will it be before airlines take a leaf out of Air New Zealand’s page and drop First Class altogether?
50 comments February 18th, 2010
