Qantas Slashes First Class to Suit Demand

The Australian airline Qantas’ announcement that it will significantly reduce its first class capacity while beefing up business and premium economy reflects a long-term industry trend, say the airline’s executives, travel agents and other travel marketers.

In fact, one leisure marketer welcomes the increase in premium economy capacity because premium economy is an easy up sell for vacation agents.

According to Qantas CEO Alan Joyce, the alterations, to be put into place next year, will position the airline to meet changes in premium cabin sales – with demand for first class forecast to be “relatively slow compared to business, premium economy and economy.” (Click here for details of the Qantas reconfigurations.)

“While some travel markets are recovering from the economic crisis, our assessment of longer term travel trends, which predates the economic crisis, shows that international premium travel demand is changing,” he said.

Travel Agents interviewed agreed with that forecast.

Qantas’ decision makes sense, Stephanie Turner, president and CEO of Brentwood Travel Service, St. Louis, told Travel Market Report.

“I think at this moment in time, business travelers as well as leisure travelers are being much more conservative in their approach to spending… we have many clients who book business class when two premium cabins are available.”

She added that her customers are finding it harder to justify spending more for first class, when today’s business classes are so comfortable.

With corporations tightening travel policies, Tom Gleason, regional president for HRG North America, told TMR, “We have seen a trend of some business travelers downgrading from first class to business in long-haul flights and from business to premium economy in short-haul flights – although this is beginning to change, as the economy picks up again, especially in the Far East.”

Indeed, both American Express and Travel Leaders surveys indicate that some of their corporate clients are returning to the front of the plane – but not all the way to the front.

The latest Amex Business Travel Monitor data show modest fare increases and travelers moving to the front plane again.

“Pent-up trip demand coupled with supply base changes have caused rates to slightly increase in the third quarter. There has also been a slight increase in the usage of business class tickets for international travel, up 1% from last quarter, to 37%,” said Christa Degnan Manning, director, eXpert insights, Global Advisory Services, American Express Business, reporting results of the Amex Business Travel Monitor for 3Q 2009.

“However, this is still down year-over-year from 49% of all international business traveler tickets purchased.”

The Travel Leaders 2010 business travel forecast, said Roger E. Block, CTC, president of Travel Leaders Franchise Group, found “a noteworthy percentage” of Travel Leaders business travel agents reporting that “a fair number of their clients are now starting to fly in business or in first class, signifying that some business clients are starting to loosen their travel policies.

“That being said, many clients are still opting for economy class airline tickets as they seek to maximize value at every turn.”

Indeed, controlling air transportation costs is among the top four priorities for Carlson Wagonlit Travel (CWT) travel managers this year, according to the Paris-based corporate travel agency.

While CWT expects higher airfares in 2010, it is not because clients are flying up front so much. Rather, higher average ticket prices for air travel are the result of industry consolidation and capacity reduction — and the reinforcement of ancillary fees, or airline merchandising.

Can Leisure Gain From Airline Pain?

One leisure travel marketer, Amanda Behr, vice president of marketing at Qantas Vacations, welcomes the increase in premium economy capacity for the leisure market.

While there is only a very small amount of leisure travel in first class, Behr told TMR that premium economy is a very popular leisure option and an easy upsell from economy for Qantas Vacations’ agent partners. Qantas Vacations is a wholesale contractor for the Australian carrier.

“It is priced comparatively well in the market and the product offering is strong. We would welcome more premium economy seats to all destinations we service.”

With first and business class remaining hard to fill and yield manage, Behr said, “Airlines for the past six months have heavily discounted business class by up to 60% hoping to attract leisure passengers to fill their premium cabins. The economic challenges have brought about a market shift in business travel and even at the executive level. Corporate travel in first class seems a luxury of the past.”

Behr added that Qantas’ move to reducing first class definitely reflects the common trend in the market.

In fact, two days after Qantas’ announcement, Gulf Air, the national carrier of the Kingdom of Bahrain, also announced it will replace its First and Business Class cabins with a single premium cabin, called Falcon Gold.

It’s what National Business Travel Association president and CEO Craig Banikowski calls “the new normal.”

Banikowski, who is director of global travel management for Hilton Hotels, said, “The uptick in business travel in 2010 will take place within the framework of a new corporate culture in terms of travel. In the ‘new normal,’ we see stronger travel mandates, greater use of pre-trip approval and audits, tighter restrictions on premium class travel, more focus on travel ROI and enterprise-wide strategic meetings management.”

Though it is scaling back, Qantas will continue to offer First Class on A380 routes where demand and competition are strong. “Maintaining a first offering on flagship routes is essential for Qantas as a premium airline, said Joyce.

“We are committed to investing in premium customer product and service – to meet the increasingly sophisticated needs of our customers, maximize yields and generate revenue and investor returns,” he added.

So are its competitors, none of which so revealed no plans to follow Qantas’ lead.

“I can tell you that removing our premium class from our fleet is definitely not part of our current plan,” said a spokesperson for Delta Air Lines. “In fact, Delta recently announced a $1 billion commitment over the next three years to enhance our products and services. This will increase… the level of service provided to our BusinessElite, first class and elite-level flyers.”

British Airways is likewise dedicated to first class. “We are very committed to first class on our primary long-haul routes. In fact, we recently announced a new makeover for first,” a spokesperson said.

A spokesperson for United Airlines told TMR the line will continue to keep four seating options available for customers traveling to/from Australia, but did not comment on other international routes.

One airline that may understand where Qantas is coming from is Continental Airlines, which switched from three to two classes of cabin service, introducing Business First up front, in 1992, after filing for Chapter 11 reorganization for the second time in a decade.

And as one corporate travel management exec told TMR, “The trend is exactly that…. downgrading from first to business and premium economy.” He noted that Virgin reduced its “Upper Deck” from an all business class to add coach seats as well.