NEW YORK (BLOOMBERG) – Business class was that silent and spacious sanctuary for the well-heeled, at least until the pandemic destroyed global aviation. But as flights creep back, this once-exclusive haven is being invaded, by the masses.
Flush with cash and a record number of air miles after a year on the ground, leisure travellers are splurging on premium seats for their first trips back. They are not just after the plated food, champagne and little cosmetics that typically come with the higher fares. Rather, they are trying to minimise the risk of catching Covid-19 in the cheek-to-cheek jostle of economy class.
The popularity of these lucrative seats – especially among passengers who had usually shoehorn into economy – is an unexpected boon for airlines weathering a crisis that is forecast to have cost them a staggering US$174 billion (S$231 billion) in losses by the end of 2021.
As vaccinations roll out at pace in the Middle East, the United Kingdom and the United States, free-spending vacationers are emerging as a new market to exploit for carriers desperate to claw back revenue.
New York resident Jennifer Arnold, an avid scuba diver, is flying to the Maldives via Doha on Qatar Airways in May. Though vaccinated, Ms Arnold, who is retired, said securing a business-class seat was essential.
“It was strictly to try to sit in an area with fewer people,” said Ms Arnold, who used points for the outbound leg and paid for her return flight. “I wouldn’t have taken this trip if I had to fly in (economy) while the virus is still raging in so much of the world.”
There is every chance that these people will become permanent residents up the pointy end. Carriers from Deutsche Lufthansa to Virgin Atlantic Airways are now starting to question whether business travel as the world once knew it will ever return to pre-crisis levels. That means for the next few years at least, there will be a steady supply of premium-class seats priced to sell to the general public – for cash, loyalty points or a mix of both.
Fares are already way off their peak as airlines stimulate a recovery. Transatlantic business-class tickets on Delta Air Lines, British Airways and American Airlines Group in late May are going for a little more than US$3,000. Those seats, particularly for last-minute bookings, could have cost as much as US$9,000 before Covid-19, said Mr Brian Kelly, founder of travel-advice website The Points Guy.
Flying to Miami from New York last month, Mr Kelly found first-class seats were sold out on every single flight from all New York airports three weeks in advance. “I’ve been travelling New York-Miami for years and I’ve never seen that,” he said. “People are swimming in points.”
With more than 3 million people getting coronavirus jabs every day in the US alone, air-travel demand “is about to skyrocket”, he predicted.
According to Qantas Airways, leisure passengers are taking up a larger share of the business-class cabin as they upgrade or redeem loyalty points. Redemption flights, meanwhile, more than doubled to record levels when domestic travel restrictions eased in November, the airline said.
Leisure passengers’ desire to sit in a classy cabin is partially offsetting a stunted recovery from traditional business-class customers. Companies around the world have scaled back travel, either out of caution or to save money. And executives who used to fly at the drop of a hat for face-to-face meetings are more often making do with the video calls that have characterised remote work in the crisis.
“I personally believe that business travel is going down,” Virgin Atlantic chief executive officer Shai Weiss said at the World Aviation Festival last week. “We’re going to see the emergence of the premium leisure market. People have saved a lot. They’re going to treat themselves.”
Mr Jeff Paine, a Canadian who lives and works in Singapore, used points and cash to fly business class last month to Bangkok, and then onto Phuket with Singapore Airlines. He felt that flying premium in the middle of a health crisis would be less stressful.
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“I was trying to make some part of this journey easy,” said Mr Paine, 51. “I had to get health insurance, Covid insurance, a certificate of entry, a visa, which isn’t usually needed, and quarantine bookings. It was challenging.”
Premium-economy cabins, which can be even more profitable than business-class sections, might play a key role in any aviation recovery, said Mr Rob Morris, global head of consultancy at aviation data and analytics company Cirium.
A quasi-blend of spartan economy and opulent business class, premium economy could capture those corporations flying on tighter budgets as well as leisure passengers wanting a little more comfort. “I can see premium economy becoming a bigger part of the overall real estate,” Mr Morris said.
To be sure, traditional business travel may bounce back faster than anticipated once vaccinations in multiple countries make quarantine-free travel possible. That would likely push up premium cabin fares and squeeze out some leisure flyers.
A flight corridor between New Zealand and Australia finally opened last week and there is still talk that a much-awaited travel bubble between Hong Kong and Singapore could get underway in late May.
For now, though, pent-up demand to see friends and family is so strong in some markets that it is the corporates that are getting squeezed. Qantas has seen only 65 per cent of business traffic return, even as travel in Australia booms. Delta’s domestic leisure bookings have reached 85 per cent of normal levels, while the corporate recovery is “slow but steady”, the US airline said this month.
“Summer is going to be about managing leisure demand,” Delta president Glen Hauenstein said on a an earnings call. “There’s a little less opportunity in terms of saving that last seat for the business customer.”
Mr Tim Clark, president of Gulf airline Emirates, sees echoes today from the global financial crisis more than a decade ago, when business traffic also fell away. But even if that happens again, airlines can sell out their business class and premium economy cabins by dropping fares 15 per cent to 20 per cent, Mr Clark said.
“You take what you can get and you ensure you fill your aircraft,” he said at the World Aviation Festival.
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