Airlines push premium option

From September the Lufthansa Business Jet will be used on the Frankfurt to Bahrain and Frankfurt to Dammam, Saudi Arabia routes for the first time

Carriers confronted by last year’s rocketing fuel prices and increased security costs have been searching for ways to recoup lost revenue by charging extra for premium seats.

Even low-cost airlines are tapping into the market by pushing their premium cabin space to corporate clients who now have to travel on a shoestring. But critics have warned airlines that they may struggle to fill their premium seats, even in a region synonymous with luxury air travel.

The latest figures from the International Air Transport Association (IATA) show sales for premium tickets plummeted 21.1% in February and the industry body estimated that with fewer passengers, revenue from first and business class travel probably fell at least 25% in January, “wreaking significant damage to network airline yields and profitability.”

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IATA said the Middle East was the only region where capacity grew, up 10.8% in January, mostly because of deliveries of new planes, but wrote “it remains a severe challenge to fill these seats in this recessionary environment.”

However, regional carriers believe the ‘recessionary environment’ has opened up a gap in the market. Jazeera Airways CEO Andrew Cowen, told Aviation Business: “Corporate clients have had their travel budgets cut and are turning to low-cost airlines for a cheaper option.

They don’t necessarily want lie-flat beds, but they do want extra leg-room, a decent meal and some form of inflight entertainment.

“Unlike other budget carriers we are able to offer them our premium seats,” Cowen explained.

Even airlines that predominantly fly low-income worker traffic have included premium-class cabins on aircraft. Bahrain Air managing director Ibrahim Abdulla Al Hamer recently announced the low-cost carrier’s entry into the UAE capital and pointed out that the airline’s Airbus A319 and A320 aircraft would include 12 premium seats.

“These [seats] are not business [class], but between business and economy,” explained Al Hamer “and we expect these to remain consistently busy.”

In addition, Bahrain’s national carrier, Gulf Air has leased four Boeing 777s from Indian airline, Jet Airways as it believes the aircraft’s premium offerings will appeal to the Middle East traveller.
“We don’t want to be seen as a low-cost carrier,” said Gulf Air CEO Bjorn Naf “but a premium gold network carrier, that offers value but not excess.”

Commercial carriers also cite the premium sector as a largely unexplored commercial opportunity in the region. British Airways’ summer schedule will see 66 flights operate from eight GCC markets to accommodate the anticipated rise in demand and the Middle East’s business and premium sector is of particular importance to the UK-based carrier.

The airline will resume its Saudi Arabia service from May 31, a route that the airline hopes will become popular with corporate passengers.

BA’s commercial manager Middle East Paolo De Renzis, said: “The airline sees a lot of commercial opportunity in Saudi Arabia. Business travel is a priority in this region and it is a key market for selling premium seats.”

In response to what it sees as a market need, the airline is relaunching its first-class cabin in September this year. “The cabin will offer a new look and modern features,” De Renzis added.

Lufthansa is also fighting to maintain its market share in the Middle East by increasing its European flights, and from September the Lufthansa Business Jet will be used on the Frankfurt to Bahrain and Frankfurt to Dammam, Saudi Arabia routes for the first time.

“We have no plans to cut Business Jets’ premium service. It is working well and according to our expectations,” said Lufthansa German Airlines executive vice president marketing Thierry Antinori.

In addition, Air France has confirmed that its new premium economy product will be rolled out on aircraft serving GCC routes within a year and Air France-KLM commercial director for the Gulf, Iran and Pakistan, Bas Gerressen, has revealed that the new Air France A380, which will be delivered at the end of 2009, could be deployed on the Dubai route. “It’s one destination under consideration,” he said.

But just as the world’s largest carriers spot the commercial opportunities of premium travel, Qatar Airways confirmed on April 9 it will remove first class facilities on four A340-600 aircraft to accommodate more economy seats.

In a statement, the Doha-based airline said that first class lounges on the planes will be removed to make way for 40 economy seats from this September.

Qatar Airways CEO Akbar Al Baker said the decision to remove the lounges was taken following low interest in the service.

“We found the usage of the lounges was low,” he said. “The lounges provide passengers with a chance to sit and relax together on comfortable sofas during the flight in the ambient surroundings of a cocktail bar.”

However, Al Baker did identify that although the lounges were not utilised as much as the airline had expected “passengers preferred to relax in our premium seats during their flight.” The eight first class and 42 business class seats will not be affected by the changes, the airline said.

But industry analysts remain unconvinced that premium cabins - whether they belong to low-cost or commercial airlines - will fly full during the credit crunch.

Oliver Wyman aviation consultant Niko Herrmann observed that many airlines are actively responding to the dramatic slump in premium demand by expanding premium economy or similar offerings.

“It’s clear to all that the premium segment has been hit the hardest, in both short and long haul. They [airlines] are not blue-eyed about this, but they are also not shouting out loud to everyone how much pain they feel,” Herrman said.

However, on the long-haul segment Herrman points out that demand for premium seats is obviously not expected to disappear forever resulting in a justifiable market spend.

“Airlines are not yet stopping seat upgrade programmes and other initiatives - because no matter how full the front is, it defines the perception of your product to a very large degree, and if your product is less competitive you will suffer even more in the current environment.”

For short-haul travel Herrmann explained that consumer trends could mean a shift in product proposition.
“Given the cuts in travel expenses, more and more people have started to realise that it is actually perfectly fine to travel 1-2 hours in economy or even in a train if commuting within Europe.

“Therefore Middle East airports that offer a generic lounge for all passengers to use start to make business sense, and  airlines might decide to start expanding the all-economy configurations they are using already on some domestic routes to more [short] routes in a regional context,” Herrmann added.