While travel policymakers remain vigilant, premium air travel revenues are growing. BBT deciphers the mixed messages from the front of the plane...
TRENDS AROUND THE BOOKING OF PREMIUM AIR TRAVEL are often seen as one of the best barometers of the health of business travel generally, and also of individual industries and sectors. If a sector is going through hard times, such as the oil industry in recent years, then rules about premium travel usually become more restricted. Those sectors that are enjoying more of a bullish environment tend to be more relaxed about allowing employees to travel at the front of the aircraft.
Airlines, of course, have their eyes firmly set on attracting these corporate travellers as they attempt to outdo each other with their new cabin innovations and extra services – particularly on key long-haul routes. One of the major moves has been the increasing number of carriers who have introduced premium economy cabins during the last few years.
So what’s the picture for premium travel in 2017 and beyond?
STATE OF THE MARKET
If you take a brief look back to last year’s trends, the growth in demand for premium airline cabins lagged behind the increase in economy traffic during 2016, according to the International Air Transport Association (IATA). In fact, the proportion of premium cabin sales as a total of all global air traffic fell from 5.5 per cent in 2015 to 5.2 per cent year-on-year.
But despite this trend, IATA says that “premium fares held up better than their economy counterparts on most routes” during 2016. This ability to maintain premium airfares is illustrated by figures showing that airlines managed to grow premium revenue as a share of total sales on key routes such as the transatlantic, which continues to be the biggest premium air market in the world, and also on flights between Europe and Asia.
Casting our eyes forward across 2017, there are a number of forecasts out in the market suggesting various pricing trends this year. One of the most recent by BCD Travel’s research arm, Advito, predicts that business class airfares globally will rise by a modest average of 1 per cent for both intercontinental and regional flights this year. “Intercontinental fares will fall or stay flat in all regions except Europe, where business and economy fares will rise slightly,” says Advito. “There’s more variation in the outlook for regional fares. Business fares will be flat within Europe, Latin America and the Middle East, but we expect them to increase in all other markets.”
The overall trend in premium airfares seems to be slightly upwards – reflecting improved economic conditions in many parts of the world (assuming there is no serious fallout caused by the actions of new US president Donald Trump and/or Brexit). But this does not always feed through to demand across every sector.
Paul Dear, HRG’s global director of supplier and industry affairs, says: “In the last six months, we have seen a slight increase in the use of premium cabins. But it’s very industry driven – financial, insurance, consulting and pharma are a bit more relaxed on policy where we’re seeing a small uplift.
“But it depends on the industry – other sectors such as retail, FMCG (fast-moving consumer goods) and manufacturing are still cautious. Policy tends to be more restricted in sectors where they see hard times coming.”
This trend is also being identified by other travel management companies (TMCs). Stuart Birkin, director of account management at Corporate Travel Management UK, adds: “Finance, law and professional services tend to book business class, while manufacturing and IT firms tend to use the economy and premium economy cabins.”
POLICY ON PREMIUM
So while there are variations between industries when it comes to booking premium air travel, there’s also the always controversial issue within companies of when and who is allowed to travel at the front of the aircraft.
Determining policy on this is invariably a tricky one for travel buyers – particularly if there are changes in policy that reduce the amount of premium air travel allowed by employees.
Many companies still use a policy based on the length of flight. One freelance travel buyer says that most of his clients “stipulate that business class is allowed for all flights of more than four hours”. But this is quite generous compared with many US-based firms, who mainly adopt policies that only allow business class if flights are longer than six hours. European-based companies are generally more likely to operate with a lower journey time threshold of four hours-plus
There are also signs that policies are shifting downwards, says CWT’s senior director of programme management Nigel Turner.
“We are seeing some customers changing their policies, often to in effect downgrade entitlement for East Coast US and Middle East flights to a lower class,” he says.
“This can be in any industry sector, depending on the corporate’s savings objectives and control over policy that the individual corporate has.”
The threshold for allowing business class flights can range from between three and 12 hours depending on the company, says independent corporate travel consultant Chris Pouney. “The most common approach is to mirror what airlines consider as short-haul or long-haul – normally a six or seven-hour window,” says Pouney. “Although this area is subject to the most ‘gaming’ by travellers desperate to be in premium cabins.”
But he adds: “We are definitely seeing companies vary the class of travel based on more than just time window: age and health of traveller, purpose of trip and recovery time in territory are all being used to assign class of travel.
“And rather than create a time window for determining class of travel, it’s often cleaner just to name the routes that travellers are allowed premium cabins on. This reduces the opportunity for gaming, and is less open to interpretation.”
Companies who downgrade their policies in order to reduce premium travel can also have trouble selling this change to their employees, particularly if they are used to flying business class regularly.
Karen Abbott, head of corporate account management at ATPI, says: “It’s a difficult decision for many corporates, who may be reluctant to downgrade their policies as this can make it more difficult to attract employees – and some staff contracts specify that air travel is allowed in premium cabins.”
As for short-haul premium travel, the market for negotiated corporate deals seems to be disappearing. HRG’s Paul Dear says: “There are still clients that would have a certain tier status of employee allowed a premium seat on an intra-Europe flight – mostly senior management. For the majority, it’s economy or the cheapest fare on the day. There’s only a small marketplace for short-haul negotiated deals.”
A host of major airlines have been introducing premium economy cabins on their long-haul aircraft over the last few years. This list now includes the likes of Air Canada, Cathay Pacific and Singapore Airlines among others – joining UK airlines such as British Airways and Virgin Atlantic who have been operating premium economy cabins for years. There were a total of 56 airlines with a premium economy cabin by the end of 2016.
US-based carriers are also now getting in on the act by introducing dedicated premium economy cabins for the first time – American Airlines became the first to do so last year and they will be joined by Delta later this year. Even Emirates is talking about introducing a premium economy cabin in the near future.
This move should, in theory, give corporate travel buyers a few more options in how they manage their policies on premium travel and even adopt a ‘mix-and-match’ approach in allowing travellers to fly one leg in business (typically an overnight flight) and the other leg in premium economy (particularly if it’s a daytime flight).
But it’s not always a simple equation, as adopting this kind of approach does not always guarantee savings and it can also become a more complicated – and thus a more expensive – type of booking to make.
Wings Travel Management director Sonja Hamman says: “It allows us to provide choice, and we do see certain clients look at premium economy in one direction and business class in another. But our role is to make sure the client is aware of all offers, because we may be able to provide a business class return fare cheaper than a split-class fare.”
There can also be technical issues with booking split-class fares, as they typically are not available – at least not yet – on most online booking tools (OBTs) used by business travellers. “A lot of point-to-point trips are booked online, but this is more difficult to do as OBTs don’t allow this mix-and-match approach,” says HRG’s Paul Dear. “In a traditional TMC environment, everything is possible but it requires a phone call.”
There are also some who see the increasing prevalence of premium economy cabins as a way of encouraging business travellers who would normally book economy to upgrade – particularly as airlines look to cram even more seats into the back of their aircraft.
Adrian Williams, partnership and marketing director at Business Travel Direct, says: “Call me suspicious, but I think the resurgence of premium economy cabins may have something to do with going 10/11 abreast in the economy cabin.
“It’s surely just not possible to upsell a 17-inch wide economy seat at the front of the main cabin – even with a few inches of extra legroom they’ll gain. Travellers will cheerfully pay to escape from ‘new steerage’ at the back of the plane as this is being introduced.”
Most of the genuine innovation in premium cabins has come in first class where some airlines, particularly Gulf and Asian carriers, have sought to outdo each other with their onboard suite and service offerings.
US-based airlines, which were once derided for the quality of their premium cabins and service, have also been stepping up their game. For example, later this year Delta will launch Delta One which the Atlanta-based airline is billing as the ‘world’s first all-suite business class’.
Despite these improvements by US carriers, old perceptions about mediocre service levels are still hard to shift, as ATPI’s Karen Abbott explains: “American Airlines has come a long way in recent years, but still suffers from a perception of lacklustre cabin crew, although this is unfounded.”
This perception about service quality can particularly be an issue on the transatlantic routes between the UK and US, which is currently dominated by the joint businesses run by British Airways/American Airlines and Virgin Atlantic/Delta, with both of them effectively running a shuttle-style service between London and New York.
“When BA/AA started with joint fares, clients used to ask for a BA-operated aircraft,” adds Abbott. “But due to availability or schedule, some were forced to try American Airlines and were very pleasantly surprised by how great the product was and some now ask for American as a preference.”
Perhaps there’s a message in that for the likes of BA and Virgin – once seen as being market leaders in the quality of their business class service. Their American partners are upping their game and they will be under pressure to do likewise. As with many elements of corporate travel, if you snooze, you lose in the business class product game.