Airlines’ high-fare bookings down sharply
WASHINGTON – The number of international air travelers flying in business or first-class fell in March by the largest amount in five years, the latest bad news for an industry buckling under record fuel prices and slowing global economies.
The International Air Transport Association on Tuesday said premium air traffic shrank 3.9 percent in March compared with the same month last year, after growing by 5.1 percent in February. Although the drop was exaggerated both by the leap year adding an extra day to February and because March business travel fell because of an early Easter, it was the largest “absolute decline” in business and first-class passengers since 2003.
“Given the importance of premium passengers for airline profitability, the absolute decline in numbers is bad news, particularly since the price of jet fuel rose 170 percent over the year to March reaching $130 a barrel,” the IATA said.
Revenue did not fall as much as passenger numbers, since much of the weakness occurred in short-haul, lower-yielding markets, according to the trade group.
The results were not a surprise given the struggles of the U.S. economy and some others in southern Europe, but they also do not bode well for an airline industry already stressed by record fuel prices. Business travel is highly linked to the financial services sector, and many in that struggling industry have stopped flying, said IATA chief economist Brian Pearce.
“It will get worse before it gets better,” Pearce said in a phone interview.
Airline consultant Robert Mann agreed: “Given that this is the only place U.S. carriers were making money … if there’s no return on these (international) routes going forward, they will have made new investments in markets that will underperform.”
Large U.S. carriers have repeatedly raised ticket prices in recent weeks to offset surging fuel costs. Raising fares and charging for extra bags and other amenities have been the preferred coping mechanisms for airlines paying about 86 percent more for jet fuel than they did a year ago. Eleven of 15 airfare increase attempts by domestic carriers have been successful this year.
Rick Seaney, chief executive of airfare research site FareCompare.com, said that while airlines have exhausted their options for adding fees, he has been hesitant to join other analysts in proclaiming the “tipping point” on fare hikes has been reached. But the latest trade group data, including the drop in international premium traffic and an expected decline in domestic summer travel, have him convinced “we’re right on the razor blade’s edge.”
“These high-dollar tickets help subsidize the airlines and the fact that we haven’t had an airfare hike in the last week-and-a-half shows we’re closer,” Seaney said.
The traveling public is already unhappy. U.S. customers gave airlines the worst customer service grades since 2001 and the industry’s overall scores dropped for the third straight year, according to an annual survey by the University of Michigan released Tuesday.