The pandemic has sent shockwaves through the entire aviation industry. It’s also not clear to what extent the premium market (first- and business class combined), which generated 30 per cent of airlines’ international revenues in 2019, can recover. For many airlines, business travel has not yet returned in any meaningful way.
Some overseas routes have resumed, but traffic has barely started to creep back. According to IATA, international passenger demand was down 92 per cent in July. The overall average load factors on international long-haul flights were between 40-50 per cent.
Not the same high
Travelling as a first-class passenger during the pandemic isn’t what it used to be. Airlines’ and airports’ efforts to minimise human interaction and reduce the risk of infection are taking the shine off the most expensive seats onboard an Airbus A380 or Boeing 777-300ER. Some airlines have used the pandemic to permanently downgrade their offerings for first-class customers to save money.
Gone are the multi-course banquets and warm personal service. These days, what’s left of premium-grade travel is functional, hygienic and closer to cattle class – only with more legroom. The limitations are one more headache for the airline industry grappling with a near-total collapse in demand and follow years of luxury one-upmanship among carriers in a contest for the most profitable passengers.
All of sudden, it is hard to tell apart airlines when passengers are up at the pointy end. That’s making it tougher for carriers to win top-paying customers, and risks pushing some to the lower cabin class – the evolving business-class – or to private aviation.
During the pandemic, hungry private aviation companies offered comfort and flexibility, as well as isolation, as separate terminals with living-room ambience and boarding areas are nothing out of the norm (e.g., the Jetex Premium Terminal at DWC). The isolation, flexibility, and sometimes even unprecedented access pushed business aviation to recover quickly compared to their counterparts - commercial airlines with their first-class offerings.
According to Jetex’s CEO Adel Mardini, 70 per cent of their new customers are coming from first-class. Passengers with a higher willingness to pay also have a higher degree of motivation to travel – be it for leisure or business.
Business class goes all-suite
In terms of product offerings and features, the business-class of various airlines has become the alternative first-class by removing the first-class cabins in their fleet. Even before the pandemic brought travel to a halt, many were introducing new premium cabins that, often for the first time, included closing doors. Instead of adding the first-class to their future fleet, various airlines will offer its passengers the option to choose from two variants of business class seats (e.g., standard seat and suite-style seat).
The key challenge for airlines in the past was to achieve a solid RoI (return on investment) from investing in first-class products (on-ground and on-board) since up to 70 per cent of first-class passengers in the past didn’t pay a full-fare ticket. The majority were upgraded from business-class (either compulsory, operationally or by themselves through air miles/cash).
Yet airlines somehow need to keep filling first-class seats - or get rid of them. A single first-class seat needs to generate at least three times the profit of a business-class seat to justify all the space it takes up in the plane.
Despite the ongoing structural change in air travel, first-class can’t be declared as dead. The structural change will lead to new opportunities to recapture that lost premium market share from private jet operators in a post-COVID-19 era. With respect to the downgrade of service and product offerings now, business- and first-class travel may be a waste of money right now.
Flying on faith
In the near future, when leisure and business travel begins again, it is likely a majority will return to flying somewhat tentatively, and I believe the added privacy of flying business- or first-class may in fact end up being a reassurance worth paying for. Those passengers keen to keep a safe distance will like the security of the roomier classes.
Because privacy (safety) and distance (health) is likely to be in the forefront of many passengers’ minds when they start flying again. For many, fewer trips will be the way forward, in favour of attempting to fly in business- or first-class to create natural social distancing
When travellers return, they will be more conscious than ever about their personal space, and these airlines will be eagerly waiting to greet them with some of the most spacious premium cabins imaginable. The reintroduction of exclusive standalone first-class terminals could be an option for airlines based in high-premium markets like London-Heathrow.
Linked to the global GDP growth and growth in propensity to travel, the sector will continue to grow again once the worst of this crisis is over. Demand for the premium classes will also return to its long-term growth trajectory, linked with the rise of the global middle-class. It is highly likely the pandemic may make people appreciate business- and first-class even more.
Although these travellers makes up just a small portion of total air travel, they are an essential ingredient for full-service network carriers (FSNCs), reflected by the fact that in 2020 alone, the real value of this category will shed over $750 billion to $850 billion.
- Linus Benjamin Bauer is Managing Director at Bauer Aviation Advisory and visiting lecturer at City University of London.