Premium economy gains further ground on long-haul flights

For cost-conscious business travellers as well as wealthier leisure travellers, premium economy was born as a hybrid between economy and business class and is currently offered by a dozen airlines, mainly from Europea and Asia-Pacific. With company travel budgets squeezed during the economic downturn, this ‘value for money’ class is being offered by an increasing number of carriers. In 2009, V Australia(February 2009) and Air France (October 2009) introduced a premium economy class. Air France says its new Premium Voyageur cabin will increase its operating income by EUR 120 million a year from 2010 on.

Alitalia, Malaysia Airlines, Cathay Pacific, Etihad
In June 2010 Alitalia will introduce a new premium economy cabin, called ‘Classica Plus’. Malaysia Airlines will fit a ‘super economy’ class on its A380’s (first delivery expected in April 2012), saying it would serve “those organisations that maintain an economy-class travel policy for their employees, even after the recession.” On a similar note, Cathay Pacific says changes in passenger demand have convinced it to install a Premium Economy product across its network by 2012, as such a cabin could help capture a clientele looking to trade down from Business Class. Finally, ‘Gulf Gulliver’ Etihad is reported to consider a premium economy zone for its A380s, which are scheduled to start being delivered in 2012.
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Marriott opens TelePresence meeting rooms for rent by the hour

Cisco’s TelePresence system is a life-like high-definition conferencing facility that allows participants to meet eachother across a virtual table. To enhance the feeling of being in the same room, participants’ eyes are at the same level and the walls are often painted the same color. Cisco claims that its TelePresence system comes closer to the face-to-face experience that other solutions have been lacking sofar. Until recently, a private Cisco TelePresence system was only available to businesses at prices ranging from USD 34,000 for a simple set to USD 300,000 for a full-blown system capable of hosting 18 persons. 

Cisco says that currenty more than 3,500 TelePresence systems have been installed worldwide by more than 500 companies, and by introducing public TelePresence rooms for rent, Cisco aims to broaden the use of its technology. Since 2008, Tata Communications has operated such public rooms in London and Boston as well as at 5 locations in India in partnership with Taj Hotels and the Confederation of Indian Industry.
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10 trend predictions for 2010

Looking forward to what will be another challenging year for the airline industry, here are 10 quote that sum up what’s on the horizon for 2010. From increased awareness of security to legacy-low cost convergence, the real-time web and business as unusual.

1. The State of the Airline Industry. “Following a decline of 4.1% in 2009, passenger traffic is expected to grow by 4.5% in 2010. A total of 2.28 billion people are expected to fly in 2010. Industry revenues are expected to rise 4.9% to USD478 billion in 2010. However, revenues remain 11% below the peak of USD535 billion in 2008 and 6% below 2007 when passenger traffic was at similar levels to what is expected in 2010. Airlines will remain firmly in the red in 2010 with USD5.6 billion in losses. In 2009, passenger yields plummeted by 12% (the world’s airlines will lose USD11.0 billion in 2009) […] and are not expected to improve. This is being driven by two factors: excess capacity in the market and reduced corporate travel budgets. […] For 2010, some key statistics are moving in the right direction. Demand will likely continue to improve and airlines are expected to drive down non-fuel unit costs by 1.3%. But fuel costs are rising and yields are a continuing disaster. […] The industry is structurally out of balance. The precipitous fall in yields will likely never be fully recovered” (IATA Industrial Forecast 2010).
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9 airline quotes for 2009


As 2009 has come to an end, here’s our take on some of the most interesting quotes of the past year. Together they give a nice indication of the major trends currently shaping in the airline industry. Happy New Year!

1. Customer Experience. “They [legacy carriers] basically should get out a clean white sheet of paper and start again. Most of them are beyond repair. They got far too big and have management groups that don’t care about customer service. The experience the traveling public gets on those other carriers is pretty dire. […] If I was them, I’d start a new airline. I just don’t see how they can rescue their current airlines.” – Virgin CEO Richard Branson on what legacy carriers could learn from Virgin America (in Advertising Age).

2. The New Normal. BA’s CEO, Willie Walsh, recently observed a “structural shift” was occurring, noting “it may be that demand in the highest-yielding, fully-flexible premium business market will never recover to the levels we were seeing in 2007. […] That is a sobering message for all traditional airlines. Premium travel has been central to the viability of their business model for a very long time”. – What to do with a broken airline model? (Centre for Pacific Aviation). 
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Low cost carriers force European flag carriers to rethink short-haul product

Europe’s legacy carriers have long found low-cost airlines a nuisance, but the recession has turned them into a serious problem, as both business and leisure travelers trade down to cheaper tickets. Furthermore, airlines such as Air France and Iberia also face strong competition from high-speed trains. In order to stay competitive on short-haul routes, Europe’s ‘Big Three’ are rethinking their product offering in order to drive down unit costs.

The latest news comes from Lufthansa, which will introduce denser seating in its European economy class next year. To free up more ‘knee space’ for passengers, the seat back pocket will be elevated at the same time. Lufthansa also wants to simplify its catering (it currently serves six different options, depending on the type of flight and time of day), which will allow It to reduce the space needed for kitchens onboard. The airline says “the aim is that Lufthansa becomes more profitable and less complex,” and is reportedly targeting a 40 percent reduction in costs on its European network.
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Qantas and Cathay Pacific latest carriers to adapt premium cabins to ‘the new normal’

The economic downturn and the resulting sharp decline in premium business travel is forcing network carriers to re-think the seating configurations in their long-haul aircraft. As recovery seems not to be coming soon, airlines one by one are taking steps to rightsize their premium seating. For example airlines with a relatively large exposure to business travel, such as Lufthansa, BA,  and Qatar Airways, have already reduced their premium seat capacity, while Air France says it is accelerating the roll-out of its new premium economy class to appeal to cost-conscious business travelers.

Qantas is the latest airline to announce a reconfiguration of its long-haul fleet, saying it will replace a number of first and business class seats due to the drop in premium demand. About 15% percent of premium seats are expected to be cut. According to Qantas CEO Alan Joyce “it is very clear the productivity is not right – we have too many premium class seats on many aircraft.” Joyce admits the reconfiguration of aircrafts may cost the company “a lot of money”, but says the plan will provide “a better revenue-generating alternative.” Earlier this year, Qantas already suspended its First Class cabin on several routes, upgrading  some business class passengers to First Class instead (with business class catering) at no extra cost. Read full article »

Air France restructures its short-haul product to counter loss of passenger to low-cost carriers

Air France has anounced it will restructure its European service to counter the loss of passengers to low-cost carriers and to make its short and medium-haul business (which account for 40 percent of its revenue) profitable again. Air France says the new European product will increase its market share by lowering its cheapest fares with 5 to 20 percent (depending on the route) and its most expensive tickets with 19 to 29 percent. Customers will also be allowed a greater flexibility to change bookings. The restructuring also means lower operating costs for Air France, for example by serving simpler meals and increasing the number of internet bookings. Air France’s new Europe product will come into affect from April 2010, with tickets on sale in January. 

According to Air France, its customers (passengers, travel managers and travel agents) all indicated they want two clearly differentiated products for short-haul air travel. At the one hand, they want a simple and inexpensive economy product, and on the other hand a more affordable premium product, for those that require additional flexibility, more comfort and a more efficient journey. According to Air France CEO Pierre-Henri Gourgeon “regarding short-haul travel, customer requirements have changed. They now want reliable, efficient air transport, with an appropriate service, at the lowest possible price, while retaining the Air France touch”.
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ANA to monetize business class perks with ‘MyChoice’ program


All Nippon Airways (ANA) has introduced a new ancillary revenue program, called ‘MyChoice’. The idea behind ‘ANA My Choice’ is to offer Economy passengers paid access to services that were previously only available to business class passengers. The program starts on December 1 with a limited number of paid-for services and ANA says it will introduce more services during 2010. 

On the ground, ANA Economy passengers can purchase access to ANA’s airport lounge at Haneda for JP¥5,000 (USD55/EUR40).The introductory fee until the end of January 2010 is 4,000 yen. On board, light Business Class meals, such as a rice ball and miso soup set, are available for sale to Economy passengers for JP¥500 (USD5.50/EUR4) until the end of January, then the regular fee is 700 yen. Also, business classs wines and shochu (a strong liquor) will be sold for the introductory price of JP¥800 (USD9/EUR6) per glass (regular fee is 1,000 yen).
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Iberia to set up new ‘lower-cost’ feeder airline to serve Madrid hub

Picture courtesy of Matt Hintsa 

The economic crisis and fierce competition from low-cost carriers and high-speed rail are forcing European network carriers to think about structural changes in their short-haul operations. One of the hardest hit airlines is Spanish flag carrier Iberia which has lost some of its most lucrative domestic routes to Spain’s expanding high-speed train network, while low-cost carriers (Ryanair, Easyjet) have hit its European services. In what Iberia calls nothing less than a ‘paradigm shift’, the airline has announced plans to replace its domestic and European operations with a new lower-cost feeder airline and focus the main Iberia operations on profitable long-haul sectors, mainly to Latin America. 

Iberia said previous measure taken, including cuts in staff and capacity and the grounding of aircraft, had proved insufficient and that the current situation is unsustainable, saying: “We have a structural problem in our domestic and European operations. Thus we are proposing a total different model, with markedly lower operating costs and no ‘legacy’ work practices, which will allow us to compete with other carriers and the high-speed train.” As part of its restructuring plan Iberia will also lay off all flight attendants above the age of 55, and wages are frozen for two years for all employees.
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