Transport Airlines

Airlines See Investment in Premium Seats Begin to Pay Off Again

Jul 17, 2014 8:08 am

Skift Take

A good sign of better economies is when companies pay high prices for better seats for their employees.

— Marisa Garcia

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Air France

Air France's new business-class seating. Air France


Statistics revealed today by IATA show that the buzz of activity by airlines, upgrading cabins, and adding more lie-flat seats may be right on the money.

Though premium passenger sales have not yet reached pre-crisis 2008 levels, IATA believes there are favorable factors for recovery of demand. Growth in premium passengers is up 6.5% for May 2014, compared to May 2013, and much stronger than the growth from this April of 3.8%.

IATA shows that current international economic growth is supporting this trend and generating more demand for business travelers paying premium to fly to their meetings.

Despite the confidence that Asia will ultimately become a prime market for premium travel, and that the numbers of premium passengers as a percentage of traffic in the Far East are highest at 17.8%, generating 8.4% of revenue, IATA warns that export volatility in the Chinese market and a slowdown in the Chinese economy earlier in this year could affect this sector.

The fought-over routes in the North Atlantic increased by 10.3% in premium ticket sales, and IATA believes that acceleration in business activity in the U.S. has been a primary driver — as well as the end of the bad weather from earlier this year.

The Middle East market overall remains strong, particularly in the Gulf, but the growth is not attributed to the oil industry in the region, Rather IATA points out strong economic performance of non-oil producing sectors of the market citing “near record high levels of business activity.” More Middle Eastern premium travellers are headed for Europe than the Far East, by a small margin, with growth of 12.4% favoring Europe and growth of 11.6% headed for the Far East.

There’s good news for upgraders in the U.S. and Canada, as premium traffic growth for May 2014 for flights within North America was still weak at 0.8% — constituting 0.5% of airline revenue. Airlines in this market may continue to be somewhat more accommodating.

If you’re traveling on the popular New York-London or other North Atlantic routes, forget about it. Airlines are definitely getting a good return on their cabin upgrade investments with a 14.0% of traffic yielding 21.8% of revenues. Europeans are unlikely to see their seats upgraded, premium traffic is up 13.5%–though it seems European carriers do very well with their economy passenger sales as premium only represents 4.7% of their revenue.

Overall, economy seat sales are strong with growth keeping pace with premium sales, so those worried about crowded cabins have more to worry about. But it seems everyone keeps wanting to fly — premium or economy — so it can’t be all bad.

As IATA points out: “The outlook for air travel is positive. Global business activity (manufacturing and services) is now growing at the fastest rate for the past three years, suggesting a pick-up in global economic growth in Q2. But growth in manufacturing and export orders, specifically, has yet to recover to 2013 year-end rates, which raises some doubts whether strong acceleration in trade and business-related demand will occur in the near-term.”

So it might still be a while before airlines cancel upgrade programs altogether.

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