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North Atlantic premium bookings soften: business fares down 18%

30-Mar-2011

Business class air fares on key trans-Atlantic routes appear to be declining ominously, latest CAPA research shows. The Centre for Asia Pacific Aviation (CAPA), using its new, freely available online air fares database developed in partnership with ITA Software, has found that the cheapest available business class fares on 20 key trans-Atlantic routes have dropped an average of 17.8% for bookings made over the next five weeks.

[Click here for more information about the CAPA-ITA Software air fares free service]

The biggest drop is in average fares from New York JFK to Paris, which have fallen from USD7243.76 on 28-Mar-2011 to USD3944.79 on 01-May-2011 – a drop of 43.6%.

Sample of Business Class fares* (30-day moving average) on key trans-Atlantic routes:
28-May-2011 vs 01-May-2011

 

28-Mar-11

1-May-11

% change

London Heathrow to:

New York JFK

3802.11

3602.60

-5.2%

Newark Liberty

4651.33

3988.05

-14.3%

Boston

5700.41

3304.20

-42.0%

Washington Dulles

5719.03

4496.04

-21.4%

Miami

6513.93

4633.67

-28.9%

Chicago O'Hare

6632.37

4813.39

-27.4%

Paris CDG to:

Chicago O'Hare

4571.11

4661.30

2.0%

Newark Liberty

4843.09

4207.23

-13.1%

Washington Dulles

5074.66

4679.97

-7.8%

New York JFK

5367.30

4288.61

-20.1%

Atlanta

7157.83

7277.32

1.7%

Frankfurt to:

New York JFK

4163.47

3770.55

-9.4%

Newark Liberty

4968.47

4640.47

-6.6%

Washington Dulles

5346.13

4974.40

-7.0%

Chicago O'Hare

6184.40

5599.80

-9.5%

New York JFK to:

London Heathrow

3385.82

2408.90

-28.9%

Paris CDG

7243.76

3944.79

-45.5%

Miami to:

Paris CDG

9368.49

8576.13

-8.5%

Frankfurt

7998.68

6881.82

-14.0%

London Heathrow

7862.01

5062.94

-35.6%

The period under review includes Easter, which typically reduces business travel. However, the premium fares data does reflect growing concern among airline executives that North Atlantic markets are softening and prices beyond Easter remain soft.

Delta President Ed Bastion said last week that revenues in the Atlantic market were expected to be down 2-3% in 1Q2011, while unit costs were up 11-12% as the airline expands capacity, “reflecting a continuing softening of the trans-Atlantic market”. United Continental CEO Jeff Smisek also last week pointed to the softening of the trans-Atlantic market, noting that Atlantic forward bookings were down 3.7 points.

The North Atlantic is the world’s biggest and most lucrative premium travel market. It accounts for 15% of total premium traffic, but some 25% of worldwide premium revenues.

Directional fares: cheaper ex Heathrow than JFK

The price of business fares continues to show wide disparities too, depending on where the journey begins. Fares on the New York JFK-Heathrow route are for example considerably cheaper out of JFK than from Heathrow. The difference widens by early May.

Directional fares New York JFK-London Heathrow (USD): 28-Mar-2011 vs 01-May-2011

However, business fares are more expensive out of Miami to London than the reverse.

Directional fares Miami-London Heathrow (USD): 28-Mar-2011 vs 01-May-2011

Paris is more mixed. The figures are mixed on the New York JFK-Paris CDG, where its less expensive from the US side now, but cheaper from the European side later.

Directional fares New York JFK-Paris CDG (USD): 28-Mar-2011 vs 01-May-2011

The implications of softening business demand

A loss of business traffic is exactly what the airlines don’t want.

Much of the economic “recovery” since the GFC has been on main street, especially in the US. That is, the stock market is up, as businesses become more efficient in the tough times. But meanwhile, ugly high unemployment rates continue to nudge 10%.

The outcome of these separate factors has been a renewal of business travel – on which the airlines have generated profitability – while consumer demand has stagnated, meaning discretionary travel has stayed soft throughout.

Now, just as fuel prices start to hurt again and airlines look to build in fuel surcharges, only the less price sensitive business market was likely to absorb the necessary price rises. To push fares higher in discretionary markets is only likely to deter people from flying – or to change to a lower priced airline.

The message that the forward fares data are delivering is that airlines are not only unlikely to claw back the added fuel costs, they are actually going to have to reduce fares to maintain traffic levels.

Global alliances to the rescue?

The many opponents to granting anti-trust immunity to the major alliance partners on the North Atlantic suggested that this would encourage oligopolistic behaviour, quickly pushing prices up.

If that is eventually to be the case, it is certainly not so now. And with airlines like Delta adding significant new capacity, upward movements may still take some time to materialise.

Note: The CAPA-ITA Software fares databases can be found on hundreds of airport profiles on the CAPA website. Go to the CAPA Profiles Index, select your airport of choice and look at the fares tab.

NEXT TIME: We look at trans-Pacific fare trends.


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