North Atlantic premium bookings soften: business fares down 18%

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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%

*Fares listed are the lowest return airfare (3 days stay), inclusive of taxes and surcharges.
All fares calculated are a 30-day moving average of a 30-day forward basis, so 30-Mar-2011 fares were as at 01-Mar-2011.
Source: Centre for Asia Pacific Aviation and ITA Software

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

Source: Centre for Asia Pacific Aviation & ITA Software

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

Source: Centre for Asia Pacific Aviation & ITA Software

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

Source: Centre for Asia Pacific Aviation & ITA Software

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.