Well, do not take Boyd's word for it.
Delta, AMR See Revenue Vanish as New York Business Fares Tumble
June 15 (Bloomberg) -- U.S. airlines faced with losses in the recession are slashing business-class fares from New York to London, Zurich and other finance centers by more than 50 percent to try to fill planes.
A business-class ticket from New York’s Kennedy Airport to UBS AG’s hometown of Zurich costs $1,838 for June, 51 percent cheaper than last year, according to travel Web site Bestfares.com. Flights to London Heathrow are down 56 percent to $1,994 as banks’ job losses erode demand.
“Poof! That revenue is just plain gone,” said Henry Harteveldt, a Forrester Research Inc. analyst in San Francisco. “The front of the plane is the moneymaker. These fares could be the difference between being profitable or not.”
International business-class travel is pivotal for U.S. carriers such as Delta Air Lines Inc. and AMR Corp.’s American Airlines, the world’s two largest. Without discount competitors on trans-Atlantic and trans-Pacific routes, the companies typically have been able to charge higher fares.
Premium tickets on overseas flights produce 25 percent of most carriers’ revenue, according to the International Air Transport Association, so the slump adds to the strain from dwindling leisure travel. IATA estimated on June 8 that North American airlines’ 2009 deficit may be $1 billion for a second straight annual loss
International traffic, as measured in miles flown by paying passengers, slid 10 percent at Delta and 8.7 percent at American through May as corporate firings and budget cuts spread. Harteveldt said that with fewer meetings, he isn’t taking any overseas trips this year after a half-dozen in 2008.
Cutting Seats
The drag from tumbling fares helped trigger last week’s seating-capacity cuts at Delta and American to shave expenses and attempt to regain pricing power.
Delta will chop an additional 5 percent of international flying starting in September, pushing its 2009 reduction to 15 percent, while American will shrink flying by 7.5 percent, 1 percentage point more than planned. The biggest cuts will be on overseas flights, AMR Chief Executive Officer Gerard Arpey said at a Bank of America Corp. conference in New York last week.
“Customer demand for international travel has fallen significantly,” Delta CEO Richard Anderson told employees on June 11.
The Bloomberg U.S. Airlines Index of 13 carriers slid 44 percent this year through June 12, paced by 65 percent declines for United Airlines parent UAL Corp. and US Airways Group Inc.
Carriers outside the U.S. are feeling the pressure, too.
Japan Airlines Corp., Asia’s largest carrier, said June 2 that it may cut more routes after flying 7.5 percent fewer passengers overseas in April. Air France-KLM Group, Europe’s biggest airline, will chop seating capacity by 4.5 percent.
Global Losses
Worldwide industry losses may total $9 billion this year, twice as deep as a previous forecast, IATA said. First-quarter revenue from international first- and business-class tickets fell as much as 40 percent, the Montreal-based trade group said.
Demand for premium-class service is wilting after financial companies across the globe shed almost 188,000 jobs since the end of September, according to data compiled by Bloomberg.
“For every guy they lose in the front of the cabin, they have to make it up with three or five guys in the back,” said Vaughn Cordle, who runs consulting firm AirlineForecasts LLC in Clifton, Virginia.
The swine flu outbreak, declared a pandemic by the World Health Organization last week, also is damping revenue. Continental Airlines Inc. and Chicago-based United temporarily cut half of their flying to Mexico as demand plummeted to the country where the H1N1 flu struck first and hardest.
‘Trying to Guess’
When U.S. carriers declined to give detailed outlooks in their most-recent earnings conference calls, they were “saying they don’t know because they truly don’t know,” said Bob McAdoo, an analyst at Avondale Partners LLC in Prairie Village, Kansas.
Delta and Fort Worth, Texas-based American both said last week that job cuts were likely or on the way. Atlanta-based Delta said it must “reassess staffing needs,” while American plans to shed 1,600 jobs, or 2.4 percent of its workforce.
New York fares on some routes have fallen less than those to London and Zurich. Flying business class between New York and Dubai is $6,518, about 27 percent less than a year ago, according to Tom Parsons, the founder of Arlington, Texas-based Bestfares.com.
Coach traffic isn’t helping much. Houston-based Continental is charging $851 this month to fly to Tokyo from New Jersey’s Newark Liberty International Airport, 43 percent less than in 2008, according to Bestfares.com.
“The profitability of the flight just fails” when dominated by coach passengers, said Robert Mann of consulting firm R.W. Mann & Co. in Port Washington, New York.
Even some regulars in first- and business-class cabins may be opting to skip the meals, wine and extra legroom as travel budgets shrink and Congress fumes over luxury travel by bankers taking federal bailout money, said Forrester’s Harteveldt.
“They’d rather keep their job and fly coach,” he said.