Airlines reconfigure premium cabins.
The global airline industry is enjoying a rebound, but airlines still face weak yields and questions remain about the sustainability of the recovery.
In a bid to improve yields, some carriers are reconfiguring their premium cabins, turning away from top-end, first-class seating.
In his opening speech at the Aviation Outlook Asia conference in Singapore, Peter Harbison, executive chairman of the Sydney-based Centre for Asia Pacific Aviation (CAPA), said airlines are cutting the number of first-class seats they offer. Harbison cited Singapore Airlines (SIA) as one carrier doing this on some routes.
Early this year, Qantas said it would eliminate first-class seats on most long-haul services, except major routes to London and Los Angeles. British Airways, too, took delivery of several Boeing 777s with no first-class cabin for the first time – but the UK carrier said it has plans to invest US$150 million to upgrade existing first-class seats.
US carrier Air Tran, which is being acquired by Southwest Airlines, says it will drop first class when the merger is completed in 2011. Early this year, Hong Kong’s Cathay Pacific Airways said it has plans to reduce or remove first class on certain routes.
The number of first class cabins is shrinking as demand sags, with companies opting to book cheaper business-class seats for their travelling executives. Some airlines have also improved their business-class service, making the product even more appealing.
It remains difficult to determine whether first-class travel demand may yet return to the peaks experienced in 2007.
According to an International Air Transport Association (IATA) report released in October, business-class demand has clearly outstripped the need for first-class capacity at some airlines.
In August, premium passenger traffic increased 9.1 percent year-on-year, a slowdown of 4.7 percentage points compared with July’s growth figure. Premium traffic on international flights – including both business and first class – declined 16 percent in 2009.
CAPA’s Harbison predicted that full-service carriers operating short-haul routes will continue to do well, while low-cost airlines like Jakarta-based Lion Air will expand rapidly.
However, the story could be different in China, Japan and Korea which are more tightly regulated. Harbison said that high-speed train services in China are expanding rapidly and could pose a serious threat to the domestic airlines.
Chinese domestic carriers are already feeling the heat of competition with trains on several routes, forcing them to cut fares. The world’s fastest long-distance bullet train service was launched in January between Guangzhou and Wuhan.
Known as the Harmony Express – and offering a top speed of 394kmh – the train has reduced rail-travel time on the route from 10 hours, 25 minutes to just three hours. Flight time on the route is one hour and 50 minutes.
Garuda to fund expansion with IPO
Garuda Indonesia plans to use the proceeds of its planned initial public offering (IPO) in February 2011 to strengthen its cash flow and help fund the purchase of six Airbus A330-200 jetliners. The airline hopes to raise US$300 million from the share sale.
Garuda President and Chief Executive Officer Emirsyah Satar said that, now that the European Union (EU) ban on the carrier has been lifted, the airline needs to move forward and plan its expansion. All 51 of Indonesia’s airlines were banned by the EU in 2007 after a series of fatal crashes involving Indonesian carriers – including Garuda.
The ban on the flag carrier was lifted in November 2009 and Garuda resumed flying to Amsterdam on 2 June, operating five-times weekly via Dubai using A330-200s. The service will be upgraded to larger Boeing 777-300ER jetliners in 2011, when the airline starts taking delivery of aircraft ordered in February 2008 at the Singapore Air Show.
Garuda has outstanding orders with Boeing for 10 widebody 777-300ERs and 25 single-aisle 737-800s.
“We had to work real hard to convince the EU to lift the ban on Garuda, as it was not only crucial for the airline’s expansion but of paramount importance that we are [recognised as] a safe airline again,” Emirsyah said.
Tapping growing demand for travel in the Asia-Pacific region, the airline is planning to expand its international network from 19 destinations now to 28 by 2014, adding more destinations in Japan, China, South Korea, Australia and the Middle East.
Emirsyah said the resumption of flights to London, Rome, Paris and Vienna – which were dropped in 2004 as part of Garuda’s restructuring – will come at a later date, once the airline has its 777-300ER fleet in operation.
Garuda is also looking at domestic expansion, with the addition of 11 more destinations to its current 23.
Emirsyah said there is tremendous untapped potential at home and the airline plans to take advantage of the booming Indonesian economy, stimulating domestic travel demand. Garuda has a market share of about 30 percent domestically, lagging behind low-cost carrier Lion Air, which has 45 percent.