Now, the equation is changing. Today, international business class is where "all of the airlines are experiencing a softening," says Julie Simpson, vice president of Caldwell Associates.
How soft? Squishy soft. Consider, the International Air Transport Association's Premium Traffic Monitor says premium traffic among the world's airlines plummeted 13.3 percent during December 2008, this compared to December 2007 figures. This is hard on the heels of an 11.5 percent drop off in November 2008. More tellingly, "It looks as though even larger declines in air travel should be expected early this year," says the Monitor. IATA predicts, "US airlines, which switched capacity to long-haul international markets looking for better yields, now face a tough environment."
None tougher, perhaps, than Delta Air Lines. Last year, what's now the planet's largest airline converted a slew of 757s into transoceanic haulers, inaugurating service to far away places with strange sounding names. Now, it seems the move may have been a bridge too far. It an abrupt about face, DL is axing substantial international capacity beginning in September, after the (at least in year's past) summer rush. Gone will be 11 to 13 percent of the carrier's transatlantic seats, and 12 to 14 percent of its transpacific capacity. These cuts come in addition to systemwide year-over-year capacity reductions of 6 to 8 percent Delta announced back in December 2008.
"To achieve these capacity changes," says a prepared statement from the carrier, "we will exit low performing markets, down-gauge certain routes, adjust [flight] frequencies, and move some markets to seasonal service."
Opportunity At The Apex
What's this mean for corporate contract negotiations? Close-in, there could be some real deals. Longer-range (as in the fourth-quarter, perhaps a tad sooner), watch out. "There is the possibility of driving some deals," asserts Simpson. "If [corporate employees] are traveling on competitive routes, and their [firms] are reimbursing business class, now might not be a bad time to be negotiating at all."
"I think all carriers are open, if you're going to bring some business class or first class business to them," agrees Don Swartz, principal of Corporate Travel Buyer Resources. "The challenge is that what's happening today could change tomorrow as far as capacity."
He's not the only one who sees it that way. "Airlines are going to be cutting back significantly," says Mike Boyd, the president of The Boyd Group. "They'd rather have 30 percent fewer seats and maintain the fare levels, than be slashing [corporate rates]." Boyd says the best bet is to front-load as many international business trips as possible, because this spring's fertile negotiating soil could turn sour with the coming of fall. "Figure through the third quarter [of 2009], we're probably going to have a buyer's market. After that, I don't think it will be a buyer's market. I think airlines are going to cut back [capacity] significantly."
Right now, he asserts, is the time to strike, and take advantage of deals. For one brief shining moment, airline bottom lines are a bit buffered by the dramatic fall-off in jet fuel prices. But a concomitant fall in demand is starting to tarnish the terrain.
"When we hear of 20 percent-plus falls in premium traffic, that is more than just another statistic," said Centre for Asia Pacific Aviation's Peter Harbison at a recent conference in Singapore. "It's ripping the guts out of the legacy [airline] model." He asserted at the conference, "If this persists another six months, airlines will be grounded."
No negotiation ground there, not if there aren't any players in the field.
So, assuming you've got to strike soon to take advantage of this closing window of opportunity, what's the strategy? "For the airlines, it's a matter of 'Which clients are able to provide us with some sustainable revenue month-to-month, or quarter-over-quarter over the next year or two,' to help them survive," says Swartz. What's sustainable revenue? He doesn't mean you're "throwing a bazillion dollars at 'em ... They just want to know, 'Historically [a corporation] spent X, and they'll continue to spend X — or real close to X.'"
At best, it may have to be "real close." In late 2008, Consulting Strategies completed a survey for a large multinational client, one that encompassed other corporations around the globe. While principal Mark Walton says, "Surprisingly, there wasn't any significant movement from corporations to favor coach," that's not the whole story. You've got to drill deeper, to the departmental level. Do that and Consulting Strategies found that within divisions, corporate departments, there was voluntary cost curtailment "by downgrading cabins ... and, obviously, you have evidence of companies just cutting back travel significantly."
Used to be, East Coast to Europe was considered a buy-business class category. That's not necessarily so anymore. Simpson says such "closer in" markets may mandate coach, but on longer-haul routes — such as Los Angeles to Tokyo — "business class is still an option."
Cost-savings is the obvious reason corporations are cutting back. But it is — assert some — not the only reason. Not anymore.
Perceptions Push Reality
Cutting back business class carriage "is an excellent way to save money," says Simpson, "but the other [reason] is the social acceptability of traveling in premium class." It's tough for management to lay off workers en masse, while indulging themselves in hot towels, welcome mimosas and lie-flat beds up front. It just doesn't play the way it once did.
Conceding "It's gotten to the point where there may not be that much difference between a very good business fare and a not-so-great discount in economy," Simpson says. Nevertheless "the appearance [of special perks] has got to be avoided."
Mike Boyd agrees, adding "Guess who the winner is? Premium Economy." He labels PE "sort of the re-birth of business class. Remember, when business class started (that would be with Pan Am's seminal 'Clipper Class') it was a Premium Economy product — a little bit wider seat and free booze. Now it's evolved into super-premium service." And it looks to be fertile ground for negotiation. One reason why? "As long as the word economy is in it, then you can get away with it," he contends.
Not everyone buys the social consciousness argument. "We saw no evidence of that whatsoever," says Consulting Strategies' Mark Walton. He contends that "the issue is limited to private jets."
Pick Your Targets Carefully
If some corporations might take business class off the table altogether for a while, concerned about the backlash, just what is there left to bargain? Boyd believes high-density international routes laced with lots of competition are ripe right now: New York Kennedy - London Heathrow, Los Angeles - Tokyo Narita. Even China, though hard-hit by the recession, is still negotiable. Airlines, says Boyd, are loathe to give up the China trade "because they have to show the flag in China, even if the airplane leaves with a half-load to Guangzhou."
Don't expect to be able to necessarily strike deals on one-carrier singletons, such as Delta's planned late-year launch of nonstop Atlanta — Brasilia service. There simply isn't any nonstop competition on the route from this country to the Brazilian capital, by either a foreign flag or US flag carrier.
Aside from routes, it's the nettlesome little things that are ripe for negotiation —things like name changes, and extended credit for unused, non-refundable tickets. Boyd suggests going for "the long-term benefit, which would be relaxation of the silly rules — making tickets refundable, making them transferable — more fungible if you will." His advice: "go in swinging, saying 'You'll pay us to put our people on your airplane.' It won't work, but you start with that. The real value is for the long term — trying to improve some of the flexibility and value of the fares you're paying."
Problem is, it takes two to negotiate, and there's evidence that carrier field representatives, once possessed of magical powers, may be mere mouthpieces these days. Walton contends airline reps' hands are tied today in a way they never were. He's seen the evidence up close. Just returned from a negotiations for a major client, Walton maintains it was evident airline field representatives "really had what seemed to be no decision-making capabilities whatsoever. This [held true] for every airline we met with, and we met with seven airlines in two days."
Seems there's a dearth of instant answers these days, either as to the future of the economy or the ability to cop an upgrade. What does seem certain is this: don't assume the window of beneficent dickering and dealing with your preferred carrier is going to remain open for long.
That sliding sound you hear is capacity coming down. You might want to get your fingers out of the way quick if you don't want them bruised.
