FlyBoeingJets
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Airline battle moves from coach to business class
Mon Jul 17, 2006 12:01am ET
By Kyle Peterson
CHICAGO, July 17 (Reuters) - U.S. airlines are shifting their battle for customers from coach to business class.
As the low-fare war for budget travelers seems to wind down or be on hold, major airlines are increasingly reaching out to those who prefer high-end service.
The largest U.S. carriers -- those that fly international and transcontinental routes -- have been devoting their resources to in-flight luxuries such as more leg room, better entertainment and fully reclining seats in first- and business-class cabins.
"There's no question that this has become the latest turf war in the industry," said Stuart Klaskin at KKC Aviation Consulting. "This is a hot war."
On Monday, AMR Corp. (AMR.N: Quote, Profile, Research), parent of American Airlines, will fire the next shot, unveiling a series of upgrades to business class cabins of its Boeing 767-300 and 777 aircraft.
These include seats that can adjust to lie flat, and which feature personal in-flight entertainment, interlocking trays and improved lighting. AMR says the seats will be installed by the end of 2007.
AMR declined to disclose the price of its total investment, but a spokesman said a set of two seats costs about $50,000.
Rival carriers like UAL Corp.'s (UAUA.O: Quote, Profile, Research) United Airlines offers a competitive premium service on transcontinental flights that also features lie-flat seats. UAL said in March that it would upgrade services on international flights starting in 2007.
Northwest Airlines (NWACQ.PK: Quote, Profile, Research) also boasts an enhanced business class on international flights. The carrier debuted a lie-flat seat for business class passengers in 2003.
WAR ON TWO FRONTS
Major U.S. airlines, battered by low-cost competition from the likes of Southwest Airlines (LUV.N: Quote, Profile, Research) and JetBlue Airways (JBLU.O: Quote, Profile, Research), often struggle to mimic their low-fare rivals.
Consequently, domestic fares reached historic lows in recent years, as carriers courted thrifty passengers. Hoping to lower costs and boost revenue, major airlines cut services in coach and began charging for in-flight perks such as meals.
More recently, however, airlines have managed to pull some capacity out of domestic markets and initiate fare hikes that help cover the painfully high cost of jet fuel.
The Air Transport Association, an industry trade group, said domestic fares for the first five months of 2006 were up 11.1 percent from the same period in 2005, but down 12.6 percent from the first five months of 2000.
Meanwhile, major airlines have been adding capacity to international routes where they face less competition. The ATA said domestic seating capacity for 2006 year-to-date is down 1.5 percent from 2005. International capacity is up 5 percent.
The ATA's chief economist, John Heimlich, said major carriers still must guard against low-fare competition on domestic routes. But he said it has become increasingly important to bolster traffic on international routes as well.
"I don't think it's a choice. They have to do both things," Heimlich said. "You have to leave no stone unturned -- every aspect of your customer base."
If cheap fares are the key to filling domestic flights, in-flight luxury may ensure full planes on international and transcontinental routes.
Experts noted that first- and business-class accommodations are most popular on international flights. One reason may be that corporations are more willing to pay more for employees to fly in comfort on long trips.
Airlines rarely disclose what percentage of their revenue is derived from first- and business-class ticket sales. But industry expert Darryl Jenkins said those sales account for the bulk of revenue earned on international flights.
For example, the walk-up round-trip fare for an economy-class seat on an AMR flight to London from New York on Friday cost about $3,000. A first-class fare for the same trip cost more than $13,000.
AMR's service upgrades for high-paying customers reflects a desire to court the high-end travelers, Jenkins said.
"When you have this much revenue at stake you're going to be very careful not to let a competitor get a one-up on you," he said. "Certainly it's not just differentiating your product. You're targeting the people who contribute the most revenue to the system."
Mon Jul 17, 2006 12:01am ET
By Kyle Peterson
CHICAGO, July 17 (Reuters) - U.S. airlines are shifting their battle for customers from coach to business class.
As the low-fare war for budget travelers seems to wind down or be on hold, major airlines are increasingly reaching out to those who prefer high-end service.
The largest U.S. carriers -- those that fly international and transcontinental routes -- have been devoting their resources to in-flight luxuries such as more leg room, better entertainment and fully reclining seats in first- and business-class cabins.
"There's no question that this has become the latest turf war in the industry," said Stuart Klaskin at KKC Aviation Consulting. "This is a hot war."
On Monday, AMR Corp. (AMR.N: Quote, Profile, Research), parent of American Airlines, will fire the next shot, unveiling a series of upgrades to business class cabins of its Boeing 767-300 and 777 aircraft.
These include seats that can adjust to lie flat, and which feature personal in-flight entertainment, interlocking trays and improved lighting. AMR says the seats will be installed by the end of 2007.
AMR declined to disclose the price of its total investment, but a spokesman said a set of two seats costs about $50,000.
Rival carriers like UAL Corp.'s (UAUA.O: Quote, Profile, Research) United Airlines offers a competitive premium service on transcontinental flights that also features lie-flat seats. UAL said in March that it would upgrade services on international flights starting in 2007.
Northwest Airlines (NWACQ.PK: Quote, Profile, Research) also boasts an enhanced business class on international flights. The carrier debuted a lie-flat seat for business class passengers in 2003.
WAR ON TWO FRONTS
Major U.S. airlines, battered by low-cost competition from the likes of Southwest Airlines (LUV.N: Quote, Profile, Research) and JetBlue Airways (JBLU.O: Quote, Profile, Research), often struggle to mimic their low-fare rivals.
Consequently, domestic fares reached historic lows in recent years, as carriers courted thrifty passengers. Hoping to lower costs and boost revenue, major airlines cut services in coach and began charging for in-flight perks such as meals.
More recently, however, airlines have managed to pull some capacity out of domestic markets and initiate fare hikes that help cover the painfully high cost of jet fuel.
The Air Transport Association, an industry trade group, said domestic fares for the first five months of 2006 were up 11.1 percent from the same period in 2005, but down 12.6 percent from the first five months of 2000.
Meanwhile, major airlines have been adding capacity to international routes where they face less competition. The ATA said domestic seating capacity for 2006 year-to-date is down 1.5 percent from 2005. International capacity is up 5 percent.
The ATA's chief economist, John Heimlich, said major carriers still must guard against low-fare competition on domestic routes. But he said it has become increasingly important to bolster traffic on international routes as well.
"I don't think it's a choice. They have to do both things," Heimlich said. "You have to leave no stone unturned -- every aspect of your customer base."
If cheap fares are the key to filling domestic flights, in-flight luxury may ensure full planes on international and transcontinental routes.
Experts noted that first- and business-class accommodations are most popular on international flights. One reason may be that corporations are more willing to pay more for employees to fly in comfort on long trips.
Airlines rarely disclose what percentage of their revenue is derived from first- and business-class ticket sales. But industry expert Darryl Jenkins said those sales account for the bulk of revenue earned on international flights.
For example, the walk-up round-trip fare for an economy-class seat on an AMR flight to London from New York on Friday cost about $3,000. A first-class fare for the same trip cost more than $13,000.
AMR's service upgrades for high-paying customers reflects a desire to court the high-end travelers, Jenkins said.
"When you have this much revenue at stake you're going to be very careful not to let a competitor get a one-up on you," he said. "Certainly it's not just differentiating your product. You're targeting the people who contribute the most revenue to the system."
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