Big Changes For Business Travel

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So what happens if another sizable proportion of business travel disappears forever? Not all of the airline executives I've talked to in recent weeks agree—and none would even talk for the record—but they made some predictions based on previous experience and the current warning signs.

Fewer frequencies on the most popular routes. The cheapest, easiest, and least painful (at least for the airlines) way to cope with a long-term decline of premium-class revenue is to ground aircraft and offer less frequency on routes that offer multiple flights each day. That's already happened to some degree as domestic carriers cut about 10 percent of their flights after last Labor Day. An international cutback seems inevitable. Last week, Delta Air Lines, which aggressively expanded its overseas network in the last four years, announced it would slash about 10 percent of its international service in the fall.

Fewer nonstops on less popular routes. Many cities still connected by nonstop flights today will lose their service. As premium-priced business travel falls, the airlines have less incentive to fly those routes directly. They'll force travelers to connect via hubs, where the carriers can "collect" passengers from several cities and then reroute them in bulk to their final destinations.

Fewer premium-class seats. Airlines are loath to reconfigure their planes because it is costly, but a permanent decline in premium-class travel will require a change in aircraft "geography." Airlines will rip out unsold premium seats and replace them with more coach chairs. US Airways recently reconfigured its domestic fleet with fewer first-class seats, and United Airlines' long-overdue upgrade of its international aircraft will result in 20 percent fewer premium-class seats.

Fewer carriers and more alliances. Each recession has taken its toll on the roster of traditional carriers. The first Gulf War claimed Pan Am, Eastern Airlines, and the original Midway Airlines. After 9/11, a slew of smaller domestic carriers and several well-known international airlines (notably Swissair and Sabena) tanked. Several large carriers will surely disappear after this recession. The surviving airlines will seek alliances to share the remaining revenue. In fact, the skies are already full of carriers who put their computer code on flights actually operated by putative competitors.

Fewer multi-class airlines. The only truly healthy domestic carrier is Southwest Airlines, which offers a one-class-fits-all approach to travel. Internationally, the totally à la carte Ryanair is growing fastest. Logic dictates that more airlines will try to make money with a single class or duplicate the efforts of JetBlue Airways (decent legroom and amenities for all fliers and extra legroom in the same cabin for travelers willing to pay a little more) or AirTran Airways, which sells an inexpensive and stripped-down business class.

Higher fares for vacationers. A reduction in the number of premium-class fliers will mean fewer flights overall. Fewer flights means fewer seats in coach and, ironically, higher prices for leisure travelers, who have reaped lower fares because airlines kept adding flights to give premium-class fliers the frequency they were paying for.

A fundamental restructuring of premium-class service. With fewer premium-class fliers around, airlines will respond by lowering premium-class fares, either because they choose to change their fare structure or are forced to discount frequently. Both options mean less revenue per passenger, and that means less service. Although in-flight amenities like lavish food-and-beverage services are marginal costs, expect less pricey presentations and offerings. And one executive at a trend-setting international airline said his carrier was already considering renaming its business class and reclassifying it as "Y," the airline industry's computer code for full-fare coach.

"A lot of companies simply won't accept 'J' [industry code for business class] on the ticket anymore and they don't want to hear the words premium or business class," he told me. "So I might as well strip the service down to a comfortable seat and a simple meal, code it Y and come up with a less fancy name. Because I have a feeling I won't be getting the revenue I used to be getting."

The Fine Print…
Although the recession is hurting premium-class revenue across the board, airline executives say certain routes are suffering more than others. New York-London flights have been devastated by the decline in the banking sector. Flights to China and India are weak, too, as the demand for manufactured goods falls. And premium-class revenue to the Middle East is in free fall as those countries slash their development in the face of declining oil prices and revenue.

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