Financial Crisis Likely to Contribute to Premium Cabin Weakness

This shouldn’t be much of a surprise, but it isn’t exactly pleasant to think about. The credit crunch / financial crisis / whatever you want to call it is not going to magically disappear anytime soon, and that spells bad news for the airlines. They’re already seeing premium cabin weakness internationally as the economy softens, and now the financial crisis is only going to make things worse.

All those rich bankers in New York spend a lot of money sitting up front . . . or should I say “spent.” (Can you say New York - London?) And as we all know, premium cabins count for most of the profit in the international world. This could get ugly very quickly, especially for airlines that rely primarily on their international premium cabins to generate their profit. Airlines like British Airways with their large transatlantic presence can’t be happy right now, but while US airlines get a smaller share of their business from that type of passenger, they’re still going to be hit hard.

As Holly Hegeman noted in PlaneBusiness (see, I told you that you should subscribe), Bear Sterns, AIG, and Lehman Brothers all had big corporate agreements with American. Is it any coincidence that American announced a free companion ticket offer when you buy a ticket between the US and UK? The airlines know that tougher times are coming, and they need to do whatever they can to fight for the traffic that’s left.

Though it was announced recently that premium cabin demand was down in July, the summer is always the weakest time of the year. Once we start seeing September numbers, that’s when I think things will start to look really ugly. The only saving grace about that? Capacity was cut dramatically beginning in September, so there will be fewer seats to fill. The timing couldn’t have been better.