Demand For Premium Travel Returns To Asia
Demand for business-class to increase in 2011, say analysts
SINGAPORE: Asia's airline industry has made a full recovery from its worst downturn in the wake of the global recession and air travel in the region has returned to pre-crisis levels - with a strong surge in premium travel.
But some industry observers said high-end first-class travel demand is likely to remain on the downtrend.
Asian carriers, like Singapore Airlines, are leading the way forward. Latest forecasts from the International Air Transport Association show that Asia Pacific carriers are expected to outperform their global peers.
As a group they are expected to book profits of some US$7.7 billion this year - or more than half the industry's total of US$15.1 billion. And that trend is expected to continue into next year.
Nicholas Ionides, Vice-President of Public Affairs with Singapore Airlines, said: "Demand has been picking up quite healthily across our network through this financial year. Our load factors are trending on a higher side. Forward bookings are also looking quite healthy...We've seen demand grow in all classes of travel. But in particular...it's been growing strongly in the business class market."
SIA had reduced capacity by about 10 per cent as a result of the global economic slowdown last year but it is starting to reinstate some flights and services.
Industry observers note that load factors for Asian airlines have recovered from the 2009 recession - exceeding their 2007's peak levels.
Shukor Yusof, an Aviation Analyst with Standard & Poor's, said: "It tells you how effective the cost-cutting, the restructuring and the increase in the number of traffic has been in this part of the world."
Paul Ng, Global Head of Aviation with Stephenson Harwood felt that the airline industry exceeded expectations.
"The airline industry was a surprising industry for 2010. Having come out of the depths of the recession of 2009, people expected the aviation industry to be quite flat. But that turned out not to be the case."
Demand for premium travel, which typically includes first and business-class, has also returned in Asia - as trade activities within the region boost corporate travel.
According to Standard & Poor's, premium traffic growth on routes within the Far East was up 23.3.per cent year-on-year in November - significantly higher than the global growth of 11.9 per cent.
"As companies have been relaxing their travel policies, as economic conditions have been improving, and you need more business development for example...we're seeing more and more demand in the business class market," said Mr Ionides.
Premium travel currently makes up about 40 per cent of SIA's revenues but going forward, some analysts said demand for first-class seats is unlikely to be as popular as business-class travel.
Already, SIA has converted six of its Boeing 777-200 aircraft from a three-class configuration this year - to carry only business and economy-class seats. This was part of a programme, launched in February, to retro-fit 11 of its B772s. The program has since been completed.
Still, the carrier has kept its top-end first and suite-class seats on 59 of its current fleet of 110 aircraft.
This is comparable to rival carrier Cathay Pacific, which has a lower proportion of aircraft with first-class offerings. Cathay currently has first-class seats on 42 out of its 102 passenger fleet. The Hong-Kong based carrier recently announced plans to spend nearly US$130 billion to revamp its business class offering by replacing new business-class seats on its long-haul aircraft in a bid to fend off competition for lucrative premium travellers.
Mr Yusof said: "One of the reasons probably SIA would want to keep that is because it keeps them ahead of the rest of the competition. But if it's not being sold, if it's not being maximised, I think they should get rid of it and convert the space to an all business-class, which would ultimately drive the business, the margin, the profits more for the carrier.
"People who can afford first class can probably afford to have to fly on their own private aircraft or to charter one. So, that business has clearly been delineated into two separate segments."
Mr Ng felt that the market for first class seats has shrunk.
"There will be people who would want the luxury of flying first...but that market is a small market - smaller than it was before. Business-class travel is still a relevant form of travel but I think the view is that their clients are now demanding slightly more bespoke travel - and I think that bespoke travel is starting to appear between business class and economy."
Meantime, there is market speculation that SIA may increase the number of premium seats on its remaining 8 Airbus A380s to be delivered by converting the entire upper-deck of the super-jumbo into an all-business class section.
Currently, each of SIA's A380s carry 60 business class passengers on the upper deck - out of a total of 471 seats. Economy-class makes up some 85 per cent of all seats on each A380 flight.
But SIA said it has no firm plans for such move.
"As we've always said, within a fleet that will ultimately grow to 19 aircraft, there's always the possibility that you could have a different configuration between aircraft types, as we do with some of our other aircraft," said Mr Ionides.
The carrier plans to retro-fit the cabins of its older Boeing 777-300s next year, which may see a further reduction in the number of aircraft with first-class seats.