Trading down - business class feels the pinch

Next time you step onboard Virgin Atlantic, Quantas, Lufthansa or British Airways, chances are you might end up sat next to a high-flying business person who’s feeling a little peeved at having to sit in economy.

I jest, of course. The savvy entrepreneur or manager has long known that the best way to keep profit margins high is to travel economy rather than business class.

Figures from IATA reported in the Guardian suggest that a significant number of business class passengers are now trading down to economy in a bid to cut travel costs and conserve cash flow.

In volume terms, IATA said premium passenger numbers fell 21% in February 2009, following a decline of 16.7% in January 2009. However, the effect of reduced passenger volumes turned out to be much worse when it came to calculating the sales revenues earned. Business fare revenues fell by 30% in February 2009 as airlines cut prices in a bid to maintain demand. So not even a significant price cut could encourage business passengers to forsake the joys of economy class.

The news is particularly bad for British Airways, which relies heavily on transatlantic business travel for its profits. It will be worth looking out for upcoming results statements fom Willie Walsh to see how BA specifically has been affected by the general malaise in the business air travel market.