To bolster their declining revenues, most scheduled airlines are focusing on getting business executives who normally travel "in the front of the plane", where fares are much more expensive than tourist class.
Scheduled airlines have been forced to target executives because just as airlines started to recover from the effects of the 9/11 attacks in the US in 2001 and the Bali night-club bombing last year , they were hit, almost simultaneously, by the effects of severe acute respiratory syndrome (Sars) and the war in Iraq.
This new double blow affected all international airlines, particularly those flying to the Far East. It led to mass cancellations of tourist bookings, resulting in a drastic drop in revenue. To curb costs, most airlines cancelled flights, reviewed their marketing programmes and, to boost revenue, concentrated on making their services more attractive to business executives. The reason was that most travellers who cancelled bookings were tourists and holidaymakers, who weren't bound by any urgency, so could either delay their flights or choose destinations nearer home that could be reached by other means of transport. However, despite the advantages of electronic communication, business executives don't have that choice. If they have to travel domestically, regionally or internationally to do business, they need to fly. As a result of globalisation, more executives are flying now than ever before.
Virgin Atlantic SA manager Mike Higgins says just more than a third of Virgin's passengers are flying for business reasons and competition for their custom has become fierce. Most airlines have already upgraded their upper-class accommodation; consequently there isn't a great deal of difference between their seats and the fare they offer in first class.
All airlines have suffered and have had to take immediate remedial action. In April, KLM, for example, announced that it would adjust its flight schedule to various destinations, primarily in the Far East. Capacity on various routes will be reduced, either by deployment of smaller aircraft or a reduction in frequency. KLM has decided to do so in response to declining demand, mainly as a result of Sars. The total reduction in capacity will amount to 3% in available t/km.
It reduced its weekly round trips on the Amsterdam-Beijing route from four to two; on the Amsterdam-Hong Kong route from seven to four; from five to four on the Amsterdam-Shanghai route; and from seven to five on the Amsterdam-Singapore-Djakarta route.
As a result, "after-tax income, before extraordinary items, amounted to a net loss of euro 217m in the fourth quarter, which ended on March 31, compared with a net loss of euro 108m, or euro 2,31/common share in the fourth quarter of 2002".
Another example is Cathay Pacific Airlines, which is based in Hong Kong - close to the epicentre of the Sars virus outbreak.
In May it announced "a further reduction of its flights from Johannesburg because of the decreased demand as a result of the Sars outbreak affecting the Asian markets.
The company made satisfactory profits for the first quarter of 2003, but passenger traffic declined sharply from late March onwards. Because it is carrying only 25% of the passengers it carried at the same time last year, it plans to operate only about 55% of the passenger flights originally scheduled for May and June.
Cathay Pacific Airways' board also announced that, in view of substantial losses being suffered by the company as a result of the Sars outbreak, the recommended final dividend to the year ended December 31 2002 should be halved to HK$0,28/share, rather than the $0,56/share previously recommended.
Airlines have to tread warily when tapping into the executive market. More may be flying, but they're more cost conscious than they were and are trying to spend less on airfares. This has led to many top executives, who wouldn't have considered flying across the Atlantic in anything but a Concorde, reverting to conventional business and first class in subsonic jets. The fall-off in that business led to British Airways and Air France withdrawing their Concordes from service, though the aircraft were operating profitably before 9/11.
SA is in a unique position because of the tourism boom it is experiencing. Competition for executive business is fierce, but probably not as severe as in other countries.
More passengers flew into SA in the first quarter of this year than in the first quarter of last year and most of the scheduled airlines serving it from destinations other than the Far East are flying with acceptable passenger loads.
According to the Airports Company SA (see table), which operates SA's big- three international airports, as well as others, such as Port Elizabeth, East London, George and Kimberley, a total of 5 769 260 passengers passed through its airports in the first quarter of this year, 519 620 more than in the first quarter of 2002. The number of international passengers rose from 1 525 310 in the first quarter of 2002 to 1 605 016 in the first quarter of 2003.
Scheduled airlines need to persuade businessmen to fly with them. This can be difficult because executives don't automatically choose to fly with them. They have to use charter airlines when they fly to destinations that aren't served by scheduled airlines, but they can, and sometimes prefer, to fly with charter airlines even to regional and domestic destinations that are served by scheduled airlines.
This is because the service charter airlines offer is designed to cope with nearly all demands.
Businessmean can, for example, delay take-off and request that their seats on the aircraft face each other so they can hold meetings without the fear of being overheard. This cannot be done on scheduled aircraft.
