Business, first-class air travel declined in March

WASHINGTON — The number of international air travelers flying in business or first-class fell in March by the largest amount in five years, the latest bad news for an industry buckling under record fuel prices and slowing global economies.

The International Air Transport Association on Tuesday said premium air traffic shrank 3.9 percent in March compared with the same month last year, after growing by 5.1 percent in February. Although the drop was exaggerated both by the leap year adding an extra day to February and because March business travel fell due to an early Easter, it was the largest "absolute decline" in business and first-class passengers since 2003.

"Given the importance of premium passengers for airline profitability the absolute decline in numbers is bad news, particularly since the price of jet fuel rose 170 percent over the year to March reaching $130 a barrel," IATA said.

Revenue did not fall as much as passenger numbers, since much of the weakness occurred in short-haul, lower-yielding markets, according to the trade group.

The results were not a surprise given the struggles of the U.S. economy and some others in southern Europe, but also do not bode well for an airline industry already stressed by record fuel prices. Business travel is highly linked to the financial services sector, and many in that struggling industry have stopped flying, said IATA Chief Economist Brian Pearce.

"It will get worse before it gets better," Pearce said in a phone interview.

Airline consultant Robert Mann agreed: "Given that this is the only place U.S. carriers were making money ... if there's no return on these (international) routes going forward, they will have made new investments in markets that will underperform."

Large U.S. carriers have repeatedly raised ticket prices in recent weeks to offset surging fuel costs. Raising fares and charging for extra bags and other amenities have been the preferred coping mechanisms for airlines paying about 86 percent more for jet-fuel than they did a year ago. Eleven of 15 airfare increase attempts by domestic carriers have been successful this year.

The June contract for light, sweet crude traded as high as $129.60 on the New York Mercantile Exchange Tuesday before settling at $129.07, up $2.02 from Monday's record high.

Rick Seaney, chief executive of airfare research site FareCompare.com, said that while airlines have exhausted their options for adding fees, he has been hesitant to join other analysts in proclaiming the "tipping point" on fare hikes has been reached. But the latest trade group data, including the drop in international premium traffic and an expected decline in domestic summer travel, have him convinced "we're right on the razor blade's edge."

"These high-dollar tickets help subsidize the airlines and the fact that we haven't had an airfare hike in the last week-and-a-half shows we're closer," Seaney said.

The traveling public is already unhappy. U.S. customers gave airlines the worst customer service grades since 2001 and the industry's overall scores dropped for the third straight year, according to an annual survey by the University of Michigan released Tuesday.

While demand is softening, Seaney said he is "not convinced yet that consumers are completely pulling back," but he thinks they will if oil prices hit $150 a barrel followed by more fare hikes.

Seaney also said the latest data are particularly troubling for UK carrier Silverjet PLC, the only remaining luxury airline offering New York-to-London service after the recent bankruptcy filings of U.S. rivals MAXjet Airways Inc. and Eos Airlines.

But Silverjet Chief Executive Lawrence Hunt last week told The Associated Press that the airline is in talks to replicate its premium-class model through international franchise deals even as it continues to struggle with surging fuel costs, tighter credit markets and a slowing economy.

While some international travel has been boosted for longer than expected by the continued weakness of the dollar against foreign currencies, that "cannot go on forever," Mann said. But the airlines are resilient and will do whatever they can to ride out the current down cycle, he added.

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