Demand for first class airline tickets skydives

The worsening economy is squeezing Europe’s major airlines, with dwindling sales of premium-class tickets starting to take their toll. On Thursday, Air France-KLM followed British Airways and Lufthansa in reporting a steep fall in quarterly earnings, largely because of high jet fuel prices last summer. Jean-Cyril Spinetta, chief executive of Air France-KLM, said the airline had also started to notice in August “a slide” from the front of the plane to the back as passengers switched to cheaper seats. He said about 8% of the airline’s corporate clients were banks, which had been on the front line of the financial crisis. “When there’s an economic crisis, businesses always want to reduce their general expenses, and individuals are more careful about their spending,” he said.

Airlines do not provide estimates of how much their revenue depends on first and business-class travelers. But a drop in such ticket sales is particularly damaging because major airlines often rely on the expensive seats to offset the lower-margin seats at the back. Global economic turbulence is forcing BA and many other airlines into a series of difficult decisions. The income elasticity of demand for airline travel is likely to be strongly positive especially for luxury travel and on routes where there is genuine competition the price elasticity of demand is also likely to be a constraint on how high fares can be.

'For European Airlines, Decline in Premium Ticket Sales Takes a Toll on Earnings', New York Times, 20th November 2008.