Would you pay $17,524 to fly to Hong Kong?
The airline industry is likely to lose $11 billion in 2009 -- that's $2 billion more than it thought it would lose this June, according to the New York Times. Contributing to that loss is a steep decline in the number of passengers willing to pay $17,524 for a round-trip first class flight between Chicago and Hong Kong.
The number of first- and business-class passengers has dropped 20 percent this year. The biggest decline in such upscale traffic has been in the trans-Pacific market. Premium traffic on North Atlantic routes was 15.8 percent lower in the first seven months of 2009, while trans-Pacific premium traffic was down 26.6 percent during the same period.
When a flight leaves with an empty first- or business-class seat, the airlines miss an opportunity. So they're working on a new concept -- premium economy, which offers more leg room and is priced between business and economy class.
The airlines hope to fill some of the empty seats with this new premium economy class -- which costs far less than the price of business class, but often has a first-class amount of leg room. That Chicago to Hong Kong round-trip flight in business class currently goes for $8,770 and the economy class fare is $810. The so-called Economy Plus price is $1,068.
The ability of airlines to climb out of their financial hole depends on two factors: jobs and the level of populist rage at corporate excess. People without jobs won't take these kinds of flights for a vacation. Nor will their non-existent employers send them on business trips.
Moreover, even the highest level executives are going to face some shareholder scrutiny if they try to get their companies to pay for a $17,524 airline ticket -- that is, unless the first class ticket is cheaper than the corporate jet. I doubt many people or companies would be willing to pay those extra few hundred dollars for Economy Plus -- but it's worth trying.
Not only are losses expected to be high this year, but revenues for the airline industry are expected to fall 15 percent, to $448 billion -- far more than the post-9/11 decline.
It's interesting to note that in 2008, the airline industry lost even more money -- $11.4 billion -- than it's forecast to lose this year. A big reason for 2008's big loss was the price of jet fuel, which cost the industry $165 billion as oil prices climbed to $147 a barrel. In 2009, fuel costs are expected to decline 36 percent to $106 billion.
If these losses keep up much longer, perhaps Washington will start talking about an airline industry bailout.