Bad news for airlines as premium passengers shop around
Airlines have enough trouble with falling passengers loads and rising fuel prices. Most carriers that have posted earnings for the second quarter showed losses. Airline balance sheets are so weak that in many cases there is a concern that there could be one or more bankruptcies in the industry if consumer demand for air travel does not pick up in the second half of the year.
First class and business class travelers have always been the most profitable segment of the customer base of airlines. Premium fliers are willing to pay comparatively high fares for being able to book seats at the last minute and to get the amenities of riding in the front of the plane in bigger seats with better service.
But business travelers are beginning to get around paying extremely high prices for the privileges that go with higher fares. According toThe New York Times, "airlines seem to be settling into a basic restructuring of international premium-class fares that resembles the way airlines have long priced leisure fares in the back of the plane."
Once airlines lose pricing leverage with their most profitable clients, earnings are likely to deteriorate even faster than they have so far in 2009. Flying premium class is getting to be a much better deal. Owning airlines stocks is not.
Douglas A. McIntyre is an editor at 24/7 Wall St.