Emirates President Thinks “The Good Old Days” Of Business Class Are Over

Emirates’ president Tim Clark is one of the smartest guys in the airline industry. In the battle between the “big three” US carriers and the “big three” Gulf carriers, I tend to think he’s the voice of reason, for the most part.

Unlike Etihad and Qatar (which I imagine are bleeding money), I’d speculate that there’s a decent chance Emirates actually turns a legitimate operating profit. They’ve managed to scale their operations enough so that there’s a sustainable business model behind it, assuming too many foreign governments don’t block the Gulf carriers going forward.

Emirates-A380

The IATA Annual General Meeting (AGM) occurred in Dublin a couple of weeks ago, and it’s an event attended by many airline executives. The Financial Times has some interesting quotes from Emirates’ president, Tim Clark, about where he sees the future of airfare and business class:

The “good old days” of lucrative business class revenues are numbered as companies rein in spending and low-cost competition intensifies on long haul routes, the head of one of the world’s biggest airlines has said.

Sir Tim Clark, president of Emirates Air Line, said airlines would have to adapt their strategies as business class passengers migrated to cheaper seats.

“I see a change out in the way corporate business is going to develop which of course will affect our yields because the high end stuff isn’t going to come through as it was in the good old days,” Sir Tim said.

He forecast that passenger volumes would continue to grow despite a weak global economy, but air fares, expected to fall 7 per cent this year, would remain depressed. “We are going to be there for a long time on these fare levels,” he said.

It’s interesting how the industry comes full circle at some point. We’ve seen many (though far from all) airlines phase out first class, because there wasn’t a market for it anymore. Business class became so good that it was hard to justify first class.

Many airlines nowadays claim that business class is their bread and butter. But as business class keeps getting better and as many airlines continue to introduce premium economy, the market for business class is getting smaller.

Emirates' A380 Business Class cabin
Emirates’ huge A380 business class cabin

Why are business class yields going down?

There are many factors which are impacting business class yields:

  • The premium economy hard product is about as good as business class was a couple of decades ago, so it’s tougher for businesses to justify paying for business class
  • Airlines have done a better job of price discriminating in business class, which is good for leisure travelers and bad for business travelers; we’re seeing lower business class fares than ever before for those booking far in advance during sales, while we’re seeing high business class fares in many instances for people booking last minute and without a Saturday night minimum stay
  • The Gulf carriers have really driven down paid business class fares in many markets, causing other airlines to match

All of this insight is especially interesting coming from Emirates’ president, given that the airline doesn’t have a premium economy product. As a matter of fact, none of the Gulf carriers do. However, it’s something Emirates is looking at, and I suspect within a year or so they’ll announce that they’re introducing premium economy.

Qatar-Airways-777-Business-Class-03
Qatar Airways’ 777 business class

What does all of this mean for business class fares and awards?

At the moment we’re seeing airlines with a lot of excess business class capacity. High yield demand simply doesn’t match capacity in many markets, which is why we’ve seen so many business class fare sales.

British-Airways-Business-Class-777 - 1
British Airways’ huge 777 business class cabin

At the same time, airlines are trying to condition passengers to pay for the cabin they want to fly, rather than count on upgrades. They’d rather someone outright books a cheap business class fare, rather than upgrade (even from a more expensive economy fare).

Over time I suspect the trend will be that planes will feature more dense configurations with fewer premium seats. There will be a limited number of business class seats, premium economy cabins on most planes, and a dense economy configuration.

American’s leaked A350 configuration is the perfect example. The plane is roughly comparable in size to the 777, but take a look at the difference in configuration between American’s “old” thinking and “new” thinking:

  • The 777 features 45 business class seats and 215 economy seats
  • The A350 will feature 32 business class seats, 24 premium economy seats, and 262 economy class seats

In other words, in the end I suspect we’ll see the area which was exclusively dedicated to business class, now allocated to both business class and premium economy. Because airlines don’t want to lose the “sure bet” revenue of economy.

Air-Canada-777-Business-Class - 6
Air Canada’s 777 premium economy cabin

Bottom line

Right now airlines have excess business class capacity, and that’s partly why we’re seeing so many incredible business class fare sales. Competition is also fierce, especially thanks to the Gulf carriers, which are driving down prices. Over time business class cabins will continue to get smaller, while premium economy will continue to be more prevalent.

In the meantime, I’d be very shocked if Emirates didn’t introduce a premium economy cabin soon, and I suspect eventually Etihad and Qatar will even follow (even if Qatar’s CEO is too proud to admit there’s a market for it).

Comments

  1. [quote]Premium economy is about as good as business class was a couple of decades ago, so it’s tougher for businesses to justify paying for business class [/quote]

    What exactly do you mean? Business class these days is not comparable with Premium Economy and Business class a decade ago imho. J will always have better catering, service etc.

  2. Ben, with all this trend about Premium eco, why you think Turkish got rid off the P. Economy product? It was not making revenue?

  3. I think this is all a matter of where you are flying. BA charging $10,000 for a 7 hour flight to London is extortion and people just aren’t going to pay it anymore, so that is definitely killing demand for business class there. However, the ME3 charging $7,000 on a 14 hour flight to the Middle East (and then usually connecting to Asia or Africa) is a great deal comparatively and in my mind there is and should be a real market for that. I do hope that carriers do keep the prices low because while I won’t pay $10,000 for business class somewhere I will definitely begin to consider it, especially on a 14-20 hour flight, for $3,500-$4,500.

  4. Arthur – recliner style biz seats and modern premium economy are pretty close in terms of the seat. And business class is all about the seat (especially when justifying corporate expenditures)

  5. The reality is that the whole “our business is built on the back of business class” thing is a load of B.S. for the most part.

    There are 0, yes count with me 0, airlines that have been successful being business class only and yet most of the world’s most profitable carriers are either 100% economy (Ryanair, Spirit, etc.) or close to it (e.g. Copa – their business class is crappy).

    If you do the math, it just doesn’t make sense for companies to send the vast majority of employees in Business Class. Let’s hypothetically say an international road warrior earns $250,000/year. That’s $1,000/day. Let’s say my employee needs to go from Chicago to London for an important set of meetings. It’s Monday right now, I need him to be there on Thursday.

    If I’m the corporation and I have the following choices:

    1. Fly employee out a day early (Tuesday evening departure from ORD or Wednesday early AM departure, Wednesday morning arrival into London) in Economy, spend full 24 hours acclimatizing and at nice hotel. Airfare cost: $1,400 round-trip in Y + $300 at hotel + $100 in extra reimbursement for meals + 1 day opportunity cost (not all wasted as employee will check email, prep for meeting, etc.) = $1,700 cash + $1,000 opportunity cost. Heck, I can give the employee a day off (Friday) after he’s back and make it a $1,700 cash + $2,000 opportunity cost for a $3,700 all-in cost. If this is a last minute flight, it’s obviously more than $1,400 round-trip but so is the J fare.

    2. Fly employee out night before (Wed evening departure from ORD) in Business. Spend $5,300. My all-in cost is higher and it’s not like a night in Business Class is ever going to be as good as a night in a hotel.

    So I can save $1,600 AND have my employee be better rested for this trip.

    So yeah, you need to be really expensive for it to be worth your company sending you in J. Yes, I realize people have families and don’t want to be away so much but what if the one day off after the trip is to spend with your kids? Win-win. Company spends less money. Employee is happier and more likely to close the deal.

  6. Lucky,

    Expand on the “sure bet revenue of economy”. Financial analysts don’t say it that way. So what do you mean?

  7. So Business Class is the “new” FC, and Premium Economy is the new J.

    With FC being phased out, and J reduced in size and put on sale, airlines are hoping to make up for the lost Premium full fares by adding more rows, and an additional seat per row, in the back of the plane? Then selling most of J at discounted sale prices to leisure travelers, while they hope to fill up Y and PE with last minute business travelers at sky high fares? Assuming that jet fuel stays cheap, are the economics of that doable, even in a 787-8?

    But it sure explains why almost no one is buying any more A380s….

  8. Looks like boss told TC we cannot subsidize you any more. Start making some real money.

    I thought premium cabins were filled with rich Emiratis with unlimited discretionary spending budgets. They should continue to fly.

  9. So I can save $1,600 AND have my employee be better rested for this trip.

    That’s a savings of $19,200k a year if you are making one international trip per month. You’d have to pay at least $50k more to get someone to fly economy 12 times a year. It’s a sellers market for employees who have the skills and desire to travel that much. There is no way a move to economy would ever be tolerated. You’d have a mass exodus of your best people.

  10. Yeah, I wouldn’t take the offer to go in Economy for more time away from home. That day off on the back end will never be a true day off, so that is of no value to me. If it is important enough for me to travel, then the company can pay for me to go in J. If they won’t pay, then it is not that important. As for fares, I routinely find fares to India and the ME for between $3K and $4K, refundable.

  11. @John and Ryan – I appreciate your opinion but there are plenty of folks who will take two days off on either side. Most of the people doing high cost travel like this are either (a) selling something or (b) high-end consultants.

    If you’re selling, you’re a thoroughbred. You’re not valued based on the hours you put in but whether you can close. A day off can be a huge recharge. Business class can’t fix jet lag. The 15 hours (meetings + lunches + dinners) per week I’m face-to-face with a potential client are the vast majority of the value. Yes, it takes hours of prep work, research, practice, etc. but there’s no way a high-value closer is spending 50+hours a week in front of people.

    If you’re consulting, you live by charging people by the hour so sure, more hours “off” aren’t good for you.

  12. Premium economy is nowhere close to what business class was 10 or even 20 years ago. Now, PE seats are cheap and flimsy, and really don’t offer that much room. If anything, PE is closer to what economy was 20 years ago. Decent legroom, decent width, food that was more than afterthought.

  13. I agree with Brian–PE is, as far as the seat goes, almost exactly what we used to get in E. Only by squeezing us like chickens in a coup for the last 10-15 years have we come to accept there is anything “premium” about these 6″.

  14. It’s all about comparative value. I’ll gladly pay 3-4 x Economy for a decent long-haul business class w/ flat seat. I think it’s the 10-12 x J-class fares which need to go away asap as they are just a business rip-off.

  15. I agree with Brian. I remember UA’s and Northwest’s international business class a couple decades ago. Food was beef or chicken, Godiva chocolates (on UA), drinks free, service better than today, movies were included, basic lounge access. However, the seats and legroom were much bigger than any premium economy of today, and some were angled flat.

    If the global economy is strong, there will be greater demand for business and first class. If we eventually see income growth here in the US, retaining top talent will require flying them in style.

  16. At the end of the day, a business class seat is what it is — a luxury. And when economy tightens, it is life’s luxuries that are whittled down first. Yes, Qatar Airways CEO always stresses that QR Economy seats is like the premium economy of other airlines. It will be interesting what he will have to say if /when they will go down the premium economy route.

  17. Disclaimer: I tend to take a far different view of business class than Lucky does. Not a problem….different strokes, different folks. Right @Lucky? To me, it’s just a bed and a decent meal. Anything beyond that is just gravy. I could not care less about which champagne they serve or anything like that. Of course, I do like reading his reviews simply because of the interesting take he has on stuff at times. My wife jokes, albeit inaccurately, that Lucky is one of the few people (“other than airline pilots and cabin crew”) who probably do more long haul flights every year than me (my average is around 30). LOL

    But this is exactly why I like our company’s travel policy:
    -Red eye long haul (>6hrs) going to wherever we are working? Business class if it’s available and it is not premium economy
    -Long haul operating during the day or when coming back from a deployment? At least premium economy but probably business class at present. This may change as more premium economy products become available.
    -Deploying under circumstances that require a lot of gear? Business class to offset the baggage fees somewhat. Which, yes, there are circumstances where we actually have enough stuff to cause the baggage fees to offset any savings. It can get a little ridiculous under certain conditions.

    The primary argument for the upgrades is that- outbound- we have to hit the ground running and may well have been up all day beforehand. We don’t have the hypothetical “Well, we’ll just send them the day before!” option. Given the nature of our work, we seldom have more than twelve hours notice before going somewhere. The shortest interval was under three hours from call to butt in seat but that was a domestic flight and I was in the car, with my gear five minutes from the airport when the call came in. Internationally…..six hours warning for a trip to Asia. Nothing like a phone call at 0100 and finding yourself sitting in the airport three and a half hours later. Our work is pretty stressful- as in, the sort of stuff that induces PTSD in non-millennials- and we need to be able to work for 12+ hours straight upon getting where we are going so being able to sleep on the flight is damn near essential for intercontinental flights.

    The secondary reason why we have the policy set up the way we do is that for long haul flights, we are concerned about the risk of DVT (blood clots forming in the legs) there’s a reason it’s only half-jokingly called “economy class syndrome”. This is a concern for us due to the fact that it’s not uncommon for us to be in a seat for 8-12 hours at a clip. Part of our company issued kit are compression socks and they are more or less expected to be worn during flights (they actually are a good thing from a comfort standpoint as well; I wear them whenever I will be on my feet for long periods) and the added layer of protection is taken into account.

    It may seem trivial but when you have a small team (the entire company is 8 people at present; the majority of which are not field qualified) where it takes several months and roughly $60,000 to get someone trained in-house, you can’t risk something stupid and avoidable medically sidelining or killing one of your people.

    That said, within the next year or eighteen months, I will be relocating to the UK for some graduate level education funded by the company. Because of my need to be in the States for meetings and fundraisers, I will probably be hauling back and forth across the Pond fairly regularly (every three months or so). I’ll do such a short hop in economy to keep costs down (and try for an upgrade using status and miles). Just give me a power outlet and wifi and I’m fine since it gives me a chance to get caught up on paperwork especially when westbound. I’ll definitely be using miles and status to upgrade on the eastbound legs though since I need to sleep on those.

  18. @brian brian brian
    What would you know given you dont have a passport.
    20years ago blah blah blah all your doing is showing your age

  19. In my humble view I simply don’t get premium economy, at best I’d pay $100 on a long haul flight for it, a little more legroom, a little more recline but still just as uncomfortable as economy especially on an overnight flight. To test my sanity I’m flying LGW TPA in PE this weekend, lets see!

  20. Brian is spot on. I flew AF from the US to Paris in economy several decades ago. I nearly fell out of my seat when I saw they were serving Charles Heidsieck Brut in Y. They handed you a 375 bottle, and replaced it as often as requested.

    The food was decent, the FAs were extremely attentive and polite, and the seats were no where near as crammed together as in most Y class today. This flight was my first experience with Eau de Vie. 🙂 They had half a dozen different flavors, and would search thru the drawers looking for the one you requested, rather than just hand you whatever was easily reached. I would gladly fly TATL again in those conditions, but you aren’t getting me in the current cattle class being sold today.

  21. “If the global economy is strong, there will be greater demand for business and first class. ”

    Bingo. Unfortunately its not. And we have millions of unemployed here who are off the books, a good chunk professional people who used to travel but got ‘aged out’ of their companies. (Illegal? sshheesh.)

    As for baltia the ‘blah blah blah’ millenial above – screw you. Go get a mortgage and out of the basement.

  22. As an executive assistant (granted for a nonprofit and not a for profit) I think the move by the airlines to move toward PE makes a lot of sense. My ED makes a number of cross country trips an 99.99% of the time will want to be in economy, but with better legroom so she can be more well rested and work more comfortably on the airplane while also not paying huge sums to fly in J (or F on certain routes). PE, like DL’s C+ on SFO/LAX-JFK route hits the sweet spot for my org between added comfort for my boss while also keeping costs in budget. I only upgrade to J for her if there’s a fairly cheap post-purchase upgrade available (like the $85 extra to get to DL One on an upcoming SFO-DTW flight).

  23. Yeah I do remember when business class was first introduced, it was simply roomier seats but nothing fancy. Heck even first class in those days didn’t fully recline to flatbed. It was really a gimmick to attract the road warriors by enticing them with a little bit more leg room and a little bit better meal service. And priced somewhat more than a full fare Y basis, but not double certainly. Yeah now that business classes have crept up to practically the same suites as first class, no wonder fewer, even multinational corporations, are willing to shell that kind of money, and no wonder first class travel is in decline.
    Even on Emirates, for the price difference between first and business, I really didn’t see the value increase in first that justified the price increase. Think about it, in most airports worldwide you typically use the same lounge, you get the same priority status, even the meals are practically the same, first having an additional selection and you get to choose when you eat, you get about the same amount of leg room, most people won’t feel the difference, at 5’10 I sure don’t. Like, yeah, it was worth it for me to pay for first on Emirates once on the A380 just to say I took a shower on a plane, but otherwise I feel its more value for the money to stick with business.

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