An absence of suits is killing jobs in the airlines.
Between the capitals of capitalism in SE Asia and America — Singapore and New York — the all-business class Singapore Airlines A345 which has flown daily the great polar that connects them faces elimination or being slashed to a token service.
There simply aren’t enough masters of the universe doing the longest non-stop business commute on the planet to keep it fully alive.
Last week at an airline gab fest in Singapore the word was out. Flights by the highest fare payers were down, at least by 20%, and falls by around 30% were in sight.
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This may prove the measure of the truth that hasn’t yet been disclosed by Qantas and Virgin Blue, since both are making it clear they aren’t immune to the world’s problems.
But just this morning Singapore Airlines cut Sydney flights from four to three daily, after starting the week by suspending services to Canada indefinitely.
In major Australian cities terminals are strangely empty, even for what is typically one of the quieter months of the year.
It will be several months before the Bureau of Infrastructure, Transport and Regional Economics comes out with the figures that will confirm that since the end of the New Year holiday rush, a steep decline in demand has set in.
Virgin Blue says it will cut flights by 8% and could trim jobs by 400. Qantas is in the early stages of trimming its schedules, and running over Air New Zealand in the process with Jetstar as their weapon of choice. Air NZ is in a weak position, being mainly owned by a government that has to sell it or subsidise it given an economic downturn that is worse than Australia’s.
But the real problem for airlines everywhere is that most of their business comes from a tiny fraction of the flying public. And they’re either kicking the frequent flying habit, or out of a job.
Before Virgin Blue (and then Jetstar) brought low fare expansion to the market, around 80-85% of all domestic flying in Australia was attributed to around 5% of the customers.
These frequent flyers came predominantly from the finance, investment, retailing and legal firms in the big ends of towns, as well as from governments or public authorities.
The airlines will not reveal the comparable figures for today, but internally emphasise that the hard core of major corporate clients continued — up until the global economic crisis set in — to generate a large proportion of total trips and, more vitally, were a disproportionate source of revenue.
The collapses in the US, UK and EU retail banking sectors and major investment entities have kicked the foundations of luxury business class fares from under the North Atlantic air travel market while the implosion of activity in Japan and China is adding to the sharp declines being reported by Asia-Pacific carriers.
Nor can the airlines readily measure some of the effects. While it is easy to track what happens to the big corporate travel accounts, Virgin Blue discovered the “new world traveller” five years ago, which it defined as professionals and small enterprise travellers who couldn’t previously afford to fly Qantas.
These travellers drove significant growth for all the airlines as fares fell, since they weren’t grabbing a cheap fare here or there once or twice a year, but paying a bit more to fly at convenient times several times a month. They are the true core customers of the world’s largest low fare carriers, Southwest, Ryanair, easyJet and Air Berlin. But they are much harder to track and are prepared to cram themselves into a tiny seat and forgo airport lounge fees because it is either their money, or because their enterprise makes them pay for travel out of individual rather than corporate budgets.
Qantas and Virgin Blue are in much better shape than most of the major carriers abroad. But they are heading for the bunkers early. For those that take a longer view, the relative strengths of Qantas and Singapore Airlines are worth noting. The Changi hub, like the Singapore economy, is gradually losing its relative importance while Qantas sees the previous geographical disadvantages of a widespread network and a free market to and within New Zealand start to work in its favour.
Just who might have the biggest seat at the table in the future when the airlines get really serious about rationalisation?