Airlines hope luxury gambit pays off

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Airlines hope luxury gambit pays off

Cathay Pacific Airways and Singapore Airlines are spending $207 million fitting flat-bed seats and larger TV screens in business class. Finding passengers to fly them may be a challenge.

Sales at the front of the cabin fell short of its expectations in December, Cathay Pacific said last week, as the Hong Kong-based carrier this month introduced promotional business-class fares. Qantas Airways, Australia’s biggest, offered 28 percent discounts on return premium tickets to Hong Kong during the holiday season.

Premium ticket prices between Asia and the U.S. averaged $5,859 in December, their lowest level since 2009, while in Australia an index of business-class ticket prices dropped 30 percent from a year earlier to a record low. Wall Street’s cost cuts and dismissals, which have helped erase more than 300,000 financial-industry jobs in the past two years, aren’t over yet as Citigroup and Morgan Stanley announced a combined 12,600 job cuts in the past month.

“When financial institutions are firing people, traffic and profits at airlines like Cathay and Singapore Airlines are affected because they are known for serving premium passengers like bankers,” said Li Lei, a Beijing-based China Minzu Securities analyst, who has covered aviation for more than a decade. “Their home bases are too reliant on financial services and trade.”

Airlines that invested in entertainment systems, seats and lounges to compete for business traffic may see growth in business-class fares slowing further this year, according to American Express.

New York-based AmEx said on Jan. 11 it will eliminate 5,400 jobs this year, mostly in travel services, as consumers and businesses rely more on digital technology for bookings.

“When revenues are light, one of the first things to happen is a cutback in travel,” said Michael Werner, a banking analyst at Sanford C. Bernstein & Company in Hong Kong. “You’d prefer to cut travel expenses before cutting headcount.”

Some companies, especially from Europe, are saving money by travelling less, Thierry Antinori, Emirates’ sales chief, said in an interview yesterday. Still, Emirates is growing premium cabins on expanding network and features like showers and spas. The company is able to take a bigger share of a “smaller pie,” he said.

“Many companies are trimming down their travel budgets,” Lau said. “Even when there’s good macro data, it doesn’t mean they’ll stop being cautious on their spending.”

Airlines have invested heavily in the front of their cabins in recent years to capture valuable corporate accounts. While business class and first class take up less than 15 percent of total seats on long-haul flights, they account for half of a flight’s revenue because of the higher prices.

Last week, Singapore Airlines started rolling out 76-inch full-flat beds and larger TV screens on 10 Boeing 777s at a cost of 95 million Singaporean dollars ($78 million), according to a company statement.

Cathay put on a laser show and hired Lady Gaga, Tina Turner and Marilyn Monroe lookalikes for the December 2010 unveiling of its 1 billion Hong Kong dollars ($129 million) upgrade of business-class interiors on its Boeing 777s and Airbus SAS A330s. The carrier said on Friday it had 47 aircraft equipped with the new seats and the upgrade will be completed by March. Bloomberg
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