Two Good Points

I was reading the online news this week when a story caught my eye about first class airline tickets becoming a thing of the past. We’ve discussed airline ticket pricing in this space before, so most of you already know that first class tickets are the largest single profit center on most flights – even if you double or triple the amount of service a first class passenger receives the 500% to 5,000% markup on the tickets will tend to make up for it. Of course, many of the people flying first class these days are just using free upgrades earned with frequent flyer miles, but (as we’ve also discussed in this space) that’s getting harder to do, and even when it’s possible those frequent-flyer coupons can only be “earned” by activities that bring in vast amounts of money to the airline in the first place. It seems highly unlikely that the airline industry would abandon that sort of profit center during an economic downturn, especially considering that it’s one of the last selling points they have that discount carriers like Southwest Airlines can’t provide. But then I considered the source of the article…

If you follow the link provided, you will notice that this story comes to us from the Melbourne (Australia) Herald-Sun and is based almost entirely on the performance of first class sections on Qantas Airlines. I’m not mocking Qantas, certainly; it’s a good company and a reasonably well-run airline, but I don’t really think that we should consider the flagship airline of Australia to be representative of all airlines in all parts of the world, which is what this story implies, and what the headline (“First Class to Become a Thing of the Past!”) declaims. Even assuming that the Herald-Sun is correct, and first class travel in the South Pacific and Southeast Asia is on the decline, this really doesn’t tell us much about how such fares are doing in more heavily traveled areas, such as the trans-Atlantic routes, the main trans-Pacific routes, domestic travel in the U.S., domestic travel in the E.U., or travel anywhere in Africa or South America…

In fact, it seems likely that the reason Qantas is having trouble with its first class tickets might have something to do with the super-premium service offered aboard the Airbus A380 and Boeing Dreamliner aircraft entering service in other parts of their market. Even without the use of premium tickets (and we know that the claim that the competition does not make use of such fares is factually incorrect) the competition is still drawing passengers with the promise of greater luxury and comfort. Qantas has not, traditionally, attempted to position itself as a high-end provider in the market, and thus has trouble being taken seriously as a competitor against airlines that feature private compartments, full-sized beds, and similar ultra-luxury options. This is unfortunate, because Qantas does, in fact, offer some very nice accommodations at quite reasonable prices. But, if they are not able to sell any of those tickets, then abandoning those fares may actually be a good strategic move. We’ll have to wait and see…

I call all of this to your attention because there are actually two good points to be made from this same article. One would be, of course, that just because a local provider is abandoning a market segment as unprofitable does not mean that this segment will die off in all markets world-wide. And, just as importantly, don’t assume that just because the strategy a specific company is planning to use makes no sense in YOUR region of the world, that it also makes no sense in their region of the world. One of the realities of the Global Economy is that it’s no longer safe to assume that market conditions in somebody else’s corner of the field exactly mirror the conditions in yours…

In fact, it never really was. It’s just that today you will get news stories (and blog posts) bombarding your in-box in which some bright person will be trying to get you to expend much more attention and energy than the tempest in their local teapot really deserves…