British Airways’ business model is at serious risk from the downturn in premium traffic, the airline’s chairman Martin Broughton has told shareholders.
Addressing BA’s annual general meeting in London yesterday, Broughton said: “This is no ordinary downturn, no cyclical swing that will automatically turn up again. The market for premium travel may never fully recover.”
Demand for premium seats is down by 20% worldwide, according to airline association IATA, more than double the decline in overall passenger numbers owing to the recession – mainly due to savage reductions in corporate travel spending. BA reported a 14.9% year-on-year fall in premium passengers in June.
Broughton said: “The reduced numbers flying at the front of the plane were paying much less for their seats. This is extremely grave news for major full-service airlines. It represents a permanent structural change in the market.”
Carriers such as BA largely base their business on corporate traffic. This provides the bulk of profits on key routes such as Heathrow-New York – and can lead to bargain fares in economy to fill up flights – but depends on frequent services at business-friendly times that are costly to operate.
BA chief executive Willie Walsh said the airline could strip some of the flatbed seats from its Boeing 747s as aircraft pass through engineering overhauls. The airline has previously staked its growth on enhancing its premium offering.
Broughton told shareholders the airline was also discussing an emergency cash injection from investors, expected to be up to £400 million, after reporting a record loss of £401 million in the year to March.
BA resumed crisis talks on pay and job cuts with national union officials representing cabin crew, check-in staff and ground handlers today.