Monday Briefing – 17 June 2019

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CGI Image of Heathrow Airport Masterplan 2050
CGI Image of Heathrow Airport Masterplan 2050 (Image Credit: Heathrow)

Hello and welcome to our Monday Briefing for the week beginning 17 June 2019.

Is “Basic Business Class” on the horizon?

Over the past few years, most network airlines have introduced some form of “basic economy” long-haul fare.

The rationale for this was that low cost airlines such as Norwegian introduced fares that do not include, inter alia, a checked luggage allowance or free seat assignment. As many customers choose fares through price comparison sites, airlines believed that they have to offer a similarly competitive fare to capture these customers.

Like low cost airlines, these fares are offered based on the ability, whether the customer intended to or not, to up-sell at little marginal cost additional services after booking. It is intended to, at best, be revenue neutral.

Emirates confirmed last week that it is launching a new form of business class fare that does not include a car service to the airport nor lounge access. Seat selection privileges are also restricted and frequent flyer mileage accrual is also reduced.

This fare is not available on all routes and from a cursory scan of Emirates booking engine it does not appear to be available on any flights from London to Dubai.

Does this mark the start of the unbundling of business class?

This is not the first time airlines have discriminated between different groups of business class passengers.

BA requires Club World passengers who are not Silver & Gold members of the Executive Club to pay a fee to select a seat at the time of booking. Virgin Atlantic only provides a car service to the airport for passengers booking certain types of Upper Class fare. Indeed, business class was born out of airlines wanting to provide more to passengers buying full fare economy tickets.

Airlines have also got better at targeting different passenger groups – there are competitive Club World fares available for passengers willing to fly mid-week and book more than six months in advance.

It is a slippery slope if airlines start a full unbundling of business class. Airlines have always been fearful of business class passengers trading downwards, hence why so many took long to introduce premium economy – a stepping stone between economy and business class that Emirates does not yet have. The whole structure of airline fares and ground and onboard services is to encourage passengers to trade upwards.

Whilst price is a factor in securing business class passengers, there are many other factors too, namely networks and schedule, ground services and onboard product.

Successful business class products come from really understanding the needs of business passengers. It is this that led to valuable innovations such as fully flat beds, arrivals lounges and Fast Track immigration channels. If airlines start dismantling this – the clue is in the brand name most synonymous with business class “Club” – then it is a slippery slope downwards.

Heathrow Expansion Consultation

Heathrow will launch a statutory consultation on the expansion of airport tomorrow, Tuesday 18 June.

This follows an earlier consultation exercise this year. The significance of this exercise is that its fundings will be incorporated into a final proposal to the Planning Inspectorate next year.

After a period of public examination, the Secretary of State will then make a decision whether to grant a Development Consent Order which will encompass most of the authorities required to construct the third runway. This process is expected to take at least 18 months.

The consultation will cover four areas:

  1. Heathrow’s preferred masterplan for expansion, including the layout of the new north west runway (CGI image above) and supporting airport infrastructure, as well as the pace of expansion in the number of flights.
  2. How the airport will operate with a third runway such as how it will alternate flights between the three runways, a possible ban on scheduled night flights, and how additional flights may operate before the third runway opens.
  3. Heathrow’s assessment of the impact of expansion on the environment and local communities
  4. Heathrow’s plans to mitigate the impact of expansion in areas such as air pollution, carbon and noise.

The consultation will close on 13 September 2019 and more details will be available at the Heathrow Consultation Hub.

Lufthansa Profit Warning

Lufthansa issued a profit warning late on Sunday evening.

The airline group expects its Earnings Before Interest & Taxation (EBIT) margin for 2019 to be in the region of 5.5%-6.5%, compared to previous estimates of 6.5%-8%.

Lufthansa has cited over-capacity in the European short-haul market as a cause, as well as slower than expected progress in reducing the cost base of Eurowings, which incorporates much of Air Berlin’s former operation at Berlin Tegel. Eurowings is expected to be loss-making for the year.

Lufthansa will also be holding its Capital Markets Day next Monday, 24 June 2019.

In case you missed it:

American Airlines Miami Flagship Lounge Review. (London Air Travel)

BA Club World London Heathrow – Miami reviewed. (London Air Travel)

BA Club World Upper Deck seating changes. (London Air Travel)

BA Glasgow lounge re-opens after a light refurbishment. (London Air Travel)

Also of note this week:

Monocle continues its audio series on the “golden age” of aviation with a look at Supersonic travel. (Monocle 24)

Qantas confirms it will launch new routes from Brisbane to Chicago O’Hare (four times weekly) and San Francisco (three times weekly) by April 2020, pending final regulatory approval of its joint-venture with American Airlines. Flights will be operated by the Boeing 787-9 Dreamliner. (Qantas)

Late post-publication updates:

[Reserved for updates during the day]

Virgin Atlantic orders 14 Airbus A330neo aircraft for delivery from 2021. (London Air Travel)

BA extends the use of upgrade vouchers for Gold members of the Executive Club to existing bookings, as well as new bookings. (London Air Travel)

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