KEY POINTS:
Dwindling demand worldwide for business and first-class air travel is forcing airlines to look closely at their bread and butter - the mass market at the back of the plane.
During a surge in air travel since 2002, airlines have poured hundreds of millions into new or upgraded
premium-class cabins as corporate and high-end leisure travel boomed.
However, first and business-class travel has dropped sharply sharply in the past few months.
The industry body, the International Air Transport Association, said premium traffic fell 8 per cent in September from the same month in 2007, with Asia most affected.
Economy air travel also decreased 4 per cent in September, the month in which credit woes triggered severe market losses and raised worries about an economic decline that could hit both business and leisure travel.
Although there is now some extensive discounting, first-class fares can be up to five times economy fares and business-class fares three times those in "cattle class".
Businesses around the world are cutting travel altogether or directing staff to take the cheaper option.
Wealthy leisure travellers who previously "turned left" when they get on a plane now head down the back.
Hong Kong-based Cathay Pacific has timed an upgrade of its economy section well. Cabins in its long-haul fleet are in the midst of an extensive refit, the main feature being new fixed back seats in a fixed shell that allow economy-class passengers to recline without encroaching on the space of those behind.
The seat rollout throughout Cathay's wide-body fleet should be finished about the middle of next year.
The airline's New Zealand and Pacific Islands regional manager, David Figgins, said the emphasis on the top end of the market fitted good times but it was the right time to look throughout the aircraft.
"We found that not a lot of attention had been paid to the back end of the aircraft, the main driver of your business."
Figgins, a 34-year industry veteran, said demand was holding up in the region but Cathay had cut back on plans for New Zealand next year.
The airline had been planning on two flights a day to Auckland right through next year but is scaling back to 10 a week from April for the northern summer schedule and then back to two a day at the end of October.
"Once February is out of the way we'll have a fair idea of what's going on. There's a lot of people holding back waiting for a fire sale."
Singapore Airlines' manager in New Zealand, Looi Tein Po, said the airline had noticed customers becoming more discerning about where and when they travel and where they sit.
He said customers were making their decisions based on numerous factors including cabin products, service and safety as well as price.
Demand on Air New Zealand is falling most sharply out of Britain and the United States and across the Tasman.
Figures last week showed overall passenger numbers were down 1.8 per cent for October compared with the same month a year ago, and nearly 10 per cent across the Tasman where intense competition is starting to hit.
The airline's scheduled international capacity is forecast to be down 13 per cent in the fourth quarter of the 2009 financial year compared with last year. Hedging and the falling dollar have negated much of the benefit of plunging fuel prices, and new taxes on long-haul travel from Europe are the latest headache.
Air NZ group general manager international airlines Ed Sims says now is not the time for retreat.
The airline has had a good response to a trial where long-haul passengers can pay $75 to guarantee an empty seat next to them on a last-minute basis. It was running reverse auctions where seats start at $1 and had ended up giving some lucky bidders half standard fare deals.
It was even offering free airport parking for some packages to Australia.
Sims said as part of the global marketing push the front page of Air New Zealand's overseas websites have an index of where the now relatively low New Zealand dollar sits in relation to the local currency to emphasise the value travellers get with accommodation and domestic travel.
"We're really trying to reinforce now is a fantastic time to travel down here."
The airline was spending $10 million on advertising in the United States, Britain and Japan, key markets in the tourism sector worth in total about $20 billion.
Soon after Christmas the airline's own $50 million refit of 20 Boeing 767s and A320s including new inflight entertainment systems will be complete. Eighteen extra premium economy seats are being added to 777s.
Sims says it is not so much a case of business-class travellers trading down but economy passengers trading up.
An optimist, he points out the traffic reduction had done wonders for efficiency at usually crowded airports such as LAX and Heathrow.
"Every cloud has a silver lining."
Flight Centre product general manager Andrew Stark said he was detecting a more collaborative approach from airlines and his agency to try to boost overall tourist numbers.
AIRLINE TACTICS
* Two for one deals on some flights.
* Cabin refits.
* Free airport parking.
* Look out for more pre-Christmas specials on flights and accommodation.
