Could we see the end of first-class air travel? Our analysis suggests these seats are loss-making for all Europe’s major airlines. The pandemic has hit corporate travel hard, but when it ends, airlines may exit first-class entirely and turn parts of business-class into premium-economy.

Business travel will likely recover more slowly than flying for leisure and visiting friends or relations. Major companies will be cautious about resuming travel, not only because of concern for staff, but to hang onto the budget savings that video conferencing allows. And reducing business travel is an easy way for corporations to reduce their carbon footprint.

But the loss of highly profitable long-haul corporate traffic will hit airline profits. While seats at the front of a plane cost more, they take up more space. A premium-economy seat typically occupies the same floor space as 1.5 economy-class seats; business-class takes the space of 3.5 economy-class seats; first-class is the equivalent of six to seven economy seats.

On that basis, the business-class cabin has the highest profit margins at the European flag-carriers we analysed. The yield from premium-economy can be double that from economy-class, especially on North Atlantic routes. But first-class is significantly loss making for all the airlines.

However, reconfiguring long-haul aircraft consumes capital when airlines are trying to conserve cash. Moving galleys and lavatories is most expensive. Adding premium seats is also costly, though switching to economy-class or premium-economy is cheaper. Taking aircraft out of service costs money too – though currently, that is not a constraint.

And with future demand unpredictable and likely volatile, airlines will want to avoid reconfiguring planes frequently.

The European flag-carriers have already made significant changes to their fleets during the pandemic, retiring four-engine jumbos, which typically have very high shares of premium seating. They have also reduced labour and supplier costs while raising productivity.

Predictions can be difficult, however. If premium-economy cabins are increased faster than the growth in demand, revenues could fall – or if business-class seating is cut too quickly, the shortage could raise profits. Further, having a first-class cabin may attract passengers to cheaper seats: some first-class might thus be retained.

Where air travel has recovered, notably the Chinese and US domestic markets, leisure and social travel has led the return. The self-employed and smaller firms seem less reluctant that large companies to resume flying, but with free movement curtailed, business travel in Europe has lagged other regions.

There is pent-up demand for corporate travel, but business flights have been reducing as a share of total flying for a long time as cheap leisure flights increased. Environmental concerns have also been growing, but the pandemic has accelerated these trends.

Not only will business people fly less often, senior management will be under pressure to downgrade from first-class to business-class and middle-managers to switch from business to premium-economy or economy. Cutting business travel is an easy saving and premium-class flying is significantly more environmentally damaging than economy.

First published 7th June 2021.

Would you like to find out more? Click here to read the full report (you must be a subscriber to HSBC Global Research).

Disclosure and disclaimer

More, collapsed
Global boom and bottlenecks
Supply shortages affect the near-term outlook for the global industrial cycle
Join the conversation?

Join our Linkedin group to get an unparalleled view of macro and microeconomic events and trends from a bank that is a leader in both developed and emerging markets.