Aug. 24 (Bloomberg) -- Price cuts aimed at filling empty airline seats mean flying business class is no longer a luxury affordable only when the company is paying.

Swiss International Air Lines is selling upgrades to flat- bed berths for $460, while Singapore Airlines Ltd. has halved the price of business tickets bought with air miles and British Airways Plc has offered two premium seats for the price of one.

First- and business-class travel fell 21 percent worldwide in June compared with a year earlier, or three times the decline in economy class, according to industry data. That has eroded the prime source of profit at carriers such as British Airways, which last year got 45 percent of revenue from premium travel that accounted for only 13 percent of seats sold.

“There are more promotions than ever, fare wars left and right, and you can use your air miles in ways we’ve never seen before,” said Matt Bennett, founder of FirstClassFlyer.com, a Monterey, California-based online newsletter. “What’s bad for airlines is great for the traveler. Their pricing structure is under siege.”

Filling seats through discounts is risky, said Stephen Furlong, a Dublin-based analyst with Davy Stockbrokers. Cheaper deals may erode the exclusivity of premium-class travel and business flyers may switch en masse to the cheaper fares, hurting overall revenue.

While June’s fall in premium traffic eased from a 24 percent drop in May, the improvement came at the expense of a steeper decline in revenue, which fell 41 percent in the second quarter as fares shrank.

Not so Sacred

Singapore Airlines, where the exclusivity of premium class- travel “used to be sacred,” according to Bennett, has offered its 30 inch business seats, among the widest in the industry, at a 50 percent discount when paid for in air miles. The deal has featured 25 destinations this year with about half a dozen qualifying in any given month.

The discounting is a response to the economic slump and the company’s strategy is to remain a premium, full-service carrier, spokesman Nick Ionides said by e-mail.

“That doesn’t mean we are averse to adapting to changing market trends,” he said.

Until Aug. 31, Swiss, a unit of Deutsche Lufthansa AG, is offering an upgrade from coach to business class for 500 Swiss francs ($460) on flights from Zurich to New York and 700 francs to Sao Paulo. That’s less than 10 percent of the full business fares of 5,544 and 8,073 francs.

‘Plenty of Space’

“Our business class isn’t empty exactly, but there’s plenty of space even when economy is overbooked,” spokesman Jean-Claude Donzel said by telephone. “If we can persuade some people to move up, we can sell more economy tickets.”

British Airways introduced its first ever two-for-one flights offer in May for selected departures between June and October. The deal is still available to people booking from the U.S. using a BA Visa credit card.

The carrier, Europe’s third largest, is also offering online upgrades that allow travelers to shift from premium economy to business class or from business to first class at prices starting from 399 pounds ($661).

Tickets must have been booked at least 14 days in advance and no longer be for sale, and upgrades will be offered “tactically” on certain flights only, spokeswoman Amanda Allan said by e-mail. A business-class return ticket from London to New York normally costs 1,986 pounds, or 1,170 pounds more than premium economy, she said.

Never Recover

BA Chief Executive Officer Willie Walsh told shareholders last month that business travel may never fully recover from the global economic slump, threatening the airline’s “long-term viability” unless at least 4,000 jobs are cut. It may also rip out some of the luxury seats it installed only three years ago in a 100 million-pound revamp.

Annual sales may fall by 1 billion pounds this year, or about 12 percent, based on the decline in the three months through June, Walsh said in this week’s edition of the carrier’s employee newspaper. Finance chief Keith Williams added that “there is no quick fix in sight.” BA closed up 0.9 percent at 189.9 pence in London, taking gains this year to 5.7 percent.

“We don’t think that these offers erode our business model or yields because it is about giving customers an experience and stimulating travel,” spokeswoman Allan said. “We make it affordable for customers to upgrade and hope they like it so much that they come back.”

In the U.S., carriers are generally less reliant on long- haul premium travel because of the greater proportion of domestic flights, with discounting not so extensive.

Bonus Miles

Delta Air Lines Inc. currently has no promotions for cabin upgrades, according to spokesman Paul Skrbec, and AMR Corp.’s American Airlines has made “no changes to levels, discounts, policies or procedures,” spokesman Stephen Schlachter said. American is instead awarding 50,000 bonus miles with a business- class booking, enough to get a round-trip upgrade on the next trans-Atlantic flight.

UAL Corp.’s United Airlines has long offered discounted upgrades to economy plus, business and first class on the day of departure when seats are free, spokeswoman Robin Urbanski said. Other deals are sometimes available, such as a recent offer of two upgrades for the price of one.

Airlines are also increasingly providing free upgrades to first class when passengers pay the full business fare.

“We used to see that occasionally on the softest of routes in the low season,” FirstClassFlyer’s Bennett said. “Now it’s everywhere all the time.”

Damage Limitation

Other carriers are seeking to limit the damage from business travelers deserting to coach class by expanding premium-economy cabins that combine the legroom of older business seats with economy-style service and catering. Air France-KLM is accelerating the introduction of its new “Voyageur” class across the long-haul network by next summer.

While cheap upgrades, heavy discounting and no-frills business seats may help airlines fill the front of their planes, carriers face a delicate balancing act in order to avoid permanently damaging demand for premium tickets.

Swiss Air’s Donzel said upgrade offers can’t be run for too long before ordinary corporate travelers switch from business bookings to economy tickets with cheaper upgrades.

Neither should premium economy seats be too welcoming, said Frank Skodzik, an analyst at Commerzbank AG in Frankfurt.

“The rationale is to prevent premium travelers from trading down all the way to economy, but the danger is that they just stay there in the intermediate class because it’s comfortable enough,” he said.

Tough Task

Once companies do shift to economy-class travel, airlines face a battle to persuade them to switch back, with only deep and sustained discounting likely to prove effective, said Davy’s Furlong.

Besides BA, which got almost half its revenue from premium travel before last year, Lufthansa, Air France, Singapore Airlines, Emirates and Qantas Airways Ltd. are particularly exposed, Furlong said.

For those passengers who do find their way to the front of the plane, the distinction between a carrier’s premium seats and those back in coach class is becoming less obvious.

British Airways has reduced the variety of newspapers and alcoholic drinks on some European business flights and cut after-dinner chocolates, while Air France has saved 36,000 metric tons of fuel annually through weight reductions that include lighter glassware in its premium cabins.

Airlines serving competitive long-haul markets may eventually follow low-cost carriers in charging for baggage check, meals and anything beyond the seat itself, predicts Dan Solon, an analyst at Avmark International in London.

“I wouldn’t be totally stupefied to see someone decide that what they’re really selling is a comfortable bed, and if you want dinner it’s going to cost what it would in a four-star hotel,” he said. “You don’t expect to stay in a business hotel and not pay for your meals and drinks.”

To contact the reporters on this story: Laurence Frost in Paris at lfrost4@bloomberg.net; Sabine Pirone in London at spirone@bloomberg.net

Last Updated: August 24, 2009 13:07 EDT