By Mary Jane Credeur and Mary Schlangenstein
(Bloomberg) — Delta Air Lines Inc. and AMR Corp.'s American Airlines, the world's two largest carriers, are counting on lie-flat seats and Tahitian crab soup to help win back their most-profitable customers.
With the easing of an 18-month global slump in first- and business-class travel, Delta's seats that recline 180 degrees into beds and American's Asian-fusion appetizers are lures for the corporate passengers whose ranks dwindled when the global recession ravaged budgets for international flying.
Filling the premium seats at the front of airplane cabins is pivotal to U.S. airlines' efforts to return to profit in 2010 after weak demand forced them into discounting to woo vacationers. Business fliers are prized because they typically pay the highest prices and take to the air more often.
"If you're flying to Japan or Seoul, it makes all the difference in the world to put your legs up and really sleep and arrive rested and ready to go," said Chris McGinnis, editor of The BAT, a San Francisco-based newsletter and blog for frequent travelers. "You're going to feel really taken care of."
U.S. airlines have been playing catch-up in recent years with overseas competitors such as Virgin Atlantic Airways Ltd. that moved more quickly to add amenities including seats that convert into beds.
The recession shrank the pool of first- and business-class fliers for airlines worldwide, with December's 1.7 percent increase in premium bookings the first for the global industry since May 2008, the International Air Transport Association trade group said on Feb. 16.
While those passengers made up only 7.7 percent of 2009's overseas total, they produced 26 percent of the revenue on those flights, IATA said. For example, Atlanta-based Delta charges $4,998 for a walk-up, business-class ticket between New York's Kennedy airport and London Heathrow. A discounted coach seat is $1,175 next month.
International premium-ticket sales slid to $68 billion worldwide last year, down 20 percent from 2007. That contributed to losses at Delta, AMR, United Airlines parent UAL Corp., Continental Airlines Inc. and US Airways Group Inc.
Now, investor optimism is improving. The Bloomberg U.S. Airlines Index of 12 carriers has climbed 12 percent this year after plunging 46 percent in the same period in 2009 as the economy wilted. Delta gained 26 cents, or 2.1 percent, to $12.66 at 4:15 p.m. in New York Stock Exchange composite trading, while AMR rose 26 cents, or 2.9 percent, to $9.19.
'Starting to Rebound'
"We continue to see signs that business travel trends are starting to rebound," Matthew Jacob, an analyst at Majestic Research LLC in New York, told clients yesterday in a note.
Delta is spending $1 billion on fleet upgrades through 2013, including lie-flat seats and quilted duvet comforters on 90 planes that fly international routes. Delta and Houston-based Continental both sought fliers' input in designing new seats.
"Seat comfort is among the highest factors in purchase drivers and satisfaction," said Joanne Smith, Delta's senior vice president of in-flight service and product development.
Meals are important as well, as evidenced by Delta's plans to add tarts to dessert options that include cheese and sundaes; the business-class menu at Continental revamped in December with help from New York chef James Canora of Delmonico's restaurant; and American's Asian cuisine unveiled Feb. 1.
American flights between Tokyo and four U.S. airports, including Kennedy, offer first- and business-class fliers choices including the crab soup and gingered scallops with lobster sauce. The Fort Worth, Texas-based airline also improved its business-class seats and in-flight entertainment.
The intent is to create "the best possible mix of things we can give to our customers to minimize their hassles and maximize their time," Dan Garton, American's executive vice president for marketing, said in an interview.
At British Airways Plc, Chief Executive Officer Willie Walsh said Feb. 10 he is considering whether to add more U.S. destinations for his all-business-unit that serves Kennedy from London City Airport because the five-month-old route is "performing really well."
That would put pressure on carriers including Delta, because London-based British Airways already is the No. 1 operator of flights across the North Atlantic, the world's biggest market for corporate travel.
Qantas Airways Ltd., Australia's largest carrier, signaled its business-class strategy last week with a plan to drop first- class seats to some cities.
Qantas' revamping of 29 wide-body jets to expand business- class cabins is "a commercial decision that you can generate more revenue allocating that space to business rather than first class," said David Swierenga, president of aviation consultant AeroEcon in Round Rock, Texas.
The affected routes include the 14-hour flight between Sydney and Johannesburg, for which Qantas now charges A$13,812 ($12,370) for the costliest round-trip ticket in first class. That's almost twice as much as for business class.
"Business class has become so luxurious with seats that lie flat and unlimited drinks and terrific food," said Alan Bender, a professor of airline economics at Embry-Riddle Aeronautical University in Daytona Beach, Florida. "How can I justify another big sum of money for just a marginal increase in luxury for first class?"
Bender said the industry standard for first-class service is still being set by the Asian carriers flying the longest intercontinental trips, including Singapore Airlines Ltd.,Cathay Pacific Airways Ltd. and Japan Airlines Corp.
"Most of their routes are international business cities where there is the greatest wealth in the world, so naturally you have more people who want the very best service when they fly," he said.
Singapore Airlines is the first carrier to fly the double- decker Airbus SAS A380, which features private suites with sliding doors and the widest available business-class seats. The airline also spends S$11 million ($8 million) a year on wine and Dom Perignon champagne for first-class passengers.
Delta and Continental are among the U.S. airlines that ditched their three-cabin configuration years ago in favor of plusher business seating along with coach, according to Bender.
On United, one of the U.S. carriers still using three cabins on some routes, the menu developed by celebrity chef Charlie Trotter includes sea bass with a three-onion ragout in first class, while business-class choices include grilled mahi- mahi with a sweet-and-sour vegetable stir-fry.
The trick for U.S. airlines is balancing that luxury service with the fare-cutting pressure on domestic routes from discounters such as Southwest Airlines Co.,JetBlue Airways Corp. and AirTran Holdings Inc., Bender said.
"It's very hard to do both well, so over time we've seen the U.S. carriers focus more on the middle ground of having a really nice business class," he said.