Why airlines love premium class passengers

Airlines rely on premium cabins for almost 30 per cent of revenues.

Although just 5.3 per cent of passengers travel in business class or better, they account for 29.6 per cent of revenue, according to figures from the International Air Transport Association.

During this year it is forecast that 4.3 billion passengers will fly on the world's airlines and overall revenues will be more than US$820 billion ($1.1 trillion).

First quarter figures show premium class volumes and revenues in line with that of a year ago.

''Highlighting the importance of the premium cabin to airline financial performance, premium revenues accounted for 29.6 per cent, only a tick below the outcome for last year (29.7 per cent),'' the association said.

Performance across the key markets was varied. Premium-class demand was strongest for the Asia-Southwest Pacific and within Europe markets.

Premium demand was softest for Europe-Middle East and North-South America.
Final data for the last quarter of 2017 confirmed the stabilisation in airline financials in second half of last year.

The industry-wide earnings before interest and taxation (EBIT) profit margin was a ''robust'' 8.7 per cent of revenues – effectively unchanged from the same time a year earlier. Strong demand has fuelled most airline earnings during the past two or three years.

IATA said the broad-based global equity market sell-off in March also impacted airline shares, although the 2 per cent decline for airlines was less than the market generally which was down 2.4 per cent.

''Looking through the monthly volatility, airline shares have risen by 22 per cent over the past year, easily outpacing the overall equity market (up almost 13 per cent).''

Oil prices rose in March, recovering some of the ground lost in February. Although jet fuel prices were largely unchanged this month, both oil and jet prices were currently around 30 per cent higher than their level of a year ago. This has eaten into profits of all airlines, including Air New Zealand which said its fuel bill was 18 per cent higher in the first half of the financial year compared to 12 months earlier.

IATA says the oil price futures curve suggested that financial markets do not expect significant change in oil prices over the next 12 to 18 months.

A modest decline is currently priced in by financial markets, to around US$62 a barrel to $65 a barrel.