08S7B trailblazers

Gripes over SIA's 'business class only' US flights

The Straits Times
March 16, 2008

Gripes over SIA's 'business class only' US flights

Analysis

There was recently a furore over SIAs decision to change its US flights to Business Class only. Initially, these flights had an Executive Economy Class, where passengers could enjoy larger leg room and wider seats and a price just slightly higher than Economy Class. However, recently, SIA has decided to abolish the Executive Economy class and offer full Business Class on non-stop flights to the US.

SIA has said that the airline has switched to offering full business class only flights due to consistently high demand from the premium market. Return business- class tickets on non-stop flights from Singapore to New York cost $11,500, while those on the LA route cost $10,500. Executive economy seats cost about $3,200 and $2,600 respectively.

"SIA currently operates two daily non-stop flights to Los Angeles and Newark, New Jersey, on five Airbus A340-500s. From mid-May, the aircraft's two-class, 181-seat arrangement will be converted in phases to 100 'business class only' seats. The change for the New York route will be completed by the end of June, and Los Angeles by late September. "

I feel that SIA has switched to offeing Business class only non stop flights to the US as at present, the economy is doing well, thus people's incomes are increasing. As a result, by increasing its supply of luxury goods, such as Business class flights, which are expensive and have a high level of service, it will increase its revenue as the demand for luxury goods will increase due to the economic boom and consumer's income increase.

In addition, SIA can offer Business Class only non stop flights to the US as the good lacks any close substitutes. The only other SIA flights heading to the US have stopovers in Frankfurt, Tokyo or Taipei, with travelling times as much as six hours longer than the direct flights. Thus, these are much longer than direct flights. This means that these flights with stopovers are not close substitutes for the direct flight.

As a result, there is price inelastic demand for these non stop flights to the US. Thus, when price increases, demand will decrease less than proportionately. thus when price is raised, the firm will still enjoy an increase in total revenue. As a result, in order to increase revenue, SIA should increase the price, so as to enjoy a higher revenue.

Thus, it is beneficial for SIA to switch its non stop flights to US to All business class flights in order to increase revenue.

THis is because flights to US are very long and fatiguing, thus any short reduction in the number of hours is of relief to the passengers. Thus, this will make the demand more price inelastic.

However, as the price increase from Executive Economy to Business class is very wide, from $3000 to $10 000, it is highly likely that the consumer base lost by SIA is very high. And many ex consumers of SIA are very angry that they are now left with a ticket on Economy Class on a stopover flight and not one on a non stop flight. THis would mean that the increase in revenue will only be significant if enough consumers want to switch from SIA executive economy class to business class, and not to other airlines which also offer direct flights.

THus, this is quite a risky move the SIA management is taking. However, overall, i feel that this move is to gain more revenue for SIA in this economic boom.

posted by Lisa (: @ 9:55 PM