Johannesburg — THE accelerating slowdown in business and first class travel is driving airfares on many airlines to such low levels that yields and profitability are being harmed.

In SA, while better off than most markets, airlines have been discounting fares in a bid to fill their aircraft.

Yesterday, Richard Myerscough, Virgin Atlantic's new country manager, said though load factors had held up relatively well in the first few months of the year, strong competition on fares had put pressure on yields.

He said that demand for business class seats had softened and Virgin Atlantic had replaced its Boeing 747-400 with an Airbus 340-600 -- which had a smaller business cabin -- on the Johannesburg-London route.

The International Air Transport Association (Iata) said yesterday that the number of passengers travelling on first or business class tickets fell 16,7% year on year in January, a further substantial fall from December levels, which were 13,3% down on the year.

More disturbing is that Iata sees no end in sight to the decline in traffic. "With GDP falling at extraordinary rates in the fourth quarter of

-20% in South Korea, -12% in Japan and -6% in the US it is not surprising that business travel has fallen so far in January.

"With economic conditions still deteriorating, despite bank bail-outs and fiscal packages, the bottom for the decline in premium travel numbers is not yet in sight," it said.

The fall in passenger numbers has led to increased competition for an ever-diminishing pool of travellers, forcing some airlines to sell their tickets at below cost.

"Fares are also now falling sharply. By December average premium fares were down 6%, having risen strongly earlier in 2008 when fuel costs were surging," said Iata in its latest Premium Traffic Monitor.

"With average fares and fuel surcharges now falling significantly, we estimate that revenues from premium passengers were down by at least a quarter in January, wreaking significant damage to network airline yields and profitability."

Asia was the worst hit region, with a 23,4% decline in premium travel. "What started as a financial crisis in the west has now become a crisis in manufacturing, which has caused an unprecedented economic decline in Asian, export-led econ-omies. As a result, premium travel was weakest in this region," said Iata.

Cathay Pacific Airways said this week that it was selling economy class tickets at "unsustainable" prices to lure travellers as demand plunged the most in more than three years last month.

"The market has collapsed," CEO Tony Tyler said.

Europe was also extremely weak, falling 22,2%. The region has for many years seen premium travel falling off as business passengers move to cheaper seats on short-haul routes, Iata said.

Travel in Africa was the only sector to see any growth in premium passenger travel, up 18,9% in January while fares appeared to be holding up. With Bloomberg