SINGAPORE Airlines (SIA) will launch its first all-business-class direct flights to New York and Los Angeles later this month. The move, which comes in response to what SIA says has been strong demand, will see the airline reconfiguring its five A340-500 ultra-long-haul aircraft deployed on the two services to an all-business- class set-up with 100 seats, from the current two-class, 181-seat arrangement. The move will be closely watched by its Asia Pacific rivals.

Interestingly, this is happening against a backdrop of skyrocketing fuel prices and the impact of the global credit crunch. According to the International Air Transport Association (Iata), March global passenger growth - after adjusting for the Easter holiday period - was just 4 per cent, compared to well over 7 per cent last year. 'The slowdown in the demand growth continues the sharp downward trend which began in December 2007 as the impact of the US credit crunch began to be felt in the airline industry,' said the organisation, which represents over 97 per cent of the world's carriers. International passenger load factors, after adjusting for the Easter long weekend, would have been just 76.1 per cent in March. While still high, this is 1.7 percentage points lower than the 77.8 per cent recorded for the same period in 2007.

Last month, the European all-business-class carrier EOS filed for bankruptcy. This came a month after the collapse of Hong Kong-based Oasis Airlines, whose budget long-haul flights allocated a fifth of their seats to premium class. Now speculation is rife that a second European all-business-class trans-Atlantic carrier, Silverjet, could also be in trouble.

The move to all-premium seats began almost three years ago, when trans-Atlantic operators like EOS, Maxjet and Silverjet rushed to capitalise on the strong demand among high-flying corporate types shuttling between New York and London. Demand was so strong that even mainstream players like British Airways and Virgin Atlantic began eyeing the potential. But given current uncertain market conditions, is this business model still viable? It is too early to say.

Recently, however, SIA said it was seeing stronger demand for its business and first-class seats than for economy on its newly launched Singapore-Houston route. What this suggests is that while European and US carriers may face a particular set of challenges unique to their economic conditions, carriers serving the fast growing and increasingly affluent Asian economies may actually be quite well positioned to capitalise on the robust demand for premium seats. In any case, SIA - which gets almost half its earnings from the front cabins - is too seasoned and savvy an operator to venture into this business if it did not see a potential for strong and sustainable returns. That alone may be enough due diligence for rivals like Cathay Pacific, Qantas and others.