Bad news for airlines; good news (at least in the short term) for travelers, and especially those looking for bargains in international business-class travel.

Discussing his airline’s latest quarterly loss (of $174.7 million), B.A. chief Willie Walsh said that the strategy for the rest of the year is to try to drive up passenger volume, which can’t be done with any increase in fares this year, given the climate.

That means that big discounts on business-class fares will continue through the fall and at least into early winter as British Airways and its competitors on the long-haul international routes struggle to achieve a balance between supply and demand.

But even if that balance is achieved with further capacity reductions, the market has spoken on sky-high international premium fares that routinely sold at $10,000 and up in recent years: Nuh-uh. No way. Ain’t happening. Those days are gone, even after the economy rebounds.

As a result, all major carriers that depend on high-volume premium long-haul traffic (and I see you back there trying to keep your heads down, Delta, American, Continental, Virgin Atlantic, United and the rest of yez) are going to need to take costs out of the service (cutting back on not only staff but in-flight amenities) and significantly reduce capacity to accommodate the new reality of long-haul premium fares. It is a buyers’ market.

(By the way, in the link to the Virgin Atlantic story in the Guardian in the paragraph above, ignore the goofy out-of-date financial numbers, which inexplicably are given for the year ended in March for British Airways. British Airways’ most recent results, announced today, show a loss of $174.7 million for its first fiscal quarter which ended June 30).

Largely reflecting the plunge in premium traffic, B.A.’s revenues were off 12 percent in the quarter ended in June. It was even worse at Air France-KLM, where revenues dropped 20.5 percent, and at Lufthansa, down 19.5 percent.

B.A.’s Willie Walsh said in a statement today that there are “no visible signs of improvement” in revenues, but “some signs of improvement” in passenger demand. Walsh — who has been commendably up-front in calling things by their right names — didn’t say so, but any improvement in demand reflects fare sales.

And in what I predict will be a more common strategy among airlines in years to come, Walsh said that British Airways is increasing its efforts to offer package deals — flights combined with hotels, car rentals and other travel services. This initiative “has led to bookings of ancillary products and packages more than doubling compared to last year,” he said.

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Delta Air Lines is slapping a new status level, Diamond, onto its SkyMiles elite-status program.

Does that improve the program or dilute it further for platinum-level members who will be lower in priority for upgrades, but even for the lowest-level members who will drop one place in the pecking order?

Hmmm. You decide. Seems to me this is a definite bonanza for the dwindling number of heavy-duty fliers who remain loyal to a particular airline for whatever reason and who are out there slogging away at 125,000-plus miles a year. And the rollover feature seems to be  good for everyone, though it also seems to me that it will help dilute the program simply by making its membership bigger.

Also, under the current system, where elite-qualifying miles vanish at year’s end, at least the herd was culled a bit, year to year.

“We’re keeping the benefits that mean the most to our Medallion members and adding others that surpass what any other airline offers,” said Jeff Robertson, Delta’s vice president of loyalty programs. “Features introduced in 2010 will provide SkyMiles Medallion members meaningful, unmatched benefits on flights to nearly 400 destinations across six continents.”

Yeah, yeah. So what’s the deal?

—Diamond Medallion Status: A fourth Medallion level for flyers who get 125,000 elite-qualifying miles, which Delta calls MQMs, or who fly 140 segments per calendar year will offer free Sky Club membership, 125 percent mileage bonus for purchases, award booking and baggage fee waivers and other exclusive rewards.

—Rollover MQMs: Delta is the first airline to allow customers to retain any MQMs earned above a Medallion threshold at the end of the year, supplementing the ability to earn status the next year. For example, if you accrue 40,000 MQMs in one calendar year, the 15,000 MQMs that exceed the 25,000 MQM Silver Medallion threshold will be rolled over to the following year. There is no limit to the number of miles rolled over, and the benefit and takes effect immediately.

—Diamond, Platinum and Gold Medallion members will have ticketing fees waived for all bookings, whether completed by phone, online or in person.

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Despite all that dough many carriers are raking in on checked-bag fees (see previous post), most airlines are in financial trouble because overall passenger revenue is off so sharply. The reasons for that revenue sinkhole:  persisting low fares coupled with a sharp fall-off in demand that began really digging in at end end of last year — and shows no sign yet of turning around.

Here is a summary of airline financial results for the second quarter ended June 30, as helpfully compiled by SpeedNews. Look all those double-digit revenue declines:

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“FALLING REVENUE

This week, several US airlines reported their financials for 2Q 09; some lost and some profited, but all — except for Allegiant Air — saw declining revenues:

DELTA AIR LINES lost $257m in 2Q 09 (vs $83m profit in 2Q 08) on 23% lower revenues;

UAL CORPORATION (United) reported net loss of $323m (vs $2.7b loss in 2Q 08) on 25% lower revenues;

CONTINENTAL AIRLINES had $213m net loss in 2Q 09 (vs $5m loss in 2Q 08) on 22.7% lower revenues;

SOUTHWEST AIRLINES has $54m net profit in 2Q 09 (vs $321m in 2Q 08) on 9% lower revenues.

US AIRWAYS GROUP had $58m net income in 2Q 09 (vs $568m loss in 2Q 08) on 18.4% lower revenues;

JETBLUE had $20m net income in 2Q09 (vs $9m net loss in 2Q 08) on 6% lower revenues;

ALASKA AIR GROUP had $29.1m net income in 2Q 09 (vs $63.1m in 2Q 08) on 9.3% lower revenues;

AIRTRAN HOLDINGS had $$78.4m net income in 2Q 09 (vs $14.8m loss in 2Q 08) on 13% lower revenues;

ALLEGIANT TRAVEL (Allegiant Air) had $23.9m net income in 2Q 09 (vs $2.6m in 2Q 08) on 12.5% higher revenues;

AIR FRANCE-KLM reports revenues for first quarter ended June 30 dropped 20.5% from a year ago to €5.19b; it plans to announce its [full] results at the end of the month.”

Adding to the above list: American Airlines reported a $390 million second-quarter loss (vs $298 million in the 2008 2Q), on 22.3 percent lower revenues.

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[Photo: An Ilyushin Il62 passenger aircraft]

There’s been another fatal plane disaster in Iran. An Aria Air flight with 160 on board skidded off the runway during an emergency landing and crashed into barricades in the city of Mashhad. At least 17 were killed as the plane caught fire.

The plane was a Russian-built long-range Ilyushin Il62. Here’s a link to the specs on that aircraft. It was operated by Aria Air, an Iranian airline.

Less than two weeks ago, another Russian-built airliner, a Tupolev Tu154 operated by Iran’s Caspian Airlines crashed in a fireball after takeoff, killing 168.

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