All business class, all the time?
So it seems as Virgin Atlantic Airways and British Airways are indicating that they may compete with four start-up carriers for a market that no one knew existed just a few years ago: all-business-class flights. The new carriers offer fares far below those for regular business and first-class seats, along with private departure and arrival lounges and a path through the airport past the usual crowds at the gate.
For now, the four start-ups — Eos and MAXjet, which began flying in late 2005, and Silverjet and l’Avion, which started flights this year — are offering only trans-Atlantic service. They chose those routes first because they are the most lucrative in the industry and flying them successfully proves they can compete with the big carriers.
All four say the demand has exceeded their expectations. In June, for instance, the four reported that they filled 70 percent or more of their seats. And the more established airlines are taking notice.
“There clearly is a demand for a niche for an all-business-class offering,” said Richard Branson, the president and founder of Virgin Atlantic, whose Upper Class Suite business class is typically rated among the industry’s best.
Virgin announced last month that, within 18 months, it planned to start flying some international routes using planes configured with all-business-class seating, after the Open Skies international agreement that takes effect in March significantly deregulates trans-Atlantic air travel.
Mr. Branson said that Virgin’s research showed a “mood change in the last five years” among business travelers, who “want to sit in an airplane with people who are also working.”
“It’s a status thing,” he added, “and a psychological thing.”
Willie Walsh, the chief executive of British Airways, said that his airline was also studying routes and fare structures for all-business-class flights.
Like Virgin, British Air would outfit smaller aircraft with a modified version of its existing and highly regarded business-class service on new routes between the United States and major European cities beyond London.
“This is clearly a real opportunity for us,” Mr. Walsh said.
Lufthansa dipped its toe in the all-business-class market in 2002 with a single flight in a partnership with the Swiss charter jet company PrivatAir. Lufthansa said recently that it was expanding its all-business-class service with a flight between Newark and Frankfurt beginning in late October.
Dodging the masses to travel on a business-class flight has less to do with snobbery than with practicality for business travelers, said Henry H. Harteveldt, a senior analyst at Forrester Research.
“If you tell a business traveler, ‘You can get to the airport 35 or 45 minutes before we close the door, and we guarantee you that you and your luggage will get there,’ that is worth extra money,” Mr. Harteveldt said. Many corporate travel managers, he said, are increasingly inclined to approve higher fares in exchange for improved productivity from traveling employees.
Not that the sky is the limit. Walk-up round-trip business-class fares on major trans-Atlantic carriers can be as high as $10,000. While some travelers pay full fare, most do not. Large corporations that guarantee high volume can negotiate discounts of 40 percent or more off walk-up fares.
But even walk-up fares on the start-up business-class airlines typically begin below the corporate discount level.
The start-ups say that they attract travelers from small companies or entrepreneurs and others who do not have the clout to negotiate volume discounts from major airlines.
On Friday, a walk-up round-trip fare to London on Eos (which flies 757s with 44 flat-bed seats) was $5,400.
The other start-ups, which offer less luxurious but competitive business-class products, have lower fares. On Silverjet, for example, the walk-up round-trip fare to London was $3,254. MAXjet’s walk-up fare was $2,600. On l’Avion, which flies between Newark and Orly Airport in Paris, the walk-up round-trip fare was $1,650.
Even without corporate discounts, advance bookings on Silverjet are as little as $1,600 round trip; Eos charges as little as $2,549.
An entry by Virgin and British Air into an all-business-class market dominated by the start-ups would pose new challenges for major United States carriers that offer trans-Atlantic flights like American Airlines, United Airlines and Delta Air Lines, Mr. Harteveldt said.
While some of the United States carriers are upgrading their business-class cabins — United announced yesterday that it would upgrade its business-class cabins on overseas flights with lie-flat seats, becoming the first American carrier to offer the seats — the domestic carriers have not yet reacted aggressively to the competition from the all-business-class start-ups.
“I’m not surprised that Eos, MAXjet, Silverjet and l’Avion are gaining traction,” Mr. Harteveldt said. “I’m not surprised that Virgin and British Airways have taken notice. But I am surprised that American carriers haven’t tried to nip this in the bud.”
One logical response, he said, would be for a domestic carrier to convert smaller planes — perhaps Boeing 737s or Airbus A319s and A320s — to all-business-class service on some trans-Atlantic routes, including some from busy locations like Hartford, Philadelphia or Raleigh, N.C.
“Our research shows that 50 percent of business travelers say they are willing to pay an above-average price for a noticeably better quality travel time,” Mr. Harteveldt said. Furthermore, only about a third of business travelers describe themselves as “brand loyal” to a specific airline, he said.
Bill Stockbridge, MAXjet’s chief executive, said that his airline had three major markets: entrepreneurs and small-business people who do not have access to big corporate discounts, high-end leisure travelers and international passengers from big companies with travel policies that restrict them to premium economy travel on major airlines.
The start-ups are all expanding and looking for new aircraft.
In September, Eos will add eight weekly flights, for a total of 40, between Kennedy Airport in New York and Stansted Airport in London. MAXjet, which flies to Stansted from New York, Washington and Las Vegas, is adding a route from Los Angeles next month and recently applied for permission to fly between Seattle and Shanghai in 2009.
Silverjet plans to add a third route between Newark and London Luton Airport by the end of the year. L’Avion plans to add a second flight between Paris and Newark next year. Marc Rochet, the airline’s chief executive, said that l’Avion’s plans could include adding routes to Paris and other European cities from other American cities.
All the start-ups are burning cash, though all insist they are sufficiently capitalized. Load factors — the percentage of available seats sold — have generally exceeded the airlines’ expectations. MAXjet, for example, said its June load factor was 83.1 percent.
“Will all four survive?” Mr. Harteveldt asked. “I don’t know.”
Virgin Atlantic and British Air say they need to tread lightly into the market, being careful not to detract from their existing top-tier (and top-dollar) business-class service.
“We now have five people working on the fare structure,” Paul Charles, a Virgin spokesman, said. Virgin, whose fleet is dominated by wide-body aircraft like 747s and A340s, has said it would need to spend about $700 million to acquire smaller, narrow-body aircraft for all-business-class use.
British Air already has suitable aircraft that it could readily convert, Mr. Walsh said. “We have 21 767s and 13 757s,” he said. “We could use some of those aircraft and move quickly.”
Like Virgin, British Air would concentrate on trans-Atlantic routes to cities other than London.
Mr. Rochet of l’Avion said that Virgin and British Airways, saddled with cost structures of major airlines, face a problem setting fares that will compete with the all-business-class start-ups.
“L’Avion, MAXjet, Eos and Silverjet are not only all-business-class airlines, but they’re also low-fare airlines with lean cost structures,” he said.
Naturally, the market will shake out as more competitors enter. “Ultimately, you’re going to see a large number of business-only carriers,” Mr. Charles of Virgin said.
That, he said, is the biggest challenge for the start-ups. “They certainly paved the way for the second generation in the market to emerge,” he said. “But what happens to the first generation?”
Mr. Rochet said he is betting that most of the first generation will endure.
“In my view and in my shareholders’ views, because we are always speaking money at the end of the day, we find that Virgin and B.A. joining this model is really proof that this is a very valuable niche market,” he said. “But we are already in it.”
Link to New York Times Article
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