All-business class airlines: Verdict – Going Extinct

The all-business model was always considered an experiment and at record high oil prices any new model struggles. Aviation analysts point to the premium-class graveyard where the tombstones are reminders of such short-lived U.S. airlines as Air One, Air Atlanta, McClain, Regent, MGM Grand and Legend. Most of these offered domestic US routes only, which re-affirms the point that there is little domestic market for all-business carriers.

Guerrilla warfare
MaxJet, Eos and Silverjet all operated trans-Atlantic routes as well as some between London and Dubai. Not only is this one of the most traveled business segment, it is one where customers have an over-abundance of choice. A business traveler can choose to travel by Business or First class on a plethora of full-service airlines. And this is the threat that premium carriers knew all too well, and often suffered from it. Most recently, American Airlines retaliated last year by launching a service to Stansted from New York JFK, putting it in more direct competition with Eos and Maxjet, both of which linked Stansted with JFK.

Another crucial factor is that with deep pockets, full-service carriers are able to sustain a loss-making route much longer than premium carriers can, since the latter can’t dig into other sources of revenue. In fact, both Eos and SilverJet folded when a prospective investor pulled back.

Loyalty Matters
Yet another reason premium airlines have trouble competing with big airlines’ business- and first-class products is because the big airlines offer more frequent flights to more cities and have the high-end customer addicted to their frequent-flier programs. Hence, switching to a premium carrier incurs an opportunity cost for the traveler in terms of lost “miles” and status. Premium airlines should tie up with full-service airlines such that frequent fliers can choose between the two services and still earn miles. La’Avion, which flies all-business between Paris and New York, has tied up with British Airways’ Open Skies to do just the same. Smart thinking.

Hence, unless premium airlines are willing to think innovatively on ways to increase passenger numbers, the future looks bleak for them.

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The next article in this series will evaluate whether business-class travel in general will survive or go extinct.

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• The business of business class
• Latest Shock: SilverJet stops flying
• Is business-class travel going extinct? Part 2 of 2
• British Airways buys L’Avion, dissolving the all-business class airlines industry
• Is Southwest Airlines model the future for full-service airlines?

Here are three examples of how airlines around the world have been resilient in the face of externalities.

1. Olympics in Beijing? Let’s send the A380 there. To capitalize on the increased travel demand to Beijing during the Olympics, Singapore Airlines recently announced that they will be flying the A380 to Beijing during this period. What a perfect example of dexterity. Not only will SIA be able to showcase their premium product to a large number of travelers (who’re ever so happy to be on the A380), they’re charging more for those tickets too. Perfect win-win situation.
2. Competition died? Let’s service their routes. Alaska Air started new routes to Hawaii from Seattle after Aloha Airlines collapsed earlier this year. Not only were they able to service existing demand. Another win-win situation.
3. Passengers stranded by competition? Let’s help them out. SilverJet offered seats to stranded Eos passengers between London and New York once the latter ceased operations. Cathay Pacific offered seats to tons of students heading to London once Oasis Hong Kong went out of business. Both these airlines appeared as “rescuers” in the eyes of the passengers. What better way to acquire customer loyalty, that too from those who were going to the competition earlier.

Response to externalities is a crucial, but often overlooked, strategy that can be utilized by airlines to win the hearts and minds of their passengers. These three customer examples demonstrate that.

Please feel free to share your own experiences in the comments section, where you’ve encountered dexterity on airlines’ part.

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Links:

1. SIA to fly A380 to Beijing Olympics
2. Alaska Air to fly to Hawaii
3. SilverJet’s sweet deal for EOS passengers
4. Cathay Pacific operating flights for stranded Oasis passengers

• Are the Beijing Olympics a lost opportunity for airlines?
• Is business-class travel going extinct? Part 2 of 2
• Why it’s good for the industry if airlines go bankrupt
• What to do if you are stranded on Thanksgiving?
• The day airlines’ Twitter accounts were hacked, and three steps to reverse the brand damage

Ironically, a number of them seemed to have great brands! Aloha was rated as being the best airline in the US for service. Eos was right up there in the all-business airlines category and we wrote about them in a previous post. Oasis HongKong was a well known brand in the region as well. Reasons for failure are everywhere. But what are some lessons that can be learnt from the experiences of the airlines that were? Here are five of them.

1. For Oasis HongKong, budget and business, together, were a confusing branding value proposition from the beginning. They tried to provide punctual, top-notch service and in-flight entertainment at discount prices. In the middle of it all, they forgot about recovery of money. Great expectations, good experience, sad ending.

2. For other budget carriers, the lesson of Oasis’s demise is that they have to fill more seats and more passengers into their aircraft. Basically, increase the money made per flight, without compromising on the promises made to the customer.

3. A number of airlines (esp. in the US) make this mistake. They tend to set the wrong brand expectations, and then leave the customer disgruntled when the experience falters. Things like suddenly charging more for a second bag. This is a sure way to drive down customer loyalty. One of the keys to long term success is to keep the brand experience consistent with expectations, even in turbulent times like this.

4. Efforts should be targeted towards providing specific services that truly add value to the brand experience, rather than invoking in the knee-jerk reaction of cutting many services and charging as much as possible for the rest. I’m surely not paying $5 for a bag of pretzels!

5. Some airlines are still succeeding at optimizing their brand in these turbulent times, by keeping their primary customer base happy, yet cultivating more sources of revenue. Southwest is attracting business travelers, for a higher fare. Air Canada is giving each passenger Ala Carte choices of value added services in each seat, for an additional cost. Pay for only what you want. Singapore Airlines has begun all-business class route to New York. British Airways’ Open Skies will soon fly all-business from Paris to New York. ANA and Lufthansa have started all-business flights to India.

The key to success is to increase number of passengers per departure, and revenue per passenger, without deteriorating, and possibly enhancing the experience. Having a loyalty program in place will keep them coming back for more too.

Ponder that!

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• The importance of resilience: three airline case studies
• AirAsia X: a brand with a huge potential, but remember, “you’re only buying the flying”
• Five reasons why budget airlines in Asia are successful
• Is Premium Economy here to stay? A brand review of All Nippon Airlines
• Why it’s good for the industry if airlines go bankrupt

First the three functional requirements of a business traveler:

1. Reliability + Frequency – on time performance and lots of options for timings
2. Flexibility – business travelers often like to change their plans at the last minute
3. Comfort – if the business traveler is able to have his own private space and get a week’s worth of work done on his laptop in-flight, he’ll not be too concerned with money

Premium Carriers rule the skies

Eos Airlines seems to have got it right, with their “uncrowded, uncompromising” strategy, and four flights between New York and London everyday. The cabin setup even allows passengers to face each other during meals – simulating a meeting setup. SilverJet’s “very sivilized”service is less expensive than Eos and half as frequent. But both airlines seem to be doing reasonably well and are looking to expand to other lucrative routes like London – Dubai.

They both have got the basics right. As for the differentiation, Eos suits the business traveler better, but costs more as well. But as I mentioned earlier, customers for this segment are not extremely price sensitive. Everything from short check-in times to wi-fi enabled plush lounges make a difference.

Announcing the arrival of legacy carriers

Singapore Airlines starts their Singapore to New York non-stop full-business class service in May. I’ve traveled on the Executive Economy class of this flight four times in the past few months – and surprisingly, the business class is always over-booked and economy is close to full. So it makes sense to convert this to a full-business flight, since most of these passengers are traveling on business anyway. For the economy traveler, there is always the SIN-Frankfurt-JFK option available as well. And Singapore Airlines is one carrier that has mastered the art of pleasing the business traveler – scoring high on all three factors mentioned above. This new service should do well.

The key differentiating factor remains exclusivity and superior service, be it a legacy carrier’s business class, or an all-business airline. The advantage legacy carriers have is that they can leverage on their existing brand image, and dig into profits from other routes until the all-business class route becomes profitable. Though it remains to be seen what competing with premium carriers like EOS will entail.

Ultimately, the business traveler has nothing to lose and all to gain. Let the games begin!

Ponder that!

If you enjoyed this article, click here to get free updates by email or RSS.

• Is business-class travel going extinct? Part 1 of 2
• Is business-class travel going extinct? Part 2 of 2
• Is Premium Economy here to stay? A brand review of All Nippon Airlines
• Latest Shock: SilverJet stops flying
• Five clever ways to earn frequent flier miles for upgrades