Why it makes some business sense?

Given that the likes of Silverjet and MaxJet have gone bust plying this route offers a couple of insights. Firstly, there’s inherent demand (we all know that) and that’s why these airlines could actually fly for some time. Secondly, it was largely British Airways and Virgin Atlantic that drove these airlines out of business. That means BA has less competition to deal with – just Virgin Atlantic. And that’s the opportunity.

Why it doesn’t make a lot of business sense?

We all know that OpenSkies is an all-business class airline that’s a subsidiary of British Airways. We also know that OpenSkies bought the French airline L’Avion to expand its business. Moreover, it wasn’t flying London-New York routes, but only New York-Amsterdam and New York – Paris, so as not to compete with British Airways. I feel that when BA decided to dive into the market with an all-business class service, they should have tapped on the OpenSkies brand.

Wouldn’t it be easier to just deploy one of the OpenSkies’ 757s on the route already equipped with Business beds and Business seats? They have a great brand experience that has been developed over time. And there would be no need to re-equip an A318 with Business Beds too.

On British Airways’ all-business flight, weekend leisure fare starts from £1,901.10 ($3,135) return, while the business fare starts at £4,912.10 and the fully-flexible business fare at £5,625.10. On OpenSkies, the fares are much cheaper, starting at just over $900 for Business Seats and at $1100 for flat Beds.

It’s difficult for me to reason out why BA would first start an all-business class airline, then have them acquire a competitor, then start one of its own service offering an all-business class configuration. And it’s bad for the OpenSkies brand too, since people might think that BA doesn’t trust OpenSkies to do the job.

But then again, that might really be the case.

End of the road runway for OpenSkies?

One of the reasons to fly BA metal might be the long term viability of OpenSkies. Willie Walsh, the CEO of British Airways recently indicated that he might consider shutting down OpenSkies, given that it’s still a loss making entity. He noted in the latest edition of BA News that OpenSkies’ losses are small compared to those elsewhere in the company and that “closing it would have no material effect on our financial performance. But the team there knows that it will close if it does not deliver on its business plan”

So it might be the case that BA is thinking of shutting down OpenSkies if in a certain period of time it doesn’t turn a profit (which is very tough in this environment). And hence, instead of risking using the OpenSkies brand to start a new route, they’re taking a safer approach with the longer term in mind.

But frankly, I’m still unconvinced that this route should have been started on BA metal. What do you think? Is this a move in the right direction, or is there more than what meets the eye? Let’s discuss, in the comments section, and on Twitter (@simpliflying).

• British Airways buys L’Avion, dissolving the all-business class airlines industry
• Latest Shock: SilverJet stops flying
• Is business-class travel going extinct? Part 2 of 2
• Is Premium Economy here to stay? A brand review of All Nippon Airlines
• Five lessons to be learnt from airline bankruptcies

Big bird BA picks up the last fish in the river (Image Credit: Esox Lucius)

How does this impact the British Airways and OpenSkies brands?

The effect of this acquisition on the parent airline’s brand should be generally positive, due to two key factors. Firstly, the lack of competition would surely help the OpenSkies brand since there is no direct comparison for their services. Moreover, lack of competition results in lower price pressure – which means that OpenSkies can charge realistic higher fares and be profitable sooner than later. Secondly, the acquisition is of an all-business class airline, which adds greater value to BA/OpenSkies, since L’Avion had planes that offered more luxury to the customer. So instead of sprucing them up, BA just needs to remove some seats to include Economy class, if they choose to do so.

In the end, this means the end of cross-Atlantic all-business airlines, and bodes well for British Airways as well. A win-win situation for both the airlines. A questionable one from the customers’ perspective though.

What do you think? Will this help the customer? Please feel free to leave your comments below.

• British Airways’ all-business class from London to New York – is the OpenSkies brand dying?
• Latest Shock: SilverJet stops flying
• Is business-class travel going extinct? Part 2 of 2
• Is business-class travel going extinct? Part 1 of 2
• Is Premium Economy here to stay? A brand review of All Nippon Airlines

Full Service airlines with specific all-business routes: Verdict – Here for now

Legacy airlines are becoming more enamored with all-business-class service. Four European airlines — Lufthansa, Swiss, KLM and Air France— are offering some all-business-class flights to the USA. The flights are operated by PrivatAir, based in Geneva. Lufthansa runs an all-business flight to Pune, India and Dubai, UAE as well. ANA runs one between Tokyo and Mumbai, India. Singapore Airlines began it’s much awaited Newark-Singapore all-business service last month. Lastly, British Airways subsidiary OpenSkies plans to start New York-Paris flights with a Boeing 757 jet configured with more than 60% of the seats for business-class fliers, on June 19.

Why the big rush? As we all know, airlines make a bulk of their profits from the business class passengers – they pay for those at the back of the plane too. Some of these routes have been carefully studied and started only because there is ample business-class demand to fill a whole wide-body. For example, Singapore Airlines’ previous flights on the same route, with a two-class configuration, were almost always over-booked up-front, but there was generally room in the economy section. Hence, the decision to do away with economy class completely. It is a similar case with ANA’s and Lufthansa’s all-business flights to India – the demand resulted in the product.

But not all routes are conceived the same way. A number of cross-Atlantic routes were started in response to competition from all-business airlines, or other airlines. It is these routes that may have a problem surviving in the long term, because the competition is no longer there, as a result of lower demand.

In the air, and beyond

The economically viable solution may be to offer services inside the airport to minimize inconvenience to the delayed business traveler. That means better lounges, with wireless internet and plenty of desks, restaurants suitable for meetings, gym facilities, and showers and so on.

Business travelers can then feel confident that delays won’t waste their time. This should be relatively easy for airlines to deliver, especially as they could probably charge a lot for them: market segmentation and price differentiation are easier to do on the ground than in the air.

Hence, to survive in the long run, not only should all-business flights by full- service carriers be based on demand, but they should offer complementary on-the-ground services catering to the business traveler. In the end, it is customer need, and the resulting customer satisfaction which will drive this industry segment.

Ponder that!

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Links

1. Lufthansa launches all-business flights to India
2. Costs of flying – how airlines make money
3. ANA’s all-business flight to Mumbai

• The business of business class
• Is business-class travel going extinct? Part 1 of 2
• Is Premium Economy here to stay? A brand review of All Nippon Airlines
• British Airways’ all-business class from London to New York – is the OpenSkies brand dying?
• Latest Shock: SilverJet stops flying

(Image courtesy http://www.airflights.to)

The irony is that even as full-business class carriers go out of business, legacy airlines have been starting up all-business class routes recently. Singapore Airlines’ route between the city-state and Newark seems to be off to a good start. British Airways’ OpenSkies looks all set for launching operations too, and L’Avion still flies between Paris and New York. May be the difference is the deep pockets of the parent airlines, who sustain an unprofitable route much longer than greenhorns like SilverJet and Maxjet could.

The bottom line is that an all-business route must make business sense in the long term. Airlines must cater specifically to the needs of the business class traveler, like having a USB port or iPod connectivity in-flight. Singapore Airlines already does that (see link below). They need to be attract more customers, have them pay more per flight (need not be just ticket price) and get them to take the flight more often. Three very simple business principles to keep in mind, in addition to the lessons in economics for airlines I wrote about previously.

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

Links:

1. SilverJet stops operations, IHT
2. SilverJet’s official press release
3. Singapore Airlines launches all-business class flight to Newark
4. Singapore Airlines offers iPod connectivity
5. OpenSkies gets ready to fly

• British Airways’ all-business class from London to New York – is the OpenSkies brand dying?
• British Airways buys L’Avion, dissolving the all-business class airlines industry
• Is business-class travel going extinct? Part 1 of 2
• The business of business class
• The importance of resilience: three airline case studies