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?

(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.

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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

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?
• 12 ways airports can turn stranded travelers into happy customers in the next crisis

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