We may not have seen a lot of airlines start in the US over the last decade, but there’s one particular niche that has seen far more than its fair share. It is the all-business class airline that has captured the imagination of many a dreamer. There’s just one problem. It’s not going to work.
The latest crop of proposed airlines that have been getting press are La Compagnie and Odyssey, though it remains to be seen if either of these have a shot at actually carrying a single passenger. But the buzz is building once again, as it has done in years past. And it’s an area in which I have a little bit of experience.
Back in 2003, I worked with the founder of Eos (then called Atlantic Express) on developing the business plan, building out the product, and crafting investor presentations. The founder, Dave Spurlock, had developed the concept in-depth before I joined as a business school intern, and I absolutely bought into the idea.
His plan? Formerly with British Airways, he saw a tremendous amount of premium travel going between London and the US at a high fare. With a fleet of 757s, he could connect the biggest markets in the northeast US with London, charge a lower fare than BA, and make a killing. With only 48 business class seats on each airplane, he didn’t need a lot of people to fly. It was a great idea.
Others had variations in the same vein. Silverjet started in the UK with the same basic plan. MAXjet was going to go with a lower scale business class product and discount more heavily. L’Avion brought the concept to the Continent, operating out of Paris. None are around today. (Though L’Avion magically convinced British Airways-owned Open Skies to buy it, in what has to be one of the luckiest breaks around.)
So why doesn’t this work when the story seems so good? Lots of reasons.
- There are no growth opportunities. When you look at London to New York, it seems like the pot is so big that all you need to do is catch the bits that boil over. But what happens when you look at, say London to Washington? The market shrinks a TON. It’s similar within the US. JFK to LA is an enormous market. JFK to SFO is a weaker second. Everything else falls off a cliff. So you just can’t grow significantly with this model. And that means you’ll never get the economics of scale you’ll want.
- There is a frequency problem. Even in a market like New York to London, how many flights a day can you run? Business travelers care about frequency, and you’ll be lucky to get a couple of flights a day. BA and American run a dozen flights a day just between JFK an Heathrow with flights going every half hour starting at 6p. Business travelers love that.
- Capacity can’t deal with varying demand. And here’s one reason why these guys can’t support high frequency. Bigger airlines can use their multiple cabins to make flights work despite varying periods of demand. During the summer, when business travel is lower, they can make flights work with strong demand in coach. In the winter, however, when coach demand falls, the strong business traffic makes a huge difference. These all-business airlines don’t have that luxury of being able to balance demand.
- There is an airport problem. Another reason they can’t support high frequency? London was the prize for many of these airlines, but good luck getting a slot at Heathrow. MAXjet and Eos tried Stansted. Silverjet chose Luton. Even if they could get into Heathrow, they’d never get enough to run any substantial frequency. But by being elsewhere, demand is lower so frequency is hurt that way as well. Odyssey wants to do London/City. There’s a lot of business around there, but many of the people that prefer that airport are under corporate contracts. That brings me to my last point.
- The big guys are tough to beat. Not only is there a frequency and possibly airport disadvantage, but you have to compete against corporate contracts. The big firms have widespread travel needs, and if they have people defecting and flying an upstart on one of the biggest routes around, then the airlines are going to cut their discounts. Business don’t like that. That means relying on a much smaller piece of the pie: independent consultants and lawyers who have the money to spend but aren’t big enough to have their own corporate deals or rich enough to have their own airplanes.
This doesn’t mean that all-business class flights as a part of a much larger airline can’t work. The British Airways A318 at London/City has always interested me. That has a different dynamic, but then again, many of those don’t work either. Open Skies has limped along since it began.
Every new startup has some slightly different twist on the plan but none of them solve the fatal flaws inherent to the model. Maybe some day, someone will figure it out. But that day isn’t today.
[Original graveyard photo via Shutterstock]