Kicking Economy Class Off the Plane

Seats

Privatair did it first. Eos and MAXjet have done it as well. So has Silverjet and L’Avion. The ongoing success of these airlines may be unclear, but if nothing else, they have proven that there is some demand for business-class only flights over the Pond. This has now been confirmed by the fact that Virgin and BA are taking notice.

BA has said that it is studying the possibility, and Virgin just came out with an announcement that they will be doing it in the next 12 to 18 months. They’ll start with flights from New York to Paris, Amsterdam, Frankfurt, Milan, Zurich, and of course, London. Is this the end of the upstart carriers?

No way.

Let’s think about this. Virgin isn’t going to try to compete with MAXjet if they’re smart. MAXjet has gone for a minimal business class product for a low price. This is not a game that Virgin wants to play (I hope). So MAXjet should be able to continue to target those coach passengers who are willing to pay a little extra for a business class product, even if it doesn’t include a lie-flat seat.

Now what about Eos? Well, they have a much more comparable (though some would argue better) product to Virgin’s and you’ll pay for it. But you still won’t pay half what Virgin currently charges for their “Upper Class” seat. On the New York-London route, you think Virgin is going to match Eos’ fares on the business class-only flights just to dilute their fares on all their regular flights? Not if they’re thinking rationally.

The secondary cities make more sense, in theory. Virgin can’t get you there now anyway, and maybe they don’t see enough demand for a full service aircraft. Instead, they put smaller planes in there with business-class only seating to take advantage of the traffic that is there. Unfortunately, I don’t think most of these routes have enough business class traffic to make them work unless Virgin decides to buy a BBJ (737) to fly the route, and even that is questionable.

In the end, this seems like some sort of fanciful reaction on Richard Branson’s part and not a sound business decision. In the London to the US market, it will simply cannibalize their existing product. In other markets, they may have trouble finding enough traffic to fill their planes.

4 comments on “Kicking Economy Class Off the Plane

  1. My understanding of the airline industry’s financial model is pretty weak, but from what I can tell, the traditional airlines make their living on cargo and coach (thinking back to the addage that a half-empty Tokyo-Chicago 747 would still have United executives smiling due to cargo revenues), correct?

    I’m sure that there is money to be made in this niche, but that the gamble and expense to Virgin and BA would not be worthwile simply to put these little remoras like Maxjet and Eos out of commission.

    It ultimately seems smarter for the big boys to just concede a few customers to the business class-only players and continue to focus on what has worked historically, especially in Virgin’s case (of course, a guy like Branson doesn’t think like most of us, so who knows?).

  2. No, on intercontinental flights like this, they make their money up front in the premium cabins. Yes, there is cargo revenue to be had, but most of the year coach is not paying the bills. If we’re looking at transatlantic travel, coach only helps between May and September. The rest of the year the flights aren’t full and the fares are low. Of course, during the summer is when the premium traffic is lower, so there is some offset. Still, it’s the premium cabin that makes the money and that’s why they want to address this issue.

  3. I keep hearing that premium is the one making the money but there are only limited seats in the front. They only cost 2-3 times as much as economy (or is it much more?) but easily take up twice as much space on the plane.

    I wonder which is the real scarcity here: weight or space?

  4. Let’s take a quick look at a Virgin A340-600 flying between New York/JFK and London/Heathrow. During the summer, I see coach fares starting at $636 roundtrip (plus tax). I’ll bet that fare isn’t available on too many flights since the summer is popular.

    Meanwhile, there are some heavily discounted business class fares during the slow business travel summer season. With a 50 day advance purchase, you can get a ticket for $2,244 roundtrip. Even a 21 day advance purchase is $3,272 and that’s only for the summer.

    If you get beyond the summer into the peak season, you can see the fares go way up in business class. Random dates in early November show that with a Saturday night stay you’re paying $4,000 but without it, you’re paying $8,000 for a business class fare. But coach fares plummet. In November, there are fares as low as $286 roundtrip plus tax.

    So as you can see, the differences are staggering and they can make a ton of money in business class even with the seats taking up more space. Even with large corporate discounts to lure travelers, they still are more profitable than coach seats for 9 months out of the year.

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