People Keep Trying, But All-Business Class Airlines Don’t Work

Eos, MAXjet, OpenSkies

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.

Business Class Airline Graveyard

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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]

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30 comments on “People Keep Trying, But All-Business Class Airlines Don’t Work

  1. La Compagnie’s product even looks pretty bad for business class.

    Angled seats when United and Delta are fully flat and even Air France is going flat for New York – Paris. And only 3 flight attendants for 76 passengers.

    Flies Newark – Charles de Gaulle. They’re directly competing with Openskies which flies to Orly.

    The only way to fill this one daily flight is by charging coach prices for a pseudo-business class product to small businesses and leisure travelers. But that’s not a path to profits.

  2. About the only long-lived airline with the concept is PrivatAir, but they do wet leases for others and their routes change frequently. Basically enlarged-biz-jets-for-hire on very select business routes where widebodies would be too much capacity.

    1. ChuckMO – Yeah, PrivatAir is, as you say, nothing but a charter operator that flies on behalf of other airlines. So as long as there are big airlines with a need, PrivatAir will do just fine. That’s a different concept for sure.

  3. The LCY-JFK service on BA is testament to the enormous loyalty (read: elite status) and corporate contracts that BA can maintain. Chances are many of these people fly this service one way and return on one of the many JFK-LHR, which a all-biz niche carrier with one 757 cannot do. Plus not to mention BA has massive onward connections at LHR (and even some at LCY but that’s beside the point).

    With 5x NYC-LON on UA and 5x on DL/VS, 1x on KU, and something like 12x on AA/BA, there may be already way too much capacity for the O&D here (given everyone has a hub on at least one end)

  4. It’s one thing if you’re flying London – New York, it’s a completely different thing if you have to get from London to for example Louisville, KY. As a business traveler, you rely on the route networks of the big companies and their partners.

    1. I get that the finance centers of NYC and London generate a ton of traffic but they don’t fill all those widebodies flying between the two cities. It’s the network of the big guys all funneling people into New York and London to take the trip across the pond.

      If I want to go to LHR I got one non-stop option from MSP…or…I have several options through JFK, BOS, DTW, ATL, etc. For people that aren’t in a hub city they probably have one option – through JFK.

      1. I did some analysis in grad school on airline networks, namely NW and DL when they were in the early merger talks. I’ll say upfront that international data is very hard to get, so I didn’t have it. But domestically, the average hub for those two was carrying more or less a 50/50 split between O&D and connecting traffic.

        Some routes will swing one way or the other (like short routes having a higher connecting load) but by and large, I can’t see many, if any, markets survive on true O&D traffic alone.

  5. What about Surf Air? While not the traditional all business class you are talking about, it’s a variation on the theme.

    1. jeremy – Surf Air, the little operator flying props around the west coast where you pay a membership fee? That’s a very different model, and so far, that hasn’t worked either. There’s already been a management ouster there, and I have no idea how they’re doing now. But when you’re talking about tiny airplanes like that flying to and from more convenient airports that might not have service today, the economics are different. I haven’t seen that work either, yet.

  6. JFK/LCY only works because it’s BA and people are locked into their mileage program and as you said corporate contracts. Plus if you can’t make the flight for some reason there are those dozen BA/AA LHR flights you can switch to.

    And why do all the business only attempts seem to be over the Atlantic? There has been select attempts within the USA which again would never work, but why no attempts USA-Mexico City or USA-Sao Paulo or within Asia as examples? Airlines in those areas must be smarter to know it’s not going to work, so stay away from the concept.

    1. David SF – I think the reason you see it over the Atlantic is because 757s can do it, and those are relatively inexpensive to try. You can’t really do that down to Sao Paulo from the US. You could do within Asia, but there just aren’t a lot of routes with that kind of demand. Hong Kong Airlines tried an A330 to London but that was a huge failure. And Silverjet did fly London to Dubai. But again, didn’t work.

  7. I believe it was Albert Einstein who remarked that the definition of insanity is to keep doing the same things over and over, and expect a different outcome.

  8. I agree with you Cranky Flier 110% / if US airlines are going to compete with foreign airlines, they NEED TO HAVE A REAL 3-CLASS PRODUCT/ CO[U]NTINENTAL IS TRYING TO CHEAPE AND DUMB DOWN UA ,in a takeover, they said was a merger// WILL NOT WORK/ SOME IMPORTANT BUSINESS CITIES HAVE TO HAVE A 1ST CLASS TO COMPETE–London, Frankfurt, Munich, Amsterdam, Tokyo,Shanghai,Hong Kong/ Sao Paulo, Sydney,Dubais

    1. Cranky’s post had nothing to do with US airlines vs foreign carriers. It was about all business class carriers having any chance at survival and success.

    2. why in every thread does someone have to complain about UA-CO in all caps and who is responsible for “ruining the airline”? Let’s stick to the topic at hand…

    3. Classic Robert…Your last post was nonsense and this one is no different. What on earth does this post have to do with all business class carriers not working?

  9. What’s interesting is Odyssey’s choice of using the C-Series. Will the CS100 need to stop in Shannon to refuel similar to the A318 or can it make the trek non-stop? If so, that just saved Odyssey an hour on the trip.

  10. Corporate contracts are just part of the FF problem. The other half is points and miles! I fly delta a lot not because it is the best each individual trip, but because the loyalty leads to an aggregate better experience. Premium class travel internationally is worth a lot of MQM / MQD

  11. There’s another factor that limits an all-business class airline possible success: Corporate travel restrictions/.

    To start, many mid-/large-sized organizations sign contracts with airlines/airline joint ventures/airlines alliances that include market and/or revenue share requirements that must be met to secure/maintain discounts. Key international routes are often part of the agreement (for example, if a comany wants a discount on, say, New York-London, the airline may require the company to shift its business on a domestic route away from a competitor). Likewise, a business that wants a deal on NYC-SFO might have to promise its NYC-Paris business to the airline.

    Second, businesses continue to restrict the number of employees who are eligible to fly in a premium cabin, and they extend the minimum flight/trip duration for premium cabin travel as well. It may result in only C-level executives being allowed to buy business class fares, and even then, perhaps only on flights of 7 or more hours.

    If La Compagnie, Odyssey, etc. code their fares as economy class (e.g., Y, B, K, etc.) that may help them get around the premium cabin fare restrictions and the minimum journey limits for premium cabin travel.

  12. Which was the interesting thing about Midwest Express. It started as a subsidiary of Kimberly Clark to shuttle employees to various company locations. Some of us will also remember that even when they were losing money they weren’t bleeding as bad as the other major U.S. carriers, and came back to profitability before they were bought out and eventually became part of what is now an ultra-low cost carrier.

  13. NYC to London is a huge market. I think the biggest change since 2006/2007 that the last round of these airlines started is LCY and the move of more and more banks to Canary Wharf.

    I love the BA Club World service. My usual trips were JFK-LCY and returning LHR-JFK. Nothing against LCY-SNN-JFK, but the later option of flying out of LHR gives me a fuller day in London. LCY is further than LHR and the A318 flies slower so you get a bit of extra sleep on the very short red-eye.

    I can see a JFK-LCY service in all J on a CS100 working. Undercut BA in ticket cost and you will have traffic move. Not all corporate contracts are BA/AA only. The problem with MaxJet/SilverJet/Eos is that they flew into secondary airports. Depending on the corporate travel agent, it’s very easy to book AA/BA instead due to airport differences. However, with the strong preference of LCY – it’s hard to argue against. Not sure what the interior setup is, if Odyssey can configure it with all direct aisle J (i think the aircraft is narrower) they would have a huge step up. Besides waking someone up or being woken up, i’ve accidentally knocked my drink onto my neighbor on the BA 318.. he wasn’t too happy.

  14. Cranky, you left out Lufthansa, on which I flew all-business on a 737 to DUS, FRA and MUC. I also flew Eos to STN and L’Avion to Paris.

  15. I wonder if there is more space for airlines to pull out narrow bodies in the winter and reconfigure them for all business class over the Atlantic? Get more bang for your buck that way.

  16. Add in old failures like McClain Airlines, Air One, Legend, MGM Grand Air, Ultrair, and probably a dozen I forgot.

    They don’t work, neither do low cost airlines run by major airlines.

    Or anything that “Family/Avatar/Insert Graphic Here” managers will try.

  17. I had the privilege of working for two all C-class airlines – both of whom are in the cemetery along with eos and Silverjet.

    From the beginning I have felt these airlines are shooting too high at too small of a prize. As has been mentioned above, anyone that can afford a biz class ticket is typically locked in to a corporate contract or is addicted to their FFP.

    I’d like to see someone do one of these concepts aimed at the customers that are actually up for grabs – small business owners, less than frequent fliers, etc. Hit them with a concept that is better than Y+ but less than full biz at a price that is affordable but by no means a bargain.

    With AA and DL going to 10 abreast in Y/C on T7s and the reducing the C/C cabins (and associated upgrade potential) a traveller without top tier status is relegated to a really uncomfortable ride. Those are the folks I would target with a new airline…

  18. Then there is, of course, the smug aspect; those people sat in C quite like watching the hordes walk past them to the cheap seats – when you are sitting in those expensive ‘cheap’ seats in a C-class only plane (cos they’re the only seats), where’s the thrill of that….?

  19. “The big guys are tough to beat” – Well, I think the “big guys” should also be able to immediately emulate any of the newcomers’ business models to at least the extent to make them unprofitable. Once these new airlines give up again they can go back to their former ways of doing business. I’d be surprised that this should not always work in some way, esp. as these airlines, with their code sharing agreements, have much more market data to base statistically sound decisions on than any newcomer.

  20. What’s the deal with Open Skies? I have’t heard anything about them in years–how are they doing?

    1. Axel- They’ve been very quiet. No growth, nothing. I’m guessing it does well enough to avoid people bothering to kill it but that’s it.

      1. Guess so. ORY-JFK, EWR must be earning its keep. I always forget about them–I do wonder what their numbers look like…

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