The new wave of long-haul all-business airlines September 2003

The impending retirement of Concorde services has provided a fresh impetus to the concept of the all–business class long–haul airline. A number of such airlines are either now flying or are expected to fly soon. Historically, the model has never been sustainable in the airline industry, with initially promising projects like MGM Grand Air ending in failure. Who are the newest players and how will they fare?

Blue Fox

In planning since 2000, the UK–based start–up has been hampered by the usual suspects — economic downturn, September 11, Iraq War and SARS. The carrier had planned to use specially configured 767–300ERs on twice–daily London Stansted–JFK flights, offering a 50–inch pitch, DVDs and on board chefs, targeting business executives who were price–sensitive and did not work for large corporations or banks with their own corporate programmes.

A quite high–profile chairman, Norman Tebbit, a senior minister in the Thatcher government, was appointed, but the chances of Blue Fox ever flying have been dealt a blow with the loss of Mike McTighe, the proposed COO, who has joined Air Atlanta Europe, the newly created UK operating subsidiary of Air Atlanta Icelandic, as its managing director.

Bluetail

In August 2002, German and US entrepreneurs announced that were seeking to launch a business class only airline in the second–half of 2003 using a 777, initially on transatlantic services between German and US cities.

Bluetail’s plan involves leasing the 777, stripping the first–class and economy–class seats from the aircraft and replacing them with business–class seats in order to accommodate 100–120 passengers.

Additional space created by the conversion will allow aircraft configuration with extras such as communications and office equipment, sleeping quarters and a bar. The airline needs around €22m in basic start–up capital; if aircraft financing is fully accounted for, the total requirement is almost €100m.

In August 2002, German and US entrepreneurs announced that were seeking to launch a business class only airline in the second-half of 2003 using a 777, initially on transatlantic services between German and US cities.

Bluetail's plan involves leasing the 777, stripping the first-class and economy-class seats from the aircraft and replacing them with business-class seats in order to accommodate 100-120 passengers.

Additional space created by the conversion will allow aircraft configuration with extras such as communications and office equipment, sleeping quarters and a bar. The airline needs around €22m in basic start-up capital; if aircraft financing is fully accounted for, the total requirement is almost €100m.

Privatair

Swiss–based Privatair is probably the most advanced of the premium carriers. On behalf of Lufthansa, it started an all–business–class transatlantic service, using a 48–seat Boeing Business Jet (BBJ) on Düsseldorf–New York Newark service in June 2002.

This replaced Lufthansa’s own A340 operation on the route. The BBJ service is priced at standard Lufthansa business–class fares and operates as a normal scheduled flight under LH flight numbers.

Privatair has since launched two more services for Lufthansa, Munich–New York Newark which started in May this year, and Düsseldorf–Chicago which began in June, both using A319s in a business jet configuration, leased from CIT Aerospace.

Lufthansa has said that the Düsseldorf–New York service’s load factors and yields are meeting targets, customer satisfaction is good and that the operation is profitable.

Lufthansa chose the new services after exhaustive route studies, with an essential ingredient being "a business centre at one end and another at the other end" of the route.

The Düsseldorf–Chicago service is a new route for the carrier, whereas Munich to Newark doubles Lufthansa’s business class capacity to New York from Munich as it already flies daily to Kennedy Airport with an A340–300 with 42 business seats.

Lufthansa’s expansion of its executive service has prompted renewed interest in the concept from other carriers. Privatair says it has been contacted by 30 airlines about similar operations, and has entered into serious route and pricing studies with six of them. Inevitably, one such carrier is believed to be Virgin Atlantic.

Primaris

Las Vegas–based Primaris is planning to offer first–class–only transcontinental and international service from the autumn of 2003. Targeting business travellers not just with the promise of better space and service, but also with discounts.

Primaris will offer first–class fares for 50% to 70% less than the unrestricted fares of the incumbent airlines. With a declared break–even load factor of 60%, the airline is configuring its 757s to accommodate 100 seats in a two–by–two configuration offering 45" seat pitch. Letters of intent have been signed with lessors Pembroke Group and Aviation Capital Group for ten 757–200s. At this time the airline is still awaiting authorisation to conduct operations as an air carrier. It has applied for an FAAAir Carrier Operating Certificate and US DoT authority to conduct interstate and foreign scheduled air transportation.

Premium Airways

Premium Airways plans to start operations in January 2004, initially operating twice–daily flights between JFK and Paris CDG with two 757–200 aircraft configured with 80 business class seats.

The company is in the process of applying for slots at the two airports. With all–business class configuration, Premium intends to offer JFK–CDG return tickets at $3,150, CDG–JFK returns at €2,250 — roughly a 50% reduction compared to its competitors. Founder Jerome Maillet says the company hopes to provide more details about the airline in mid–September, including disclosing the identity of its investors.

Maillet argues that, although the North Atlantic is one of the most competitive markets in the world, the competition "essentially pertains to the economy cabin where elastic demand has driven fares to incredibly low levels".

Business class fares, he argues, are among the highest fares in the market on a per miles flown basis (and on the contrary the average economy ticket is priced very low per miles flown). Premium says its break–even load factor will be 38%.

Royal Jet

Gulf Air is to launch a weekly premium service from Abu Dhabi to Geneva in Switzerland using a Boeing Business Jet (BBJ). The BBJ aircraft has been configured to provide a three–class service for VIPs and corporate passengers and will be operated by Gulf–based Royal Jet.

Success/failure indicators

The timing of the launch of these all business class airlines may be problematic. Although capacity has never been cheaper and there is a ready supply of personnel, these pluses are outweighed by excess capacity, a preponderance of cheap fares and weak demand especially at the high yield end of the market. Certainly, passengers do respond to low fares, but business passengers also particularly value frequency and the ability to book a flight to other destinations within one airline.

The lack of scale and scope economies will work against these new entrants.

The proposed round trip fare for Premium Airways, $3,150, means that the airline will rely on attracting expense–account travellers. This fare represents a 50% discount to the published business class fares of the traditional carriers, but it should be noted that with corporate discounts, many business travellers pay considerably less than the published fare.

Currently several airlines are discounting published C Class transatlantic fares by as much as 50%. Websites such as www.first–class–air.com are selling C Class round trip fares to Europe starting at $3,000.

Until recently such discounting of C and F fares has been rare, but in today’s environment, Premium Airlines may well not be able to enjoy the sort of price advantage it seems to expect.

The Privatair business model would appear to have more advantages with the backing and cooperation of a major European airline. As the contracted and integrated service, Privatair has no direct competition from the major airline, and has use of its lounges, FFP, marketing clout etc. The problem for Privatair is that Lufthansa will be keen to operate its own services, re–instating A340 operations when demand recovers.

Whereas full service carriers have limited weapons at their disposal to tackle low–cost carriers, their armoury is somewhat greater when they come to respond to the threat posed by all–business class airlines. More importantly, the threat of the loss of high–yielding business class traffic will make the traditional carriers very keen to nip the concept in the bud.

Pricing is one such tool, and it will be interesting to see whether Air France, American Airlines, Continental and Delta will allow themselves to be undercut, or will they match Premium Airways at least on some seats? The traditional flag carriers also have very powerful and well–established frequent flier programmes, which will almost certainly be used to encourage passengers to remain loyal.