Transatlantic Battle Intensifies
Additional capacity and frequency from Eos, Maxjet and Silverjet—the all-business-class airlines serving the New York-London route—have grown to meaningful enough proportions to affect corporate pricing and alter marketshare. Carriers of all stripes said demand remains robust on the route, as capacity between New York and London continues to grow at double-digit annual rates.
The niche carriers have reached a tipping point in the corporate market, said JP Morgan European Equity Research airline analyst Chris Avery in a research note. "With this level of capacity, we believe that these all-business-class carriers will be starting to affect corporate fares as well as taking marketshare in the premium leisure market between the two cities," he said. "Certainly, at a minimum we think they will be preventing any increase in existing business class fares between London and New York, and we have—so far limited—evidence that corporate fares are actually being reduced because of the growing competition."
JP Morgan in a research note said that, upon the launch of Silverjet's second daily frequency this month, the all-business class carriers will hold 21 percent of all premium seats on the New York-London route. The figure does not include Eos' fourth daily flight, to launch in September.
Niche carriers operating between New York and London jumped in to the market in late 2005, with Eos and Maxjet leading the charge, and continue to grow. The carriers inspired imitators, with Silverjet adopting a similar model this year when it launched service between Newark and London Luton. Even entrenched transatlantic players are pondering similar business models. Virgin Atlantic said it plans to launch its own all-business class carrier, connecting passengers between various EU cities and New York within the next year and a half, and British Airways CEO Willie Walsh said the carrier is toying with the concept of all-business-class service between Europe and the United States as soon as next year.
During a presentation in New York hosted late last month by SKAL, an international travel and tourism association, executives from Eos, Maxjet and Silverjet said demand for premium travel between New York and London remains strong. The carriers all have posted load factors higher than 70 percent, noting that they have created new premium-class demand in the market.
Eos founder Dave Spurlock said premium travel between New York and London represents a $1.5 billion annual market, adding that the premium market is "vast and growing." Spurlock said the market is growing revenue by 15 percent each year, leaving room for new and entrenched players alike.
"There are a lot of people saying that between us we have 21 percent of the available business class seats between London and New York, which is true," said Silverjet CEO Lawrence Hunt, "but we're actually growing the market of business class travelers. As people get wealthier, companies get bigger and more people travel, everybody wants to travel business class, but they're not going to pay $5,000 to do that."
Spurlock agreed that the new breed of carrier is lapping up demand in a growth market. Despite analysts' contention that the business class carriers are positioned to take share from legacy competitors, Spurlock said there is enough new business to fuel Eos' growth.
"If there's a single misconception that I've heard time and time again during the past three or four years is that Eos needs to take passengers away from British Airways and Virgin. My belief today is that we don't," Spurlock said.
According to TRX Travel Analytics analysis of OAG data, there are 12.3 percent more weekly scheduled seats between New York and London this July compared with the same month last year. More capacity is coming on board this year from legacies and niche carriers alike.
Eos in September will expand to 40 flights per week, which the carrier said will place it in the top four "most frequently scheduled airlines between New York and London," surpassing Continental and Delta, the company said. American Airlines, British Airways and Virgin Atlantic remain the top three carriers on the route.
"Adding our fourth flight on the peak days is really a matter of matching schedule to guest demand," said Andy Menkes, Eos vice president of sales. "What makes it extremely significant is the opportunity to leave London Stansted on a Sunday night as well as to leave New York Kennedy on a Monday morning. It's not just the incremental frequency, but also the specific scheduling times that we chose. That's what really makes it a quantum leap."
Still, entrenched players too are growing their presence in the market while highlighting their frequency, marketshare, loyalty and network strengths.
American Airlines, which has the second-largest premium class presence between New York and London, in October plans to launch service from JFK to Stansted—supplementing its presence between JFK and Heathrow—and expects to add a second daily roundtrip next spring. A spokesperson said the route is intended to "better serve American's premium business customers and provide an additional connection point for economy travelers."
BA remains the leader in the New York-London market, with the most capacity, 11 daily flights, and the highest marketshare with 39 percent of premium class seats. British Airways in the next year is looking to shift capacity from Gatwick to Heathrow and expand throughout Europe, as opposed to growing capacity on the New York-London route.
TRX Travel Analytics vice president and general manager Scott Gillespie noted that British Airways' large network throughout Europe, anchored by its Heathrow stronghold, remains a big draw for corporate travel buyers. American noted similar virtues and counted its expansion as a strike against the newer players.
An American Airlines spokesperson said AA's expansion "presents a new challenge to niche airlines serving business travelers on this route that cannot match American's network, schedule, luxury lounges and the world's largest frequent flyer program."
Meanwhile, Canada-based Zoom Airlines last month launched all-economy class service between London Gatwick and New York JFK, casting itself as a "low-fare, full-service" alternative to entrenched transatlantic carriers. The carrier is serving daily flights from New York at 5:30 p.m. and return flights from London at 1:00 p.m.
"Finding low-cost transatlantic flights is a challenge for U.S. consumers in today's marketplace, with no affordable alternative to British Airways, Virgin Atlantic, Delta and others," Zoom co-owner Hugh Boyle said in a statement. "Zoom's goal is to become the leading low-cost transatlantic airline, offering consumers an excellent and affordable alternative to today's options by providing the same economy and premium economy services at a savings of up to 65 percent."
BA's Walsh at a recent presentation at a BritishAmerican Business forum in New York told Business Travel News that despite new entrants, premium demand remains strong for the carrier, while growth in coach is lacking. "The non-premium on the transatlantic has been soft, and we've seen that for nine months—probably initially triggered by the [Heathrow] security scare in August last year and probably compounded by the weakness in the dollar, so traffic out of the U.S. has not been as strong as we had seen previously," Walsh said.
Walsh said he does not expect additional capacity to saturate the market any time soon, even in light of the Open Skies agreement, which opens access to once-restricted routes. "What I think will happen is you'll see capacity transfer from Gatwick airport into Heathrow airport. That's clearly what we're doing. Transferring Houston and Dallas out of Gatwick is just shifting capacity, not increasing capacity. I would expect the U.S. carriers that are talking about getting access—some have managed to acquire slots at this stage—would probably look at doing something like that as well. I don't think you'll see a radical shift in capacity. I think Heathrow will build up over time; it won't be overnight."
Walsh said BA last month became the first Europe-based carrier to file and gain approval for the blanket authority afforded by the recent approval of the EU-U.S. Open Skies treaty, and already had its sights set on origin cities in the European Union—including Paris, Frankfurt, Amsterdam, Brussels and Milan—to serve New York and other U.S. cities.
"We are looking extremely seriously at the launch of new services from the U.S. to major business centers in continental Europe," Walsh said. "This would be a radical departure for British Airways: the first time in our 88-year history that we have operated long-haul flights that neither take off nor land in the U.K." Walsh said BA is eying the use of Boeing 757s or 767s "in a two-class configuration, or perhaps as exclusively business class services" for its expanded routes next year.
Maxjet, meanwhile, in August will launch Los Angeles-Stansted service, CEO Bill Stockbridge said. Silverjet last month gained DOT exemption approval to launch service between Luton and Chicago. "At the moment, we're negotiating on 12 new routes around the world," Hunt said.