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The new crop of all-premium airlines in the transatlantic market thus far has avoided the fate of many failed start-ups in the challenging commercial aviation sector. The likes of Eos, MAXjet and Silverjet all inaugurated service within the past two years and now are adding new routes and bumping up frequencies as they record growing passenger numbers. Directly and indirectly, they have prompted reactions from incumbents.
These niche airlines are expanding operations and competing against major U.S. and European carriers by filling gaps in the pricing and product spectra, serving alternate London airports, aggressively pursuing corporate clients with discounts and flat fares, and attracting additional funding. Executives of the new entrants cite fresh capital and heavier passenger volumes as validation of their companies' business plans, developed during a time of high demand and liberalized regulations for the transatlantic market.
"One result of the U.S.-EU open skies agreement is the likely proliferation of all-business class services from a number of European cities, operated by carriers other than the flag carrier," according to a recent report by Unisys R2A Transportation Management Consultants. "If, as we conjecture, the market further fragments between those wanting just transport at the lowest cost and those willing to opt for a bit more comfort, value for money will become more central to the choice of a premium seat and we may see demand grow for something between 30-inch pitch and perfect lie-flatness."
Eos, MAXjet and Silverjet all are adding services this month. Silverjet next week will begin a second daily roundtrip between Newark and London Luton, after filling 80 percent of the 5,800 seats it offered in August. It plans to grow its fleet to five aircraft and consider additional routes. In November, Silverjet plans to launch London-Dubai flights to tap into the "premium air traffic to the emirate growing at 20 percent year-on-year."
Fellow all-business class operator MAXjet last month launched nonstop Los Angeles-London Stansted service. This month, it added a weekly frequency between Las Vegas and Stansted. It had resumed Washington Dulles-London service in May, continues serving JFK-Stansted and now is considering new transatlantic routes.
Like Silverjet, MAXjet also is looking further afield. In July it applied to the U.S. Department of Transportation for the right to operate Seattle-Shanghai service, effective 25 March 2009. MAXjet said its proposed service "would increase business class capacity between the U.S. and China in an efficient manner, addressing the shortage of product appropriate for transpacific corporate travel." It is one of several airlines seeking new authority made available after the most recent U.S.-China aviation agreement.
Calyon Securities analyst Ray Neidl, when initiating coverage of MAXjet this year, described the company as "a pioneer of the low-cost, all business class airline model ... well-positioned to take advantage of a lucrative niche market." Neidl last month wrote in a research note that he expects load factors above 77 percent for 2008 and 2009, and suggested potential target markets of San Francisco, San Jose, Chicago, Miami, Fort Lauderdale, Boston and Orlando. MAXjet's delayed aircraft deliveries and "higher-than-expected cancellations because of mechanical reasons" should be viewed as short-term challenges, Neidl noted in a more recent research note.
At the higher end of the premium-service spectrum, Eos Airlines this month is adding a fourth aircraft to its operation, allowing it to add a JFK-Stansted frequency. The all-first-class carrier now flies 32 weekly flights between the two airports.
Last month, Eos said it "secured another $50 million in equity capital from institutional and private sources," helping the airline take delivery of two additional airplanes by early next year.
The new group of premium transatlantic carriers also includes L'Avon, a French airline that operates between Newark and Paris Orly. L'Avon plans to initiate a second daily frequency for the winter timetable.
These airlines join a transatlantic field that includes all premium-class operations marketed by Lufthansa and Swiss International Air Lines, as well as first- and business-class products flown by several U.S. and European network carriers.
Though some airlines began refreshing premium cabins for transoceanic flights well before Eos, MAXjet and Silverjet took to the skies, it is clear that products and services are playing a growing role in the competition for lucrative business passengers. British Airways and Virgin Atlantic--two carriers already known for their premium transatlantic products--currently are exploring all-premium products to augment existing transatlantic services.
In addition to impacting products, the new entrants are forcing some major airlines to reassess sales and network strategies. American Airlines, for example, earlier this year adjusted its definition of the London market to include secondary airports. "If corporations allow their travelers to buy on these limited carriers, then it impacts their performance," AA senior vice president of global sales David Cush told Procurement.travel. "We are not going to let these guys come in and skim off our best customers."
By July, AA announced its own JFK-Stansted service. "We flew to Stansted 15 years ago and we were just a little before our time. At that time, the airport boarded about 3 million passengers a year. Now it boards close to 40 million passengers a year," Cush said this summer. "I give these guys credit. Once we saw people launch service into Stansted, particularly for premium customers, we did the normal analytical due diligence that we always do when there is a new competitive threat out there. We talked to our customers and they told us, 'Yeah, if you flew to Stansted, we'd fly you.' We figured out how it works into our London portfolio, how it works into Open Skies and how it works with all the premium services at Heathrow. It seems like a perfect solution."
The new carriers--and the competitive responses they have triggered--have brought new pricing options to the business travel market. "Traditionally, a large gap exists between business class and economy fares, with typically mediocre value-for-the-money offered on premium economy class service," according to Calyon's Neidl. But now, that gap is disappearing on some transatlantic routes, especially New York-London.
"Twenty years ago, a business class fare between New York and London was a rather standard $2,578. Translated into 2007 dollars, that equates to $4,575," according to Unisys consultants. "For business class travel this August, prices range from $2,431 on MAXjet to $10,300+ on British [Airways] and Virgin. That means that flying in premium can cost anywhere from 47 percent less to 229 percent more (in Consumer Price Index-adjusted dollars), with lots of alternative price points in between. And that's only considering non-stop options."
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