More dash than cash

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The big airlines have long battled ferociously to attract business class travellers, who are by far the most lucrative passengers. As a guide, first class loses money, economy is marginal and business produces the profits. Even in 2002, in the wake of 9/11, their overall operating profit margin from business class was 29 per cent, against 5 per cent from economy.

High-volume, low-cost airlines have already revolutionised economy class travel. The new buzz is about the “budget luxury” market that hopes to do the same for business passengers. Two services, Eos Airlines and MAXjet, are already flying dedicated business-only services between London and New York. Two more are due to launch soon: Elysair is planning to fly to New York from Paris, and Silverjet is scheduled to start flying Luton to New York early in 2007.

Eos’s founder, David Spurlock, is a former director of strategy at British Airways who started Eos after it became clear to him that the airline industry was operating in a similar way to much of the retail business in trying, especially on international routes, to be “all things to all people airlines”.

He says: “The business model was wrongly suited to serve the premium business class international traveller. By starting over and having the benefit of a clean sheet of paper we could design an airline which on every level - cost, the product offering including seats, and service - could be tailored much more closely to their needs.”

Eos and MAXjet run twin-engined Boeings between London Stansted and New York’s JFK airport - though MAXjet has added services from the Essex airport to Washington’s Dulles and Las Vegas, a big convention destination.

Both aim to provide space and comfort for the cost-conscious traveller. But they are somewhat different animals. MAXjet’s 767s have 102 seats against 48 on the 757s operated by Eos. Both aircraft types have capacity for over 200 passengers in a typical scheduled airline layout. Eos provides free limousines to and from Stansted. MAXjet describes itself as a strictly “airport to airport” operator.

However, MAXjet’s lack of frills is reflected in significantly lower fares than its rival’s. MAXjet quotes round-trip fares starting from ₤854 in the UK and $1,500 in New York. But except for passengers able to book long in advance or take advantage of special promotions, ₤997 and $1,754 look more representative prices. Published fares from Eos are around ₤1,700 ($3,150 from the US) for an advance purchase ticket or ₤3,200 ($6,850 if bought in the US) for an unrestricted fare.

Superficially Eos’s fares are higher than deals negotiated with mainstream carriers by big businesses. But Eos’s David Spurlock says his airline also offers bulk deals.

Passengers on Eos flights find a cabin layout with 21 sq ft of space for each passenger, “companion seats” with tables big enough to cope with two laptops, enabling up to four people to get together and work. Travellers can dine when they like - before boarding or at any time during the flight - and can settle down to sleep under duvets.

Staff are on hand at each end of the route to sort out bags and guide customers them through security. There is a check-in deadline of 45 minutes before departure but if travellers are late staff call to make sure they are on their way and meet them at the kerb to rush them through airport procedures.

The meet-and-greet service impressed passenger Rory Sutherland, vice-chairman of advertising-to-design company Ogilvy Group UK. Working in London’s Docklands, he decided to try a service that avoided crossing the capital to Heathrow.

“I found the experience was so far ahead of expectations that I went straight from being an experimentalist to being a convert and advocate,” he says. So much so that he urged his parent company to negotiate a corporate deal with Eos. “From wheels-down at Stansted I was outside my office in 1hr 15mins. This was also the first airline where I felt they were pleased to see me rather than regarding me as what I think some airline staff call SLF (self-loading freight).”

MAXjet’s seats recline to 170 degrees, but while passengers cannot lie quite as horizontally as they could on Eos, MAXjet CEO Gary Rogliano does not see that as a deciding factor. What Rogliano has over his competitor besides lower prices is a deal to transfer customers’ luggage to or from connecting flights MAXjet sells on Air Berlin, which operates to a range of European destinations. He has also been working on an arrangement to switch bags to and from services operated at JFK by the US low-cost airline JetBlue.

MAXjet also has fast-track security channels, departure lounges offering business services, free wireless internet access, plasma screen televisions and drinks. Rogliano says 40 per cent of its customers are referrals.

One passenger, writing on the website of Skytrax, which ranks airlines and airports, felt the in-flight catering could be improved but said the airline offered “wonderful value for money, allows the passenger a comfortable flight, and at a price which will make any finance director smile. You will not get the total service of the majors - but the price differential is so wide that the odd frill here or there is an indulgence not missed.”

When long-haul passengers were questioned in the latest Corporate Air Travel Survey by the International Air Transport Association, 8 per cent said they had already taken all-business-class flights, a surprisingly high figure given the small number of carriers operating and the fact that they have been available only since 2002.

New entrant Silverjet will operate Boeing 767s with 100 seats from Luton to Newark, rather than JFK. Many of its management have senior airline backgrounds, including chairman Peter Owen, a former chief operating officer at British Airways.

But it has not drawn cabin staff from airline ranks, says founder and CEO Lawrence Hunt. “We have recruited from the hospitality industry. We want our crew to be happy when the plane is full, not when it’s empty.”

Hunt’s background is in technology, but he took advice from his cousin Chris Foyle of cargo carrier Air Foyle. “I got sick of paying as much as ₤6,000 to fly business class to the US and wasting my company’s money,” says Hunt. “The average price of a ticket is ₤3,400 if you are not getting a corporate discount. So in early 2004 I got together with Chris to see if there was a way to reduce fares dramatically, by 60 or 70 per cent.

“Our operating model will be that of the low-cost airlines. We won’t offer corporate fares and won’t build complexities or rigidities into our business. The reason the big airlines need to put on fuel surcharges is that they have fixed-price deals with their corporate clients.”

Silverjet’s average return fare will be ₤999 but people who book early will pay less. Hunt believes the benefits of Luton’s business terminal outweigh perceived disadvantages. “It’s less congested. We will have our own security channel and a 30-minute minimum check-in. There will be valet parking, passengers will get a good deal with a chauffeur service and we are working out a fare for helicopter transfers from Battersea Heliport which we expect to be ₤300-₤400 one way.”

Getting into New York from Newark, he argues, is faster than from JFK, “and the New Jersey catchment area is much more our market than Connecticut”. There will be lounges at both airports.

The major carriers are fighting back in response to the extra “hassle factor” from increased security and the pressure to keep business travel costs down. In fact the “business-class-only” flight is not a new idea, and has been gaining popularity among big carriers since the crisis after 9/11. In 2002 Lufthansa started business-class-only services from Dusseldorf to Newark. Later it started similar flights from Dusseldorf to Chicago and from Munich to Newark. No longer did high-fare payers have to board with the economy class herd, and the jets had far fewer seats than usual.

Swiss, formerly Swissair, and now in the process of a full takeover by Lufthansa, followed with a service between Zurich and Newark using a Boeing Business Jet fitted with 56 seats. Then KLM started all-business class flights between Amsterdam’s Schiphol Airport and Houston, aiming to attract oil industry executives. All the aircraft used for these services are fitted with the increasingly popular “lie-flat” seats.

But if these flights alleviated some of the inconvenience of flying post-9/11, they did not address the issue of cost. While some companies relaxed their rules restricting premium fare travel as economies began to pick up again, many travellers found their employers loath to loosen the reins. Small- and medium-size enterprises had in any case always been more cautious about splashing out on business class. Which is where MAXjet and Eos saw their chance.

With so many premium seats on offer between London and New York, is there enough business to go round? Sir Michael Bishop, chairman of bmi, believes there may be. “Will this be a profitable niche business? If you consider that it took EasyJet and Ryanair about four years to really show their mettle it might be a bit early to say but I don’t think its black-and-white - either them or the network airlines. There is probably room in the market for everyone.”

“It’s a huge market,” says Silverjet’s Lawrence Hunt. “There are about 2,000 business class seats a day on the route. Our aircraft has 100 flat beds. We are not talking about grabbing a huge percentage and there are also a lot of economy and premium economy passengers paying ₤800-₤1,200 who might be attracted to us.”

Is there a risk of a backlash from the major carriers? “We’re not out to make waves,” says MAXjet’s Gary Rogliano. “We’re not aiming to operate five or six frequencies a day.”

Rogliano says caution will be his watchword. And he is realistic enough to quote an old industry joke: how do you wind up worth $100m in the airline business? “Start out with a billion.”

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