November 2022, Virtual
21 November 2022, Hilton London Metropole
Against constant background murmurings of a credit crunch and corporate belt-tightening, we have already seen airlines jostling for position for the year ahead.
British Airways (BA) defied all expectations and announced a business only service to New York, and Eos has fronted up to Silverjet on the London-Dubai route, as well as adding New York Newark to its JFK flights.
The latter”s announcement came on the same day ” coincidence? ” that billionaire property developers the Reuben brothers decided not, as planned, to convert a ”10m loan to Silverjet into equity in the form of 60p shares. Understandable, as those shares had just finished at 24p.
They hit turbulence after the company”s January traffic figures revealed a load factor of 54% - and the consequent news of the Reuben loan sent the shares spiralling again, to below 20p. Last March, they peaked at 209p.
It”s a vicious circle, and it will be fascinating to see what happens ” the Reubens said they ”continue to believe the company has a sound business model,” while Silverjet CEO, Lawrence Hunt, was defiant, rejecting comparisons with failed Maxjet, which went bankrupt in December.
”The airline business is a tough one but we are very confident of going into profitability in two or three months. Yield is good at more than ”1,100. Maxjet made a number of fundamental errors ” they were only flying four days a week and went on and [then] came off, Washington DC,” he said.
The reality is, though, that pre-tax profits in 2006 were -”1m, and for 2007 were -”13m. The word ”profit” seems inappropriate in such circumstances ” nobody likes a minus sign in front of their figures.
The question is, will demand for business class suffer because of the shaky economy? Silverjet was selling discounted transatlantic seats for around ”700 last month, and you might think, in hard times, that such mid-range prices would go down well.
Eos distanced itself from its rival, senior vice president John Morgan saying: ”We don”t believe we operate in the same sector as Silverjet ” anyone who has flown with us will agree that we are in a different category altogether.”
Perhaps they are, but you would pay for that difference too. And perhaps Eos has more to fear from BA”s surprise business only service, with its price brackets probably more similarly aligned.
The big surprise came on 1 February when BA announced the service from London City to New York. After Virgin ditched its own plans for a premium-only route, it marked the first fight-back from a traditional carrier against the likes of Silverjet and Eos encroaching on the profitable business class market.
Silverjet”s Hunt told ABTN he was confident BA would have to charge more for its transatlantic services. ”They have finally made a U turn and woken up to the fact that it is what customers want. BA has mainline pilots and [will have] to night-stop crews in New York. They also have 32 seats to cover ”60,000-”70,000 of cost ” it”s going to be expensive.”
So, in this time of corporate belt-tightening, will business travellers go for it? Can Silverjet fight back with lower fares for what is still, after all, a business class service?
And in two very upbeat announcements this week from those who book business travel, the Guild of Travel Management Companies (GTMC) and Carlson Wagonlit Travel (CWT), the defiant message seemed to be ” what recession?
That was, in fact, the former”s headline to its record annual figures for 2007. GTMC chief executive, Philip Carlisle, said member companies exceeded its expectations by 1m bookings as they ended the year just shy of the 14m mark.
”While our leaders were warning of a spectacular slump, Britain”s business community took no notice, and got on with the job of boosting the UK economy,” he said.
And CWT president and CEO Hubert Joly had a very similar message, having seen his company increase sales by 30% to ”13bn and report record new sales, excluding renewals, of more than ”1.5bn.
”When we did our budget for 2008 we were very prudent ” basing it on market growth of 2% - but the growth we are experiencing is way above that in first month of this year [up 11% in Europe compared to January 2006],” he said. ”The bottom seems to be falling from the economic market, but companies are still travelling because they have become very international and they can”t just stay at home.
”We do see a disconnection between the state of the financial market and that of the business travel market.”
Meanwhile the low-cost operators ” which are increasingly targeting corporate business, as seen with easyJet”s entry into the GDS booking system ” seem to be embracing signs of recession like a prodigal child.
They are undoubtedly hoping that companies ” and some city analysts believe he has a point ” will order employees onto their budget services to save on costs.
The ever-bullish Ryanair CEO Michael O”Leary said that - despite the possibility of a ”perfect storm” of higher oil prices, poor consumer demand, weaker Sterling and higher airport costs ” his airline would thrive with its lower fares.
”These downturns pose unique long-term opportunities for the lowest cost producer to grow rapidly, open new markets and speed up the pace of industry consolidation.”
Rival easyJet is certainly doing that, doubling French services by the middle of the year. ”With a low-cost penetration that is half the European average, France”s air transport market still suffers from a lack of affordable, direct air links and therefore offers huge opportunities for us,” said easyJet chief executive Andy Harrison.
Scraps are heating up in the premium and low-cost markets, then. Buckle up.