Despite predictions of lean times ahead, the growing trend for all-Business Class is a display of optimism from several of the major carriers, says Gary Noakes
On paper, the prognosis for the all-Business Class airline concept does not look good - three carriers have collapsed since the end of last year, while soaring fuel prices and the credit crunch could mean perilous flightpaths for new and existing ventures.
Yet despite this, British Airways has pressed ahead with plans for two separate ventures to New York and to succeed where Maxjet, Eos and Silverjet failed. Meanwhile, KLM, Lufthansa and Singapore Airlines have picked some key business routes on which to run all-Business services.
BA put its cards firmly on the table in June, with the launch of its OpenSkies venture, flying from Paris Orly to JFK. OpenSkies is not strictly an all-Business Class carrier, as its two 82-seat Boeing 757s also have 28 Premium Economy and 30 Economy seats, but it is aimed mainly at the corporate market.
So confident is BA that, shortly after OpenSkies flew, it snapped up Orly-based L'Avion, which operates 757s up to three times a day on the route in a one-class format, paying £54 million to buy the airline and its slots. OpenSkies plans to have nine aircraft by next year, operating from major European capitals and has already announced plans to change to a two-class Business-style configuration.
BA has an even more radical plan for the UK from September 2009 - twice-daily London City-JFK flights using Airbus A318s with just 32 flatbed seats. The A318, which usually carries around 100, is the largest aircraft that London City can accommodate. BA's chief executive Willie Walsh's commitment is deadly serious - BA has no aircraft of this type and ordered two new ones in May.
The A318 does not have the range to reach JFK non-stop from London, but Walsh believes he can use this to his advantage. The former boss of Aer Lingus, Walsh, will use US immigration at Shannon airport to process passengers on the aircraft while it is refueled and, in 40 minutes, by-pass what on a bad day can be well over an hour's queuing for immigration in New York. At both ends, BA will offer a 15-minute check-in.
The attractions of a venture like this for BA are obvious, as even in the bad times London-New York is the highest yielding route in the world and BA (with 11 flights a day from Heathrow already and, from October, one from Gatwick), knows this very well.
BA's attempt should succeed where Silverjet and others failed, despite the current fuel price. It has a solid brand name and, from London, will use small aircraft which add the equivalent of less than one Club World cabin a day to overall capacity.
In times of disruption, BA can offer alternatives to its other New York services and - using London City, with its proximity to Canary Wharf - quick check-in and superb transport links will also help. The A318 is also slower than bigger aircraft, an advantage on the inbound non-stop overnight flight, as journey times will stretch by about an hour, allowing stressed executives more sleep.
"Feedback so far has been very positive, especially being able to arrive in New York as a domestic passenger - we will see strong demand," predicts Richard Tams, BA's general manager, UK and global corporate sales.
Tams sees few pitfalls, but admits all ventures like this have to contend with slack periods. "To operate all-Business Class services, you really are talking about London-New York and there are 17 weeks in the year that are total write-offs because of holidays on either side of the Atlantic," he says.
Food for thought for BA's OpenSkies, which operates in less affluent markets in continental Europe. Yet it has already taken the decision to eliminate the Economy cabin in favour of more Premium Economy seats.
BA is not alone in using smaller aircraft for premium services. It learned its lesson from Lufthansa, which has been operating all-Business Class services since 2002 in conjunction with Switzerland's PrivatAir, which uses Boeing 737s and Airbus A319s with 44, 48 and 56 seats.
As well as the current Frankfurt-Newark route, Lufthansa launched Munich-Dubai in May, going daily in July 2007. In the same month, it began six flights a week from Frankfurt to Pune, only 200km from Mumbai, a centre for German car and IT industries.
PrivatAir also operates the Amsterdam-Houston oil route six times a week for KLM, plus Zurich-Newark for Swiss International Air Lines. All have made a success of the smaller aircraft/premium route concept.
The only carrier so far to commit a wide-body aircraft to the all-Business Class concept is Singapore Airlines. It has converted a fleet of ultra long-range Airbus A340-500s to the all-Business concept, using them on the 18-hour stretch between Singapore and New York, and will start a separate Singapore-Los Angeles service in late September. Taking an aircraft which normally seats close to 400 and putting 100 seats on it is a commercial risk, but the carrier has the brand name to carry it off and is based in one of the world's busiest aviation hubs and business destinations. The airline switched to the all-Business format on the Singapore-New York route in May, installing 100 flatbed seats in a one-class layout on a single Airbus A340-500.
"There's been a lot of comparisons with what has come before; it's a comparison we really don't make," says Singapore Airlines spokesman James Boyd.
He has a point, as the 18-hour Singapore-New York route was already five years old, running as a two-class cabin with 64 Business Class and 117 Executive Economy. Its selling point - the added comfort and time saved, around five hours, via an indirect service - meant the airline saw softer load factors in its Premium Economy cabin than in Business.
Consequently, the new configuration sells at a great premium. "We charged three to five per cent more when we first went to market and we were selling out. That became seven, nine and then 15 per cent and we still had wait-lists," says Boyd.
The flight now commands a 20 per cent premium over the alternative JFK-Frankfurt-Singapore routing. The route's success is in part due to the connectivity offered by the two major hubs and the Singapore Airlines brand. "Consumers recognise that we have a lot of experience in this," says Boyd.
Another factor in gaining a premium price for Singapore Airlines is corporate buying policies, ironically something that worked against Silverjet and others. "If your corporation has increased its Economy-travel-only policy to eight hours, then you're going across the Atlantic in Coach. Our product fits into premium travel booking rules," adds Boyd.
This was one of the factors that worked against Maxjet, Eos and Silverjet, but a lack of trust in their brands, their lack of frequency on routes and their choice of UK airports were also to their detriment.
The overriding factor, however, is the price of fuel. BA has warned that if oil remains at this summer's high of nearly US$150 a barrel, then it will plunge from a pre-tax profit last year of £883 million to breaking even or even running at a loss. Put more graphically, every US$1 rise in oil wipes £16 million off its profits, and like all airlines, it will drop into the red if oil stays above US$125 a barrel.
This illustrates the crucial difference between BA and the other big names, and the likes of Silverjet. The start-ups were hit with a double whammy - once fuel prices soared, investor confidence shrunk and when it came to asking for more funds, no one, in the current environment, was brave enough to provide them.
In the current climate, outside the established brands, it will be a foolish team of investors who attempt to emulate what Silverjet, Maxjet and Eos wanted to achieve. If the oil price drops however, it is an odds-on bet that once again, someone will try.