Lawrence Hunt was CEO of Silverjet, the British all-business class airline that operated between January 2007 and May 2008. Here he gives his thoughts on British Airways’ new all-business class service, which began flights between London’s City airport and New York’s JFK last week. The opinions expressed are Hunt’s own.
The launch last week of British Airways’ all-business class service to New York from London City airport has polarised industry opinions about the validity and sustainability of such a niche business model. Following the demise of my own all-business class airline, Silverjet, in May 2008 and the two American variants, Maxjet and Eos, six months before that, industry protagonists, pundits and analysts called the end of the niche for good. The evidence, of course, points to further challenges in trying to make the model work.
No such service can sustain itself without two key ingredients: customer demand and profits.
There is no doubt that demand for premium airline services is great: the industry quantifies premium demand in the London New York route at over 1m passengers per annum. This is a large niche and encompasses all variants of premium services from opulent, uber luxury first class through to business class and premium economy. Silverjet in its final 12 months of operation carried over 100,000 passengers and was a start-up with no brand, established distribution or significant corporate agreements in place.
What premium customers want is a fast, hassle-free experience on the ground and to be treated like a human being from check-in through to the in-flight experience and arrival services. Whether an airline’s pyjamas are silk, the food is haute or the champagne a vintage, are low down in the structure of customer’s needs compared to the ease with which they can check-in and board and the speed with which they are able leave the airport at their arrival destination. Of course, flight times and schedules are important, but the real differentiator and aspect customers pay most for is the ability to check-in as late as possible and to avoid tiresome, stressful queues.
BA seem to have cracked this with their choice of London City’s small, efficient terminal (more like a private jet experience than the impersonal, overcrowded service provided by most international airports), where you can see your aircraft from the front door.
The ability to clear onerous and time-consuming US immigration at the fuel stop point in Shannon, Ireland will also appeal to time-starved, busy business travellers. And with only 32 seats per flight to sell (there are more than 12,000 seats per day sold between London and New York) it should have no problem filling the service.
Some might question the negative impact of the fuel stop in Shannon, adding almost two hours to the journey time, but the exclusivity and convenience of the ground and in-flight experience will outweigh that service flaw.
But what customers also want is good value, especially in these austere times. We used to brag about what we spent, now we like to brag about what we save. The price point of any service will be critical to the business model’s success.
The question remains, however, will BA be able to make the service profitable? With the bloated costs of a full service carrier, the carrier’s fully loaded costs in operating each roundtrip flight will not be far off £100,000. Assuming they sell 80 per cent of the seats on an average seasonal basis, they will need to be achieving an average ticket price of £3,900 to make a significant profit. With business class fares averaging less than £2,000 for the major corporate customers using Heathrow and Gatwick, purchasing departments might question whether the extra £2,000 can be justified. Time will tell.
The relentless growth of the short haul low cost carriers around the world has shown that getting your cost base right and achieving scale are the critical ingredients in creating sustainable profits. Any airline that can offer better value for money than the established carriers, while taking the hassle out of premium long haul travel will succeed. One day, someone will make this model work — it’s a question of time.
Lawrence Hunt is managing director of www.lowcostholidays.com.
Related links:
British Airways shuns Heathrow with US business shuttle – Bloomberg
Recession forces airlines to rethink first-class – NYT