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One of the world’s more profitable business routes is too hard for startup airlines to resist, but also too hard — so far — to succeed at.
Earlier this week that French company La Compagnie unveiled plans to become the world’s next all-business-class carrier trying to operate between the United States and Europe.
It’s not the first time that this feat has been attempted, nor even the first time that La Compagnie’s founders have tried to start an airline of this variety. If La Compagnie gets off the ground and becomes profitable, however, it will be the first time that the all-business-class model is successful.
How will they do it?
“Today’s market has turned very prosperous based on certain consolidations within the airline industry,” Peter Luethi, Co-founder and Deputy CEO told me for a profile I put together for Forbes, suggesting that the fewer competitors in the current market will make space for a boutique carrier.
Indeed, the landscape is far different in 2014 than it was in 2006 when Luethi’s last all-business-class venture, L’Avion was founded. Airlines have paired off and merged, leaving only three legacy US carriers offering regular flights across the Atlantic. And though oil still hovers near the historic highs that it reached in 2008, the same year that L’Avion was sold to British Airways, airlines have gotten much better at managing revenues against them.
But the industry has evolved as well. As airlines race to improve their premium cabins, one after another is unveiling a groundbreaking first or business class cabin, from Etihad’s Residences to Air France’s new elegant product. Most airlines are moving towards fully-flat seats in their premium cabins, even on some transcontinental routes. Boutique business carriers, conversely, often rely on older seat designs on smaller, more intimate aircraft.
MAXjet, which operated between 2003 and 2007 suffered from newer seats and inflight amenities inside of older airframes. La Compagnie will be using an angled-flat approach to its seat, a design that was popular in the 2000s but that is currently being phased out across most carriers.
It’s that inability to quickly adapt to new industry standards that may slow down any new prospect in the all-business-class space. Unlike traditional carriers, many boutiques lack the deep pockets to stomach extensive cabin retrofits and upgrades. OpenSkies, one of the only remaining carriers that started as an all-business airline was only able to remain in operation after British Airways helped it reconfigure its cabins to include coach-class seating.
Provided any new carrier is able to compete on product, the airline then has to fill the seat. And while premium passengers generally place a higher value on the inflight product versus the brand, many are extremely loyal to their traditional carriers. Nearly all of the airlines currently offering transatlantic service offer points in a loyalty program, and after several flights, those benefits can be very lucrative towards further upgrades or elite status.
Without robust partners on which to earn and spend miles and other perks, boutique airlines will suffer a lack of loyalty from frequent travelers. So far, OpenSkies and Singapore have been the only carriers to successfully integrate a loyalty program into their services (though MAXjet frequently advertised one). OpenSkies fully joined OneWorld four years after the airline’s inception while Singapore offered miles on its all-business-class product from New York and Los Angeles to Singapore. That former route has been discontinued due to lack of demand.
Boutique airlines also suffer from the lack of corporate contracts that many legacy airlines enjoy — as well as the new travel policies created during the great recession. “Even though the U.S. economy has strengthened, travel managers continue to limit who is allowed to fly in a premium cabin, and may have increased the minimum number of hours that a flight must last for that employee to fly business class,” Henry Harteveldt, Founder and Travel Industry Analyst and Atmosphere Research tells me.
Additionally, many Fortune 500 companies have preferred carriers that provide corporate discounts for their employees, requiring those who actually do fly in a premium cabin to do so on a specific carrier. Airlines count on that regular income to boost their bottom line.
It would seem, thus, that any competitor in the all-business-class market has the deck stacked against them. And yet, new carriers seem to emerge, buoyed by hopefulness or arrogance.