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SEAT 2B | By Joe Brancatelli

All Business, Always Trouble

What's at the heart of the all-business-class airlines failures? Real estate.

A stewardess poses for a photo in the business class cabin during a media tour of the Airbus A380 superjumbo last year at Singapore's Changi Airport .
A stewardess poses for a photo in the business class cabin during a media tour of the Airbus A380 superjumbo last year at Singapore's Changi Airport . (Vivek Prakash - Reuters)
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By Joe Brancatelli
Portfolio.com: Business Travel
Tuesday, June 3, 2008; 11:01 AM

If you want to understand why Silverjet, the last all-business-class airline between New York and London, folded last Friday, you might as well go back to the beginning of time.

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Midway Airlines, the first jet carrier to launch in the newly deregulated skies of 1979, was also the first to go all business. After a few lackluster years as a no-frills nonentity, Midway pulled the middle seats from its DC-9s, installed big overhead storage bins, upgraded meals, and put a concierge on every flight. Renamed Midway Metrolink, it was the talk of the skies in the summer of 1983.

It was also a financial disaster. Within two years, Midway's chairman, chief executive, president, top marketing executives, and even its head flak were gone. By June of 1985, the airline had morphed again, this time into a traditional, two-class carrier.

"It's all about real estate," C.E.O. David Hinson, explained to me back then. "You can't fiddle with the amount of real estate you devote to passengers on a commercial jet. We went from 115 seats to 84 seats [per aircraft]. You just can't charge travelers enough to justify giving them that much real estate."

Skip ahead to late 2005. I'm lunching with David Spurlock, a former British Airways strategist who had just launched Eos Airlines, the first all-business-class carrier on the so-called NyLon route. His Boeing 757s, designed to carry about 200 passengers, had just been outfitted with 48 beds. And he's lecturing me about real estate.

"The 757 is the smallest and most efficient plane for routes of 4,000 to 4,500 miles, the sweet spot for transatlantic service," he says. "And we've figured out the real estate. New York-London flyers will pay for the real estate we're giving them on an overseas, overnight flight."

No, they wouldn't. Eos rang up about $120 million in operating losses in 29 months before folding in April, just four months after Maxjet, the other London-bound all-business-class carrier. Eos, Maxjet, and now Silverjet join a long list of failed experiments in all-premium commercial flying. Some are fondly remembered, especially Regent Air and MGM Grand, which offered all-first-class flights between New York and Los Angeles in the 1980s and 1990s. Others, like Air One, McClain, and Legend, are footnotes in aviation history.

But they all had the same problem: Fiddle with the amount of in-flight real estate you sell to passengers and you're asking for big trouble on your balance sheet. Eos, Maxjet, and Silverjet were giving passengers two or three times as much in-flight space as other carriers offered in coach, but were selling tickets for as little as $2,000 round-trip, a fifth of the published business-class fares charged by the traditional airlines.

The demise of 16-month-old Silverjet, which configured its 255-seat Boeing 767s with just 100 reclining chairs, was no surprise. Its shares on London's alternate market had been suspended a week earlier, after a previously announced rescue deal fell through. (Eos also shut down after a much-publicized capital injection failed to materialize.) Silverjet was also struggling to fill seats; it only flew about 60 percent full in March, almost 20 points below the current industrywide mark. And the NyLon startups were fighting for a toehold on the world's most competitive international route. Two well-known British carriers -- British Airways and Virgin Atlantic -- fly 18 times a day between the English-speaking world's most important financial centers. Three established U.S. airlines -- American, Delta, and Continental -- add another 14 daily flights.

"It doesn't matter how good you are or how lavish your service is," one airline executive told me shortly after Silverjet's collapse was announced. "If you don't offer a worldwide network and a good frequent-flyer program too, you'll have a hard time attracting the most frequent and most profitable customers."

Which may explain last month's move by L'Avion, the last remaining independent all-business airline. It entered into an alliance with OpenSkies, a boutique airline that British Airways launches on June 19. L'Avion flies between Newark, New Jersey, and Paris' Orly Airport. OpenSkies will operate from New York's John F. Kennedy International Airport to Orly, and it has hedged its premium-class bets. OpenSkies' Boeing 757s have 82 seats in three cabins: business class with lie-flat beds; a traditional economy class; and a hybrid middle class with reclining chairs. Even B.A.'s denser configuration poses "real estate" risks, however. OpenSkies' in-flight layout will accommodate nearly twice as many passengers as Eos, but that will still be less than half the number of seats you could pile into a Boeing 757.

The other surviving all-business ventures have network pedigrees too. Powerful Singapore Airlines flies Asia's only all-business-class routes. (It recently converted its Newark and Los Angeles nonstops from 181-seat two-class operations.) Lufthansa and its Swiss International subsidiary fly the all-business-class routes to Germany and Switzerland.

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