US Needs More A Luxury Long Haul Airline Than A Budget All Premium Class Airline


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US Needs More A Luxury Long Haul Airline Than A Budget All Premium Class Airline

By Philippe Louis

July 10, 2011 - Many of us remember the enthusiasm of airline entrepreneur for the budget long haul all premium class airlines in the second half of the last decade. L’Avion, Eos, Max Jet and Silverjet were all based on the same concept: carrying business travelers and high net worth tourists at a cost far less than what is offered by traditional transatlantic airlines.  

Only one (L’Avion bought by British Airways) of these ventures survived the stunning oil price rise of 2008. It is also good to notice that half of them were U.S carriers (Eos and Maxjet). But did our country need more budget long haul all premium airlines or luxury long haul all premium carriers. My choice is for the second option. Here are some reasons. 

1) Fill The Class Service Quality Gap Between U.S. Carriers And Their European And Asian Counterparts 

While the USA have the biggest share in total air traffic demand and premium air traffic demand, their class services and overall products quality are far behind Western European, Asia-Pacific and Middle Eastern carriers. The two first airline crisis of the 21st century (2001-2002 and 2008-2009) caused U.S. majors to suffer heavy losses and prevented them to invest massively in class service quality and innovation.  

The main innovations came from Asia Pacific and Middle Eastern transporters. Asia-Pacific carriers have weathered the crisis better than the U.S. ones. Middle East airlines (Emirates, Qatar Airwyas, and Etihad) have benefited from strong state support in building worldwide network, global brand image, and class services.  

For industry observers, customer service on U.S. airlines is a dying art and especially on legacy carriers and service levels have plummeted to historic lows. Currently only 2 out of 5 U.S. FSNC offer first class services: United and American.  

However they do not offer as many amenities as European and Asian carriers. The recent Skytrax rankings sent a strong signal to the U.S. airlines. Actually there’s no 5 or 4 star U.S major airline. Only JetBlue obtained 4 stars in the ranking. 

2) Profit From Non Existence Of Industry Reference In The Sector 

Demand for premium services in air travel grows as the volume of air traffic itself swells. Progressing economic expansion of China, India, Brazil, Russia, some Middle East and some Asian countries will keep generating demand for enhanced class service qualities in air transport.


Premium-oriented FSNC are spending more and more in high-end services and are getting more and more inventive (first class suite, on board bar, on board lounge, on board duty shop, on board shower, lounge piscine, first class terminal, limousine service, concierge service, etc.). 

Considering that, the U.S air transport industry needs a real reference in premium travel. The all-premium budget carriers failed to fill that role. Their bankruptcies and their nature (budget) prevent them to do so. Even Openskies (although not a U.S airline) which survives didn’t impose itself in an industry in hunt for a real role model like Southwest Airlines. Its lack of ambition and slow growth (only 2 routes and 4 airplanes in 3 years of operation) prevents it to play a serious role. 

3) Shift From Private Jet To Commercial Aviation During Economic Downturn 

During downturn demands for business jets drop. Many private customers are looking for more affordable travel modes but with high quality service and numerous amenities. All through difficult economic times, companies cut first expenses that are the less relevant to the production of goods and services and to the continuation of their activities. Corporations usually slash on frivolous expenses or adjust them to a more economic form. Naturally travel on business jets is one of them. 

During the 2008/2009 financial crisis, what did we learn? As example, in United Kingdom, corporate jet travel has slumped by more than 20% in from July 2008 to January 2009, according to data published by the Civil Aviation Authority (CAA).  

Trips on private jets took off in the pre-crunch years, as executives and self-made millionaires were swayed by flexible schedules, lack of baggage restrictions and departure lounges uncluttered by commercial airlines travelers. Small airports such as Farnborough and Biggin Hill near London have fast-tracked millions of executive passengers since 2003, when business jet travel began a four-year boom.  

Flight numbers grew by 14% annually to about 150,000 a year. Corporate jets have been hit harder than airlines also because they are not locked into schedules so a fall in demand immediately leads to fewer flights. During the same period first-class travel from London's biggest airports fell only by 6.3%. Globally, high net worth individuals less often used private jets for long haul travel and flew first class instead.  

Some aircraft manufacturers such as Eclipse have been hit by the crisis so hard that they went bankrupt; others such as Cessna laid large development projects on ice. The precipitous and rapid decline of the business jet industry in 2008 and 2009 resulted in cancellations exceeding gross orders, causing a significant reduction in firm order backlogs and aircraft deliveries.  

We do believe that regular business jet customers are looking to switch from business jets to luxury commercial premium travel instead of budget premium when they want to save on travel expenses. Even if they tend to relinquish business jets during hard economic times, they still want some perks in regular commercial flights. 

4) Challenge Foreign Carriers Supremacy In First Class Services On U.S. Intercontinental Routes 

Currently, there’s an unbalanced supply of first class services from the USA in favor of foreign carriers. In July 2011 only 2 U.S. carriers were providing first class services from the USA: American Airlines and United Airlines. At the same time there were: 

-6 European carriers: Air France, British Airways, Lufthansa, and Swiss Intl’ Airlines, Transaero Airlines and Turkish Airlines 

-5 Middle Eastern carriers: Emirates, Etihad Airways, Kuwait Airways, El Al and Saudi Arabian Airlines 

-1 Latin American carrier: Tam 

-1 Oceanian carrier: Qantas 

-12 Asia Pacific carrier: Air China, China Eastern Airlines, China Southern Airlines, Hainan Airlines , Singapore Airlines, Cathay Pacific, Thai Intl’ Airways, Malaysia Airlines, ANA, Japan Airlines, China Airlines, Korean Air, and Asiana Airlines. 

This makes a total of 26 foreign carriers. Consequently, In July 2010, U.S. carriers only offered 36% of first class services (in terms of weekly flights) nationwide, 15.6 % in New York metro area, 13.7 % in Los Angeles and 16.2 % in Miami.


5) Profit From Monopoly Opportunities On Many Markets 

As many North American, European and Latin American carriers relinquished their first class services to rationalize their costs structures and to be in better position to face the growing influence low cost carriers, opportunity to establish back these services appeared.  

If it is evident that U.S companies have to fight back to have a reasonable share in the premium services to the Middle East, Paris, Frankfurt, Switzerland, India, South East Asia, there are some markets where the first class service doesn’t exist at all. Those markets are routes from New York, Miami, Chicago, and Los Angeles to other prominent world economic centers.  

In these markets, passengers have to buy either a business class ticket for $ 5,000 or rent a private jet for $50,000 because there’s no intermediary service at all. As companies become more global, Western companies are establishing branches in the Emerging markets and companies from China, India, and Russia are buying Western companies and are opening offices in Europe and North America, the market for premium travel (first and business classes) is anticipated to be prosperous. 

As example, there’s a no first class service from New York to Brussels, Dublin, Helsinki, Madrid, Milan, Rome, Amsterdam, Johannesburg, Stockholm, Copenhagen, Vienna and from Los Angeles to Madrid, Amsterdam, Rome.  

All these markets show clear evidence of needs of first class service and additional luxurious amenities as they exist on many routes from USA to the Middle East and Asia-Pacific regions because of strong volume of business travelers and high net worth passengers. Other similar opportunities also exist from Houston, Miami, Chicago and Washington DC. 

6) Profit From Increasing Globalization Of The World Economy, Soaring Economic Empowerment Of Some Countries And The Number Of Their High Net Worth Individuals (HNWIs). 

Economic globalization will bring higher trade volumes between countries and more economic interrelations. Its consequence on air transport will be an increasing need of travel from people directly involved in inter-country business and trade. This trend will feed a larger demand for long haul business travel to served distant countries and world’s regions: USA-China, USA-Brazil, Europe-Africa, Africa Middle-East, USA-Western Europe, Europe-Asia, etc.

Moreover, as theses countries become economically more powerful, their companies become bigger and are expanding their influence in the Western market by buying North American and Western European companies, or expanding partnerships and trades with them, demand for luxurious form of travel (business jets, first class and business class with plenty of luxurious amenities) from these countries to North America and Western Europe will escalate.  

In 2005, in the Fortune Global 500 list, there were 27 countries from the BRIC, in 2010, that number rises to 67 a 148% increase in just 5 years while the Big 5 of Advanced countries (USA, Japan, UK, Germany and France) loss 15% of their companies in the list (from 368 to 315). 

An evident social consequence of these countries economic rise is the rapid expanding number of their high net worth individuals (billionaires and millionaires). As example, China has more than a million millionaires as economic growth, savings and a strengthening currency helped swell their ranks by 262,000 last year, according to a Boston Consulting Group survey.  

Millionaire households jumped 31 percent in 2010 from the previous year to 1.11 million, the BCG Global Wealth Survey released showed. In 2008, India recorded the fastest millionaire growth in the world. Individuals from other countries like UAE, Qatar, South Africa, South Korea, Singapore, Hong Kong, Malaysia, Ukraine, and Turkey will also profit from the rapid expansions of their countries’ economy.

Conclusion - The U.S air transport network needs clearly more a luxury long haul all premium travel instead of a budget one. Even if the absolute share of the US air traffic will drop in the next 2 decades, it will still remain the world’s largest market. Increase economic shares of many emerging market countries in the world’s GDP will create a needs for luxurious premium travel fed by their ambitious companies and a rapid multiplication of their high net worth individuals which the U.S. air system will benefit from.

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