The recent launch of Silverjet into the New York to London business class segment had me wondering how many transatlantic business-class airlines made sense. Also, as a transatlantic marketing pro, I just had to ponder the marketing and branding implications on the existing NY-LON upstarts, Eos and MAXjet.
Silverjet is clearly putting pricing pressure on MAXjet. In my email two weeks ago, I received a tempting offer of $499 one-way fares for all MAXjet transatlantic routes (plus $148 in fees). Eos has business model issues of its own with only 48 seats on a plane that ought to hold 65 to 70 with lie-flat seats. On the other hand, Eos’ expansion to three flights daily between New York and London provide business travelers more reasons to select Eos and a path to generate critical mass in the market.
SwelledHead talked with Henry H. Harteveldt, Vice President & Principal Analyst, Travel Research, at Forrester Research, to gain insight into the dynamics of the transatlantic airline business.
"There is room for the three upstarts in the New York to London market," said Harteveldt. "The majors haven’t responded as quickly to the threat from these players as we might have thought, with BA for example opening routes to Stansted. And there could even be room for a transatlantic JetBlue; whether that’s JetBlue itself or another airline that goes to market with similar brand values." And pricing, while a bit more competitive, is likely to remain at levels that generate fair returns. Harteveldt added, "Our research shows that 1 in 3 leisure travelers are what we call quality-focused travelers, and among business travelers it’s 4 in 10. If the global economy remains healthy, these numbers are likely to grow."
When pressed on the issue of relevancy of these new airlines to the business traveler and their ultimate viability, Harteveldt said, "Part of the challenge for Eos, MAXjet, Silverjet and L’Avion [which just started flights between New York and Paris, with plans to expand to the Middle East, Persian Gulf and Eastern Europe], is that you need to reach a critical mass to provide the utility the traveler needs. JetBlue would be nothing if it hadn’t expanded beyond its initial routes…its impact would be de minimis. The brand has to offer utility to its customer…must represent value and meet emotional and rational needs. In the case of MAXjet, they haven’t mispriced the product, but missed opportunities. Perhaps they would have been better off not adding other airports, but greater frequency to London and new routes from JFK to destinations such as Paris, so it represented greater utility from New York…then added flights to Las Vegas and California to add utility for domestic and international travelers."
SwelledHead’s take on the new competition in this segment is that MAXjet will be forced to reduce its prices on routes where it competes with Silverjet. The MAXjet seat just isn’t as nice (you can’t lie flat). Silverjet will usurp the "premium economy" price point of about $1500 roundtrip. To Harteveldt’s point about a "JetBlue" type airline for this segment, this may be where MAXjet’s best bet lies. The formula seems a lot like JetBlue when you think about it. Decent seats, competitive prices, good service (MAXjet seems to actually care about its customers) and a hip outlook on the business. With a minor change to its strategy, MAXjet could cede the higher price points to SilverJet and Eos, add frequency and destinations, and probably carve a great business out of the most profitable transatlantic routes. Eos will likely find that it cannot hold premium prices in the face of Silverjet's aggressive push; in fact, I've seen offers in the American Express rewards program where one can use only 85,000 miles for a rountrip on Eos (for comparison, I recently traveled Virgin Premium Economy for 67,000 miles roundtrip and it's nowhere near as luxurious as Eos).
The net result of this increased competition is likely to be greater access to remote markets and more in-person meetings for transatlantic business executives. Harteveldt also sees the possibility of increased real estate sales in markets served by these airlines: "in Europe, budget airlines have fostered the sale of property in warm weather destinations. In the U.S., JetBlue has done the same for ski properties in Vermont. It won’t be long before you consider a flight across the Atlantic as anything different from a domestic flight."
SwelledHead’s faithful reporters are already eyeing country retreats in the south of France and Las Vegas.
