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All-Business-Class Flying Clings On


All-business-class airlines take off despite past failures

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May 29, 2008

Like other business travelers, bluegrass music star Alison Krauss and her band were smitten by the charms of an all-business-class airline.

"The service and the food are amazing, and the seats are comfortable," says tour manager David Norman, who flew this month with the musicians on Silverjet from Newark to London for the start of a European tour with former Led Zeppelin lead singer Robert Plant. "There were only 100 seats, and Alison and others loved the women's-only bathroom."

Despite high ticket prices, an all-premium-class airline means the world to business travelers in an era of growing consumer dissatisfaction with many carriers. Frills and comfort such as individual video players, fresh food, fine wine, wide seats and lots of legroom can lead travelers to pony up thousands for a ticket (a round-trip flight on Silverjet between Newark and London next month starts at about $2,800).

But for decades, travelers have seen one all-business-class airline after another go belly up.

Last month, trans-Atlantic carrier Eos became the latest victim, ceasing flights after about 18 months of operation and filing for bankruptcy-court protection. In December, trans-Atlantic rival Maxjet stopped flying — 13 months after its first flight.

Silverjet suspended trading of its stock last week as it sought investment capital to keep it flying. No flights were canceled, and the airline expects to announce Thursday that it has received a major cash infusion, says spokesman Greg Maliczyszyn.

The financial difficulties have not signaled the end of all-premium-class airlines. In addition to England's Silverjet, France's L'Avion flies into the USA. Primaris Airlines expects to begin scheduled "professional-class" flights from New York to three cities next year.

Big airlines are also becoming more enamored with all-premium-class service. Four European airlines — Lufthansa, Swiss, KLM and Air France— are offering some all-business-class flights to the USA. The flights are operated by PrivatAir, based in Geneva.

Two weeks ago, Singapore Airlines launched the first all-business-class flights between North America and Asia. Next month, British Airways subsidiary OpenSkies plans to start New York-Paris flights with a Boeing 757 jet configured with more than 60% of the seats for business-class fliers.

Many aviation experts say that it may work for airlines to offer all-premium service on some routes, but that the idea of making money with all-business or all-first-class service is ridiculous. They point to the premium-class graveyard where the tombstones are reminders of such short-lived U.S. airlines as Air One, Air Atlanta, McClain, Regent, MGM Grand and Legend.

"Nobody learns from previous mistakes," says Barbara Beyer, president of Avmark, an airline consultant in Vienna, Va. She says many all-business-class carriers that failed were undercapitalized, and none were close to success.

All-business-class airlines, aviation historian Ronald Davies says, are often started by rich businessmen who "think there are "millions of other rich people who want to fly on a really specialized airline."

The rich businessmen only heed market research that agrees "with their hunch" and ignore research that shows there aren't enough passengers to regularly fill their planes, says Davies, the curator of air transport at the Smithsonian's National Air and Space Museum.

Most investors in all-business-class airlines travel business- or first-class, and "like the idea that they won't be flying with the riffraff," says Beyer. "However, it's the back of the bus that pays for most of the operating costs."

Competition steps up

Paul Dempsey, a professor of air and space law at Montreal's McGill University, says all-business-class airlines have trouble competing with big airlines' business- and first-class products. The big airlines offer more frequent flights to more cities and "have the high-end customer addicted to their frequent-flier program."

Dallas-based Legend met fierce competition from American Airlines (AMR) and was losing $1 million a week when its 56-passenger jets with leather seats, live satellite TV service and first-class meals stopped flying in December 2000. Legend executives said the airline also was hurt by high start-up costs, including expenses to fight lawsuits by American and the city of Fort Worth, which aimed to block its start-up.

"The scheduled airlines aren't going to sit back and let Regent or Eos, or any new airline, take the cream of their traffic: the high-paying business customer," says Davies. "They'll respond."

Darin Lee, an airline consultant for LECG, of Cambridge, Mass., says he's not sure there is "any common set of mistakes" that had led to the demise of each all-business-class airline.

Eos, Maxjet, Silverjet and L'Avion have shown that there's enough premium traffic on "a select number" of trans-Atlantic routes to support an all-business-class airline, Lee says.

Such carriers have a better chance of success if they form a marketing agreement with an established airline and its frequent-flier program, he says.

David Spurlock, founder and chief commercial officer of Eos, says revenue growth was "phenomenal," and the business plan was sound. Eos carried 48,000 passengers last year and was operating three New York-London flights daily before announcing last month that it had "insufficient cash on hand to continue operations."

The airline's ability to get financing deals "dried up" during the last five or six months, Spurlock says, because of the credit market crunch. Rising jet fuel prices also severely hurt the Eos and made potential investors "much more conservative."

Dempsey, who also is on the Frontier Airlines board, says the "only significant success story" was Midwest Express Airlines, an all-business-class carrier launched by paper products giant Kimberly-Clark in 1984. Midwest Express flew jets with 60 seats and served such meals as lobster and beef Wellington on china with linen napkins.

The airline, which was sold by Kimberly-Clark and is now known as Midwest, (MEH) remained all-business-class until 2003. It realized, says Chief Marketing Officer Scott Dickson, that flying all-business-class to such destinations as Florida and Arizona "was not economical" and began offering coach seating. Midwest now has all-business-class flights to some big cities, but all flights will be solely coach beginning in September.

"With high fuel prices, we had to modify our approach," Dickson says. "We need to put more seats on the planes to get more revenue and lower customer costs."

Aviation consultant Michael Boyd says there's "no market" for an all-business-class airline in the USA. But he believes foreign carriers such as Singapore and Lufthansa, which operate a handful of all-business-class flights on select routes, will succeed. "They aren't all-business-class airlines," says Boyd, president of The Boyd Group in Evergreen, Colo. "They are just shifting their passengers out of the front end of a Boeing 747 into an all-business-class airplane."

Silence prized

Frequent fliers, such as Mickey David of Houston, wish there could be a bright future for all-business-class airlines. Their planes are "not crowded with kids running and crying," says the manager for a medical equipment company who flew on Eos to London. "The environment is quiet, and I can prepare for my meetings."

Frequent business traveler Mike Bach, a consultant in Livingston, Texas, says he'd like to see more all-business-class airlines because they make fliers feel special and offer privacy. He says he flew on Eos, Maxjet and Silverjet last year and enjoyed seats that lie flat, faster transit through security, better food and a good movie selection. He prefers, however, big airlines' stronger frequent-flier programs.

Silverjet introduced a frequent-flier program in October that aims to lure companies by giving one free round trip for every 10 purchased. About 2,000 companies have signed up, says Maliczyszyn. Unlike most other airlines' frequent-flier programs, which require earnings and awards to remain in the name of an individual person, Silverjet's program allows companies, or families, to pool their flight credits.

Despite a long line of previous all-business-class failures, Silverjet can succeed because it offers "a highly differentiated business-class service at less than 50% of its competitors' fares," says CEO Lawrence Hunt. "Other all-business-class airlines failed because their fares were too high or their service was poor."

Hunt says Silverjet "is close to profitability" and just received $100 million from an undisclosed investor in the United Arab Emirates. When Silverjet announced the investment on April 30, however, the carrier said its working capital "has deteriorated and its residual reserves are limited," following fuel price increases and "tightening of credit conditions in the airline industry."

Meanwhile, at Primaris, Senior Vice President James Mullen says the airline, which now operates charter flights, "is quite close" to obtaining the financing it needs to begin all-business-class scheduled service.

Primaris CEO Mark Morris was formerly an executive at Air One, which started all-business-class flights in April 1983 and stopped flying in October 1984. Mullen says it's "a different time in the airline cycle" than when Air One failed.

With plans to fly from New York to Los Angeles, San Francisco and Lima, Peru, Primaris boasts on its website that "it's unlike any other" carrier, offering the room and amenities of business class at low, simple, no-asterisk fares.

Among other things, it says it will offer unlimited space for carry-on luggage, meals that can be ordered any time off a menu, and satellite radio.

The plan doesn't impress aviation consultant Boyd. He doesn't believe a new brand name has any chance of success, particularly now, when high jet fuel prices and a sluggish economy are hurting the better-known airlines.

"The all-business-class model doesn't work," Boyd says. "For a new, independent brand, the first thing at the time of start-up is to hire a CEO, and the second thing is to send the retainer to the bankruptcy attorney."

Here are some now-defunct all-business or all-first-class U.S. airlines. Some might have halted, then resumed flying, multiple times within the dates listed:

Airline First flight Last flight Amenities

Air Atlanta February 1984 April 1987 Extra-wide seats, meals on china plates, lounges with free drinks, newspapers and telephone service.

Air One April 1983 October 1984 Oversize seats, meals on china plates, fine wine, one flight attendant per 20 passengers.

Eos October 2005 April 2008 21-square-foot suites with flat-bed seats, individual DVD players, champagne and fine wines, gourmet food, airport helicopter service.

Legend April 2000 December 2000 No carry-on bag limits, leather seats with extra legroom, live satellite TV, valet parking.

Maxjet November 2005 December 2007 Deep-reclining, padded leather seats with a 60-inch pitch, portable entertainment systems, gourmet meals.

McClain October 1986 February 1987 Plush carpets, wide leather seats, seven-course dinners, a telephone at every seat, free drinks and newspapers.

MGM Grand September 1987 December 1994 Tuxedoed flight attendants, leather and velvet chairs around cocktail tables, a long bar, prime rib and shrimp scampi, marble bathrooms with leather-covered toilets.

Regent October 1983 February 1986 Art Deco cabin, swivel chairs, private sleeping compartments, lobster and caviar, limo service.

UltraAir January 1993 July 1993 Leather seats, 16-ounce steaks and other gourmet meals on china plates.

usatoday.com

All-business-class airlines take off despite past failures
By Jennifer S. Altman, for USA TODAY



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