In fact, I've been flying through some of the changes in real time this last week. Just days ago, I attended a plane's debut in a Delta hanger in Atlanta with a few hundred Delta/Song employees. But today I wonder how many of those same people will be gone after Delta completes its chapter 11 restructuring. The plan calls for up to 9,000 layoffs as well, reducing domestic capacity by up to 20% in favor of boosting the number of international seats by 25%.
Shifting to international
Delta is following American and United, which have already shifted 10% to 15% of their domestic fleets to international services. Why? Because there are fewer low-cost competitors and higher margins along those global routes. The legacy U.S. airline brands are now subsidizing their unprofitable domestic businesses with fat margins from their international operations.
But even as Delta catches on to this established trend, the trend itself is about to change.
The "lifestyle" flight services popularized with the American masses by JetBlue and Song have laid the groundwork for a new niche of higher-level lifestyle international flight services. Just days ago a business-class start-up named Eos Airlines began booking fares for its inaugural flight between New York's JFK International and London. Simultaneously, another business-class-only carrier called MaxJet also began service from JFK to London.
|The new, business-only MiMa airlines offers spacious accommodations on its New York to Milan flights. Click to see larger photo.
Three months from now, MiMa, a members-only luxury charter airline whose name is a MoMA-esque abbreviation of “Milano-Manhattan" will fly between Milan and New York.
Both Eos and MaxJet aim to undercut the fares offered by the heavyweights on the JFK/London Heathrow route, which is already served by 17 flights each day. Eos is promising the more luxurious service, having outfitted its three Boeing 757s with just 48 seats (a normal configuration has about 180) that offers more leg room than the square footage of most cubicles. And its full-fare price of $6,500 round trip is about 20% lower than comparable fares on British Airways or Virgin Atlantic.
MaxJet is offering a more traditional product on Boeing 767s configured entirely with business-class seats, but at the relatively rock-bottom base fare of $1,600 round trip. “We’re after the business fare traveler looking to book close in [to their departure date],” said MaxJet CEO Gary Rogliano. “We’ve taken the low-fare model and used it in the business cabin.”
MiMa is taking the unique approach of encouraging individuals and corporations to enroll as “members” in its (as yet unpriced) service, which may end up including concierges in both cities it serves, and a top-secret, high-speed transport to and from Milan’s airport. One of its professed goals is to promote “greater cultural understanding” between the financial elites of Wall Street and Italy. Unlike Eos or MaxJet, it won’t sell seats at a discount on its route. “We want to give a private jet experience priced at a little higher than normal business class,” said Armando Brunini, vice president and chief commercial officer of Eurofly, the company that will operate MiMa’s service.
|The new MaxJet is marketing business-class-only flights from JFK to London. Click to see larger photo.
Negligible initial impact
They aren’t the first business class- or first class-only carriers to emerge against the Big Six domestic carriers. Kirk Kerkorian lost a bundle on his MGM Grand airline, and Legend Air once challenged American Airlines on its home turf in Dallas before disappearing into bankruptcy. And even if all three newcomers launch with full flights, their impact on their competitors’ earnings next year will still be negligible. Eos, for example, hopes to have 20 aircraft flying on a handful of routes after five years. (During the same span, JetBlue took possession of more than 80 aircraft and now serves 33 destinations.)
However, the important point is what their sudden collective appearance symbolizes -- the beginnings of a wave of boutique brands made possible by the airline industry’s non-existent barriers to entry. Twenty-five years ago, Anouska Hempel and Ian Schrager ushered in the era of the boutique hotel; we now appear to be witnessing the birth of the same movement in the airline industry.
All three are deploying JetBlue’s successful variation on the low-cost-carrier model to business and first-class flights. All three are well-capitalized, all three are flying new planes, and all three plan to undercut the appeal of the establish carriers along their routes using the combination of lower fares and a level of product and service that’s the same or better than the competition.
With passengers gravitating toward flights that are either very inexpensive
“Go into the terminals and watch the cross-section of people walking by,” Eos CEO David Spurlock commanded me when we spoke. “The world hasn’t seen that kind of cross-section of customers since Sears & Roebuck lost its relevance decades ago. Retail went through its bifurcation in the '70s and '80s, the auto manufacturing business went through its bifurcation in the '60s, and the PC business went through it in the '90s. And the airline industry is leaps and bounds behind them.”
Before launching Eos, Spurlock was the director of strategy at British Airways, in charge of developing the carrier’s route network. “The hub-and-spoke carriers try to be all things to all people. They serve short- and long-haul point-to-point passengers using giant hubs to navigate their journeys -- typically in lowest cost fashion available. That structure doesn’t work, and the low-cost carriers have proven they can just sweep the domestic market away. We feel we’re Tiffany about to take on Sears in the jewelry market. They’ve got losses, and they’re hoping that jewelry will foot the bill for their other loss-generating product categories.”
Looking towards Singapore
That may be true, and the reason I’ve embarked on the international leg of this trip is to test a few of the luxurious long-haul carriers that Eos, MaxJet and increasingly desperate domestic carriers would rather compete with than Southwest. I’ll have a better idea of what they’re up against a week from now, when I’m stuffed with satay in Sinagpore Airlines’ Raffles (i.e. business) class en route over the North Pole.