Wednesday, May 28, 2008
Struggling at a premium
It appears as if the industry has spread its wrath on those premium carriers peddling their capacity on a the trans-Atlantic route. MaxJet didn't get any Christmas presents with its bankruptcy filing on Christmas Eve, Eos filed in late April of this year, and now SilverJet is struggling to stay afloat. These carriers certainly weren't lacking in neither their service offering nor execution, according to the reviews I have seen. However, there was only one thing missing: profitability. Although some of the carriers were reporting fair load factors one must always, always remember that load factors do not equal profit (i.e. give your seats away for free and you'll see a great load factor...and a bunch of angry employees asking for their salary). The challenge with the all-business class market is that these carriers are up against established brands with decent pricing. In May of this year there were approximately 8 500 seats crossing the Atlantic from London to New York. Less than 15% of this was produced by a pure premium class carrier. The rest were divived among 5 name-brand airlines. SilverJet is struggling against carriers such as Virgin, BA, Continental, and Delta. These carriers all have their established networks and onward travel, which are appealing elements for travelers. This is not to imply that the incumbents can not learn from their now or soon-to-be defunct premium competitors. It will be interesting to see how BA and their Open Skies concept fare on this market. Lufthansa has had success with the concept, however they have outsourced the operation to Private Air. Possibly these carriers should have investigated a form of tie-up.