New year and new airlines...almost

Ring in the new year! It's 2008...8 years after the predicted Y2K meltdown. Not much happened there, but this year has already seen its fair share of action in the airline industry. On Christmas Eve MaxJet filed Chapter 11 bankruptcy. This trans-Atlantic, premium class carrier may have had high load factors (in the 80s), but it should always be stressed that high load factors do not necessarily mean success (sell your seats at way below cost and you'll get high load factors, and lots of bleeding red figures). This carrier was flying from Stansted to New York, Los Angeles, and Las Vegas. Therefore, Project Lauren by British Airways will be an interesting venture. This is the first firm announcement by an EU carrier that will capitalize on the Open Sky agreement between the US and EU. The carrier will operate to New York from either Paris or Brussels later this year with 757s with a 3-class configuration. The caveat is that there will only be a capacity of 82, which makes for a very personal experience. BA's 757s are usually operated with 180 seats, so

This will be an interesting adventure. MaxJet was unsuccessful in one of the most densely saturated markets, granted with a new brand and to a secondary gateway, however Project Lauren will operate with an established brand to entirely new market and with limited connecting possibilities. Open Skies has enabled carriers to operate from any EU location and BA is capitalizing on this opportunity, we'll have to watch and see if they are able to create a truly connected intra-EU market.

Open Sky has done just that

It looks like the Open Sky agreement between the US and EU has done just that, opened the skies. Sir Richard Branson has just announced that Virgin Atlantic plans to operate a pure business class airline from European centers across the Atlantic, click here. Opposed to Eos, Maxjet, and SilverJet this venture will have the backing of the Virgin group and they can certainly capitalize on that. The challenge is not to dilute the Virgin Atlantic offering out of the UK. The service level is already quite high near the nose of the aircraft, although I am excited to see what innovative ideas they conjure up for this venture.

Ryanair comtemplating across the pond operations

I had to check the publication date on Flight International's recent article, "Ryanair boss Michael O'Leary plans launch of transatlantic no-frills airline with fleet of 50 Airbus 350s or Boeing 787s," click here, and make sure that it wasn't an April Fool's joke. It seems to be geniune enough considering it is dated April 11th.

Apparently, O'Leary and his team are looking at launching a trans-Atlantic subsidiary to the US following the recent Open Sky agreement. It would link with Ryanair's 23 bases in Europe with a handful of secondary airports in the US: Baltimore, MD; Providence, RI; and Islip, NY. The operation would be a separate entity from Ryanair and would not offering connecting services for passengers. O'Leary makes the point that they want to avoid complexity in the business model. Keeping activities simple and uncluttered allow for easier adjustments and trials. The operation will most likely utilize A350s or 787s and will be purchased near the end of the decade when they expect the demand to soften and prices to come down.

The article does not mention continuing on inside of the US. However, with Tony Ryan's investment in Allegiant and that airline's statement that it wants to be a Ryanair look-a-like, that may be something in the works. Of course, cross-Atlantic low-frills flying is not new to aviation. Laker's SkyTrain, People Express to London, or even Icelandic Air's former backpacker image. However, all these airlines are now defunct (except Iceland Air, however its image has certainly improved from its earlier days). There are various explanations for their failure, however Ryanair has something they didn't: passenger feed from all of the EU. People Express did have its US feed, however the CEO, Don Burr, did state that distribution strategies of People Express' competitors helped to undermine the airline. Ryanair is operating in the age of the Internet and doesn't have to fight with competitor-owned GDS'.

No one can say that the airline industry sits still for very long.

Open Skies treaty and business model innovation

Today the EU transport ministers unanimously approved the Open Skies treaty between the EU and US. This long negotiated treaty between the US and EU is a big step towards a global liberalised aviation market. It effectively allows any EU carrier to depart from any airport within the union to any US airport, and vice versa. The deal though fails to grant cabotage to carriers, in other words, allowing European carriers to operate domestic flights within the US market. A major sticking point in the negotiations was the limited access point to London Heathrow and the reluctance of the UK to ratify the treaty. Under the earlier aviation agreement trans-Atlantic flights between LHR and the US was limited to 4 carriers. British Airways and Virgin Atlantic were not keen on giving up this resource and lobbied hard to side track the treaty.

However, carriers are able to say one thing and work on contradicting strategies at the same time. This is just smart business. Virgin Atlantic recently announced that it is looking at offering trans-Atlantic flights from airports outside of LHR. Continental, on the other hand, has already filed an amended DOT application for trans-Atlantic operations, click here.

A new route is not considered a business model innovation, however the increased competition may lead to innovations throughout the industry, on both sides of the Atlantic. We may eventually see closer coordination with alliance partners or a reallocation of partners entirely. On-board services may be adjusted in an attempt to differentiate from competitors. So, don't hold your breath for any immediate changes to business models, but in the long run we may see some changes.