The latest entrant in the trans-Atlantic, business-class-only market is betting on design and service to stand apart from a crowded field
Lawrence Hunt pulls a worn drawing of an airplane seating chart from the pocket of his black overcoat. A serial entrepreneur from Britain, Hunt's latest venture is Silverjet, a start-up business-class-only airline offering flights between Newark and London beginning Jan. 25. Sitting in a café in midtown Manhattan, he explains how his new company will offer luxurious trans-Atlantic service for less than $2,000 round-trip. That's a significant savings compared to the $5,000-plus charged by carriers such as British Airways and AMR Corp.'s (AMR) American Airlines.
Hunt points to the airplane seating diagram as if it is a bar graph or a pie chart. The drawing depicts a Boeing (BA) 767 jet, but instead of the standard 300 passenger seats, there are only 100. Hunt's strategy is to "provide the concept of a sanctuary, equivalent to a private jet" aboard Silverjet's planes, he says, with plenty of legroom and stylish design elements such as sleek, pod-like seats and sophisticated color palettes featuring rich, brown, leather details and muted tans.
Of course, Hunt is far from the only savvy businessman to have this idea. Silverjet is the fourth intercontinental, business-class-only service to debut in about a year; the others being MAXjet, which offers 102 seats on a Boeing 767 at budget prices starting at $1,500, and Eos Airlines (see BusinessWeek.com, 11/5/05, "Anything But Another Plane Jane"), which promises private, suite-like seating on a smaller Boeing 757 with only 48 seats and fares as low as $3,150. A fourth, L'Avion, is beginning flights this week between Newark and Paris.
Hunt is a newcomer to the airline industry, although he's no stranger to fledgling enterprises, mainly in the tech industry. In the last 23 years, he has been involved with six start-up businesses, including Novell Europe (NOVL); BMS, a technology consulting partnership acquired by Cap Gemini in 1992; Database Management Sciences, bought by IBM (IBM) in 1993; Rapid Travel Solutions, which was sold to Telewest Communications in 2003; and lowcosttravelgroup.com.
"You see, we need to spend £24,000 ($47,000) in fuel per round-trip flight—that's a big up-front cost. But once we sell the first 24 seats at £999 ($1,970) each, we've paid that," says Hunt, running his finger across the first 24 seats drawn on the seating diagram to discuss how the company will make money. "By the time you get to the end of the plane, we'll profit on the other seats." In May, 2006, the company raised nearly $50 million from institutional and other investors in a public offering on London's alternative investment stock exchange to fund the startup.
But are the skies big enough for yet another premium-only airline flying between the U.S. and Europe? Recent airline industry data indicate that the sector might be on somewhat of an upswing, making Silverjet's timing good. Premium airline travel is on the rise at British Airways (BAB); the main competitor of Silverjet, Eos Airlines; and MAXjet. Storied British Airways saw an 8% increase in sales of Club World seats (its business class) in the last fiscal year ending March, 2006.
And airline trade associations are now offering optimistic profit-and-loss projections for 2007. In a news conference last month, the International Air Transportation Assn.'s chief economist, Brian Pearce, said projected net profits for the global airline industry are $2.5 billion in 2007. That's up from the organization's previous projection of $1.9 billion, earlier in 2006. Pearce also stated that the international airline industry saw losses of $500 million in 2006, lower than the $1.9 billion the IATA estimated in August, 2006. Why? Jet fuel costs dropped $20 per barrel—from a peak of $93—in late August.
Another indication of optimism, among institutional investors at least, in terms of the growth of premium-only airlines: Both MAXjet and Eos have secured additional funding in their first year of operations. MAXjet landed $50 million in September, 2006, for fleet growth. And Eos saw $75 million in funding from institutional investors in November, 2006, also to expand its fleet. Both companies have been expanding into new markets beyond the London to New York route Silverjet will fly. MAXjet, for example, now offers service between both Washington, D.C., and Las Vegas, and London.
The three start-up airlines aren't alone, either, in the new airline industry niche of business-class-only flights to Europe. French airline L'Avion, the first all-business-class service between Newark and Paris' Orly airport, is scheduled to begin flights this week on Boeing 757 jets with 90 seats. L'Avion sends out an automatic e-mail to anyone who signs up, heralding a price that's hard to argue with: $999 round trip for the first 999 tickets.
Some analysts are not so optimistic. Philip Baggaley, airline credit analyst at Standard & Poor's, cautions that "Most start-up airlines fail. The odds are against them; the major airlines have the advantages, obviously, with corporate contracts"—as well as brand recognition and larger advertising budgets. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Cos. (MHP).) As for Silverjet, it's flying into an already crowded market. "There are already two startups in the New York-London market, and it's not yet clear whether they will survive," Baggaley says. "But the New York-London market is sufficiently huge. The best model might be to have [marketing] ties to a major airline, and combine business models."
Low Budget, High Style
Hunt hopes that design and efficiency will differentiate the Silverjet brand from the growing pack. Hunt says his team spent about two years researching what budget-conscious yet discerning business travelers wanted, although much of Silverjet's ethnographic methodology consisted of Hunt himself approaching passengers in airports. He hired Martyn Bridger, a 25-year veteran of British Airways, as "customer experience" director.
The company decided to focus on overhauling the design of its plane cabins. But it didn't recruit a big-name designer—as Australia's Qantas Airways (QUBSF) did in hiring design-world darling Marc Newson (see BusinessWeek.com, 12/15/06, "Marc Newson and the Art of Design") as creative director—to redo the interiors. Nor did Silverjet hire a fashion designer to create the crew's hip, business-casual attire—as Delta (DALRQ) did by signing Kate Spade for its now-defunct, low-priced Song airline.
"Big designers require big paychecks," says Bridger. "We wanted to keep costs down and price points competitive." Instead, Silverjet focused on design features that would more significantly affect the passenger experience. Some of Silverjet's decisions seem slightly gimmicky, but they are also practical: women-only bathrooms, for instance, and the removal of overhead lights to avoid disrupting nearby passengers' sleep.
Time Is Money
The company considered what—beyond horizontal, bed-like seats—it could provide that MAXjet and Eos didn't, and that meant redesigning the check-in experience. "Everyone wants a fully reclining seat, legroom, and value. But there were other things, too," Bridger says. "For instance, people are growing increasingly fed up with queueing [for security] and arriving three hours at the airport before flight. So we designed our lounges and check-in to offer quick, efficient security."
This meant cutting down the time it takes passengers to get from check-in through security. In Newark, the Silverjet lounge, with its own security-screening staff, is in the arrivals area of the terminal instead of the departures zone, so passengers avoid crowds of people unloading and checking their bags.
A roving "concierge" checks in passengers on a laptop in the Silverjet lounge. And Silverjet is offering a private terminal at Luton Airport, so London passengers will have a similar experience. Both departure areas are also close—a walk of about 130 feet—to the Silverjet gates themselves. The company claims that passengers with carry-on bags can go from curbside to plane in just 30 minutes.
It'll Cost You
With increasing competition from ambitious startups such as Silverjet, major airlines flying between the U.S. and London are also working to lure business class passengers with swanky (and expensive) cabin redesigns. British Airways, for example, is currently engaged in a $196 million, 18-month overhaul of its Club World sections of planes. Upgrades include seats that are 25% wider than the previous ones; electronically controlled, opaque privacy screens; and free toiletry bags from fashionable handbag designer Anya Hindmarch.
But such luxuries come with a hefty price tag. A Club World flight from JFK to Heathrow on Jan. 25 (the first day British Airways competes with Silverjet) and returning Feb. 1 was listed on British Airways' Web site at $5,200 if purchased three weeks in advance.
Virgin Atlantic is courting business-class travelers by focusing on upgrading the experiences of its lower-priced flights instead. In November, 2006, it started rolling out its refurbished Premium Economy class seats. While the name "Premium Economy" might sound like an oxymoron, Virgin has been offering the category since 1992 (first dubbed "Mid Class"). Last year, Virgin began a $23.5 million revamp of the Premium Economy class with such stylish new offerings as 21-inch purple leather seats that the company says are three inches wider than most business-class seats.
Betting on the Brand
While not exactly offering bargain-basement prices that match those of Silverjet or MAXjet, Virgin Atlantic's Premium Economy flights between Newark and Heathrow on Jan. 25 (returning Feb. 1) will run $2,300 as listed on virgin.com, when bought three weeks in advance. That's less than half of a Club World ticket on British Airways, but still nearly $400 more than a Silverjet seat.
Clearly, competition is heating up among established and new airlines alike to woo budget-savvy yet comfort-seeking business travelers. The key for Silverjet will be to establish a strong brand that's consistently synonymous with the company's efficiency-meets-elegance attitude. It's a branding—and business—strategy that Silverjet will need to help distinguish itself—and better its odds for success—in an increasingly crowded market.