Doing It With Class
Airlines get down to business, as pampering travelers leads to plumper profits.
SOMEWHERE OVER THE ATLANTIC OCEAN-Justin Pannell leans back in his leather "suite" and snaps open a copy of the Times of London. The 49-year-old management consultant has made this trip across the Atlantic countless times, and in recent years the experience has been getting better. "Business class is getting bigger and bigger," he says. "One catalyst was the closing of the Concorde. People wanted exclusivity and speed. We lost speed, but it's still possible to have exclusivity."
It is common knowledge in the airline industry that international business travelers provide its bread and butter. They fork over top dollar, fly at the last minute, and will pay a premium for certain creature comforts. The most lucrative route, between New York and London, can cost as much as $9,000 round trip for a flight that takes an average of six hours each way. Remarkably, 8 percent of passengers provide 50 percent of airline revenues.
Now, airlines are fully realizing business travelers' importance. New all-business-class airlines have mushroomed over the past year. And traditional carriers are upgrading their premium-class services, especially on international flights. "There's somewhat of a domino effect," says Eric Ford of Eclat Consulting, which focuses on the airline industry. "If one carrier starts improving, others have to follow suit. The airlines all know that a minority of travelers on business fares provide a majority of the revenue, so you do anything you can do to steal a business traveler from another airline."
All business. Pannell is flying on Eos Airlines, an all-business-class airline that began service last October between New York's John F. Kennedy International Airport and Stansted Airport, northeast of London. Eos, named for the Greek goddess of dawn, has outfitted its four Boeing 757 jets, which usually carry 220 passengers, with 48 "pod suites" that give each traveler 21 square feet of space. "It's like a long executive jet," says Pannell. "When Boeing made this aircraft, it never imagined it would be used for something like this. It's still too early to say what will happen, but executives like it, and companies now have tighter travel budgets and want more bang for their buck."
On a recent flight, passengers received a champagne cocktail upon boarding and, after a four-course dinner, settled in to sleep, armed with Bose noise-canceling headphones and two-piece pajama "sleepsuits" handed out by flight attendants. As the airline prepared to expand its service to two flights a day last month, it reported that reservations were up 62 percent over the previous three-month average. Fares range from $2,750 with seven-day advance purchase to $6,500 for an unrestricted round-trip ticket. That's still about 20 percent lower than larger carriers' business-class fares, which usually range from $6,000 to $9,000. Eos plans to expand to two more U.S. cities sometime next year.
Founder Dave Spurlock, once a director of strategy at British Airways, came up with the idea for Eos when he realized business passengers were the most profitable segment of the industry. "Eos is a new breed of airline, built around the need for hassle-free flying," says David Pottruck, the CEO. "On a typical 777, which holds 250 people, the 195 passengers in coach class lose money for the airline. But the 50-plus people in first and business class are so profitable that they not only cover losses in economy but make a net profit. So we thought, why not just cut out the coach customers?"
MAXjet Airways, which started flights on the same route one month after Eos, has a similar philosophy but chose to split the difference. "Business class is getting more expensive, while economy is getting cheaper. It's like taxes-the rich and the poor don't pay enough, and the middle class pays it all," says CEO Gary Rogliano. "We're targeting a segment of the market that is price sensitive but still wants quality. People don't want to pay $1,000 per hour for a flight." The Dulles, Va.-based carrier, which flies to Stansted six times a week from JFK and four times a week from Washington, D.C.'s Dulles, describes itself as the first international all-business-class, low-cost carrier. It will begin flying from Las Vegas next month. With fares beginning at $1,500 from New York and $1,750 from Washington, it woos away some passengers who might otherwise have flown coach on a traditional carrier. Indeed, the passengers on its 767s are currently 70 percent business travelers and 30 percent leisure, with an average salary of $175,000. And business has been good-MAXjet's planes are typically about two thirds full-similar to bigger, more established airlines. Rogliano likens its model to that of always profitable Southwest, which uses only one type of plane to cut down on overhead. He says 85 percent of MAXjet's passengers are coming from the competition's premium-class seats, while 15 percent would have flown economy class elsewhere.
Both these airlines have had to use Stansted, 30 miles from London and the hub for low-cost carriers like easyJet and Ryanair, because of capacity constraints at Heathrow. Yet another start-up airline, Britain's Silverjet, plans to begin service between Newark, N.J., and London's Luton Airport by the end of the year. This third all-business-class airline aims to fly 767s equipped with 100 reclining seats. Like Eos and MAXjet, it also plans to provide expedited check-in and boarding, luxury lounges, and premium car service to and from the airport. How will it be different? It aims to provide an Eos product at a MAXjet price.
Major carriers. For a long time, U.S. carriers were known for bad food and service. After the 9/11 terrorist attacks in 2001, the airline industry lost so much money that plans to upgrade services were shelved. But now, with international air travel increasing (54 million passengers are expected this year on trans-Atlantic flights alone, an increase of 29 percent over the past four years), U.S. airlines are betting on international business travelers. Delta Air Lines, which filed for bankruptcy last year, just launched an upgrade of its international business class, with 12 new routes across the Atlantic and three more planned this fall. Its new BusinessElite class features leather seats and digital entertainment systems that offer more than 20 on-demand movies and allow you to customize your own playlist of 1,600 songs. American Airlines installed new seats in its business cabins, with hard shells so passengers wouldn't be disturbed by people behind them and seats that recline 171 degrees-nearly flat. United Airlines is spending $165 million to refurbish its international first- and business-class cabins. Lufthansa has opened a new terminal in Frankfurt for business travelers, with shorter security lines. Passengers are ferried to their planes in Porsche Cayenne SUVs or Mercedes sedans.
Cuisine is also going upmarket. "We're more gourmet than economy classes, but it's not overtly chichi," says Caroline Chung, senior director of marketing for MAXjet, who designed the menus and many of the style details of the lavender planes. "We don't have caviar, but we have a really good beef tenderloin." Delta hired Michelle Bernstein, a celebrity chef from Michy's in Miami, to develop its menus. For its first-class passengers on flights between London and major cities in the United States and Asia, British Airways is developing more healthful menu choices. It is working with chefs from Thailand's Chiva-Som spa resort to make meals with organic ingredients, low in saturated fat and sodium.
Virgin Atlantic Airways reported a 10 percent increase in business travelers last year, which helped the carrier increase revenues by 17 percent over the previous year, to $3.6 billion. Virgin now has six daily flights between JFK and London, and its new clubhouse at Heathrow for business passengers provides massage facilities and a full spa.
Simon Bayles sits in the Emirates lounge at JFK, sipping champagne and tapping away on a laptop. He works for a boutique investment bank in London and holds three gold cards from three different airlines. "My company tries to find the cheapest and most comfortable way of traveling. Eos beats every business class, but it doesn't measure up to first class on Singapore Airlines or Lufthansa, in terms of bed technology and entertainment systems," he says. "But airlines are focusing so much on business class these days that the gap between business and first is closing. For example, here they serve Veuve Clicquot, while in first class they serve Dom Perignon-is that worth a 5,000-pound difference in the ticket price?"
This story appears in the October 16, 2006 print edition of U.S. News & World Report.