The Elite Airfare Wars Heat Up

For a visionary like Richard Branson, his splashy announcement that in 2008 Virgin will launch new all Business Class flights from London to New York is disappointingly old school. British Airways is also considering the same move, a result of the recent open skies agreements. Singapore Airlines has announced its intention to fly all-Business Class routes, too.

All-Business Class service is nothing new; it dates back to the 1970s. More recently, Lufthansa and SWISS have offered it on several routes. What is new is the sudden volume of all-Business Class start-ups competing for the premium traveler, including EOS, Maxjet, Silverjet and others. When Branson jumps on the bandwagon, he’ll be tapping into a market full of demand but one that was stunted by artificially high fares.

I call it the Elite Airfare Wars and for consumers and corporations who rely on Business and First Class travel and invest some time in understanding the trend, the benefits are piling up. In simple terms, premium class fares are shifting from arbitrarily high priced—the lifeblood of airline revenues—to more fairly priced, reflecting the battle for consumers. Choice and service levels are substantially increasing, too, which will also affect the traditional high-end service leaders.

British Airways and Virgin, long the service standard-bearers for trans-Atlantic flights, have flinched by lowering fares, easing restrictions (shorter advance-purchase window and no Saturday night stay), and increasing service levels. This tells me that the all-premium start-ups are a serious threat to the status quo.

So what’s going on?

The short answer is that the major airlines took their eyes off the ball—the user experience. They heeded the media headlines crowning Low Service Carriers (LSCs) like JetBlue, the new industry darlings. The mad rush to compete with the LSCs was just that—mad. The traditional carriers forgot that the “journey experience” was their selling point. That left a market opportunity the size of an Airbus A380 hangar.

Some airlines are starting to get it again, and realize that a memorable experience, rather than just a low fare, is the ticket to increasing business. Travelers want better flying experiences and the prestige of premium travel, but without paying exorbitant prices for Business and First Class product offerings. The lure of frequent flyer programs is losing its luster as the cost of attaining miles becomes ever more prohibitive. To date, Business Class travelers, despite their importance to airline revenues, have been woefully underserved—if not outright neglected.

The truth is this: The old-world airfare economics don’t work. There will be a major disruption in how airline seats are priced and configured. Consumers (corporate travelers and especially the small business entrepreneur who couldn’t afford the premium experience) are going to win through choice, competition, and innovation. Expect corporate travel policies to become more generous, parallel to premium fares’ affordability.

The Elite Airfare Wars are on!