David Prosser's Outlook: Business class-only travel was a brilliant theory – but Silverjet's timing sucked
It's not a huge leap to imagine a carrier such as easyJet launching business class-only services at competitive prices
Saturday 31 May 2008
This is not a happy time to be an airline. If anything at all was surprising about the collapse of Silverjet yesterday, it was that the business class-only carrier has survived this long. Its two rivals in the sector, Eos and Maxjet, were forced to mothball their flat beds many months ago.
Lawrence Hunt, the founder and chief executive of Silverjet, says he is still in discussions with an investor that might yet come to the airline's rescue. But don't hold your breath – it is difficult to imagine why anyone would want to commit their cash.
The killer fact for Silverjet is the cost of fuel for a round trip to New York – broker Daniel Stewart's estimate is that it amounts to around £44,000 today, compared to £28,600 when the airline began flying. For a new airline competing on price, with no economies of scale and little capital to ride out tough times, the figures just cannot be made to add up.
What will really frustrate Mr Hunt is that there is nothing inherently wrong with his belief that a business class-only model is potentially lucrative. Silverjet is just a victim of bad timing rather than poor management – it simply had the misfortune to take off at the same moment as the oil price.
In fact, while there may have been fewer Silverjet customers than Mr Hunt might have liked, many of those who have flown with the airline have raved about the experience and it has boasted high levels of repeat bookings.
No wonder. Silverjet's exclusive terminal at Luton – no harder to get to than any other London airport – enables customers to skip the worst bit of air travel, battling through overcrowded airport facilities to the departure gate. And once in the air, top-notch facilities mean Silverjet passengers are likely to enjoy their flight, particularly having paid considerably less than customers of rival airlines.
The really annoying thing about Silverjet's unfortunate timing is that the past year should actually have been a massive opportunity for the airline. With the global economy slowing, businesses are naturally keen to cut costs. What better way to save money than to send staff overseas on business class-only airlines offering seats at a third of the cost of established rivals?
Silverjet should also have benefited from improving demographics in the UK, US and other Western markets, where populations are older and wealthier. This has increased the size of the non-business market for business class seats, particularly those priced more affordably.
It will be no consolation to Mr Hunt, but all these arguments mean Silverjet will almost certainly not be the last you see of the business class-only model. Even when the oil price comes back down, it is difficult to imagine another start-up targeting the sector, but why shouldn't more established budget airlines move into this territory?
Indeed, low-cost carriers around the world are already targeting business customers, in many cases with enhanced services such as more exclusive lounges, greater flexibility on flight booking or even premium economy-class seats. It's not a huge leap to imagine a carrier such as easyJet launching business class-only services at competitive prices. Or what about Michael O'Leary, the visionary boss of Ryanair, who has already talked of his ambition to run transatlantic services?
The Open Skies agreement that was implemented earlier this year has made the airline sector – the soaring oil price excepted – more conducive to competition. Mr Hunt and his colleagues at Silverjet will now, in all likelihood, miss out on the chance to exploit that opportunity. Expect someone else to step into the breach.
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