Tag Archives: transportation

Air France and Delta Trans-Atlantic JV

17 Oct

The International Herald Tribune reported today “Air France and Delta forming joint venture for trans-Atlantic flights.” This is yet another development in the airline industry as different players line up to take advantage of the impending change in regulation controlling flights between the United States and the European Union.

Many airlines are jockeying to take advantage of the “Open Skies” deal, which will allow airlines to fly from anywhere in the European Union to any point in the U.S. as of March 30.

The effect will inevitably play both to the favor of customers and airlines.

Customers will benefit from lower costs and more direct-flight options as more operators are allowed to cross the Atlantic, and to fly between markets which were previously not connected. Perhaps some intrepid airline will begin flying from San Francisco to Riyadh and make my life easier (yes, I realize Saudi Arabia isn’t part of the EU… yet).

With more possible destinations, airlines will be able to operate internationally at much lower cost (by, for instance, flying into London Luton rather than Heathrow or Gatwick). As different airports become viable options, airlines should have improved bargaining power when negotiating prices on landing slots and gates.

Could this be the way that US airlines break free from there historically abysmal profit levels?

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New Insights In the Quest for an All-Business-Class Domestic Airline

16 Sep

Virgin America InteriorIn the time time since writing an earlier post, “Domestic US All-Business-Class Airline?,” I have stumbled across some additional, interesting insights about the prospects for an all-business US airline. To quickly reiterate, in that post I proposed that a company like EOS or Silverjet, which offers business-class-only flights over the Atlantic, could be successful flying domestically within the US.

First off, I failed to point out in my previous post that some airlines have taken a similar, if not identical approach in the past. Midwest Airlines is effectively an all business class domestic carrier, and airlines like JetBlue and Frontier have tried to position themselves as premier economy airlines, with leather seats and seat-back entertainment systems.

Second, it is important to note that the recent boom in transatlantic business class airlines is likely to not only continue, but to increase in light of the upcoming March 2008 opening of the transatlantic market to new competition when the Open Skies Pact goes into effect. This will likely distract much attention from the domestic US market for the next year or two, as the existing business-class players focus their investments on expanding service between new, previously unserved markets.

Third, Richard Branson appears to have really set his sights on the US domestic airline market. Virgin is expected to enter the all-business-class fray with a new transatlantic option, competing with EOS, Silverjet, and the others. This, only months after Virgin American began service from San Francisco offering a new premium domestic option. Its flights are split like most traditional airlines with both economy and “first class” sections, but many new service innovations such as on-demand meals, custom MP3 music playlists, and a seatback entertainment system that even allows electronic chatting with fellow passengers.

Virgin American appears set to fill a niche for low-cost premium service, but doesn’t eliminate the attractiveness of a truly upscale business-class-only option, since that configuration offers advantages in terms of lightening-fast boarding, lower risk of screaming babies, and smaller planes that can fly to less congested regional airports.

Finally, I should point out that I am not the first to have thought about this. Steven Livett and Stephen Dubner over at Freakonomics wrote about this very opportunity just a few months ago. Similarly, Scott McCartney at the Wall Street Journal, author of the Middle Seat column, generated some interesting discussion on his forum a couple months ago about domestic opportunities when he wrote about L’Avion and Silverjet.

Have others already tried?

While I still believe United PS is the best example of the type of routes and target audience such an airline would target, MidWest Airlines (formerly Midwest Express) is an interesting case study. It offers a single, “premium” class of service that is close to traditional “business class” on most domestic carriers. They even bake fresh cookies onboard!

The airline is rated “tops” again and again by customers, and demonstrates that a niche player can indeed be successful in the airline industry. It recently fended off a hostile takeover bid by AirTran, whose efforts were blocked partially through grassroots objections by its customers.

But Midwest Airlines is still relatively small and doesn’t compete in all US markets. Interestingly, it doesn’t compete for most of the long-haul domestic routes like LA to New York and Seattle to Miami where I believe a business class airline has the greatest prospects. If a proposed purchase of the airline by private equity giant TPG Capital and Northwest Airlines goes through, however, this sort of move and expansion between more US airports might very well be in the cards.

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Will Traffic Die, Once and For All?

14 Aug

Congestion ChargingThere are a number of reasons why I am extremely impressed by how well managed London is compared to most cities in the United States. One area, in particular, is in transportation. One of the most controversial of these, when first introduced, was the congestion charge. Drivers are charged £8 (approximately $16 USD) to enter downtown London in their personal cars. The effect is that driving to work becomes too expensive to do it every day, encouraging commuters to use public transportation. At the same time, with less traffic, buses move faster, taxis zip from place to place more efficiently, and the city becomes an entirely more pleasant place to be. In the words of economics, congestion charging corrects a market externality.

As the New York Times reports today (“U.S. Offers New York Million for Congestion Pricing“) there has been a major step forward in New York’s efforts to replicate this important piece of legislation. While the plan is somewhat different, I have the utmost hope that it succeeds, and further demonstrates that public transportation can be successful in places outside of Europe and Asia (in one or two US cities at least…).

The secretary of transportation announced this morning that the federal government will provide New York City with $354 million to implement congestion pricing, if the State Legislature acts by March 2008 to put in effect Mayor Michael R. Bloomberg’s proposal for charging traffic fees in Manhattan.

Mayor Bloomberg’s congestion pricing proposal has attracted the broad support of business, labor, environmental and transportation groups, but he has been less successful at swaying state and city lawmakers representing the boroughs outside of Manhattan…

Nonetheless, the substantial federal support for the project gives enormous leverage to the mayor as he continues to press for his proposal.

The mayor’s plan, unveiled in April, proposes to charge drivers $8 and trucks $21 a day to enter or leave Manhattan below 86th Street on weekdays during the workday. Those who drive only within the congestion zone would pay $4 a day for cars, $5.50 for trucks.

Well done, Mr. Bloomberg. Let’s hope that he succeeds. It would certainly make that eventual move to Manhattan seem all the more tantalizing.

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Domestic US All-Business-Class Airline?

25 Jul

On l'Avion airplane, which flies between Newark and Orly Airport in Paris. The walk-up airfare for a recent trans-Atlantic flight was $1,650.

An article today in the New York Times (“Demand Grows for All-Business-Class Flights“) discusses how airlines with only business class seating have been successful in the trans-Atlantic flight market. According to the article, four startups, L’Avion, MAXjet, Eos and Silverjet are all doing business only on long (5+ hour) international travel.

This raises the question, could the all-business-class model work for domestic service within the United States? I think it could, and am surprised that I have not heard of airlines pursuing this niche (with one exception, below).

Arguably, the profile of the average business class customer on coast-to-coast flights is not entirely different from those crossing the Atlantic. Whether going from New York to London or Los Angeles to DC, a business traveler has the same needs: quality lay-flat seats for sleeping, on-time departures, limited waiting time and hassle, decent food, and good service. He or she also has the same budget: substantial.

United Airlines is the only domestic airline I know of which offers a service in this arena, which they call P.S. for Premium Service. Having flown this service from San Francisco to Boston, however, I can certify it does not truly compete with the all-business-class airlines.

For one, it suffers from all the standard delays and hassles of flying domestically on United. Additionally, it uses old, outdated aircraft with few modern niceties such as individual video screens. The experience is more akin to flying your typical United flight than to a truly premier airline.

What would an airline need to do to really compete here?

  1. Offer reasonable prices for the quality of service (most likely in the $900 – $1500 range)
  2. Utilize smaller airports with fewer delays and easy access
  3. Equip new aircraft with modern amenities and comfortable, lie-flat seats
  4. Choose routes which are common for business travelers, but under-served by services like P.S. (for now), such as Seattle – New York and San Francisco – Washington DC.

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