Lufthansa introduced the service in response to the demand of business travelers like Kiefert. The airline says it has no immediate plans to apply the idea to other routes. But faced with the worst downturn in the history of commercial aviation, the airline industry is clearly becoming more open to novel solutions. And chief among these, say many insiders, is a move toward a partial–and perhaps eventually total–segregation of business and leisure travel.
Even before September 11, U.S. carriers were on track to lose $3 billion for the year. The situation globally was not much better, with airlines like Sabena and Aer Lingus on the brink of insolvency. The decline in business travel is at the heart of the problem. Grossly inflated business-class air fares have always made it possible for airlines to offer economical steerage fares and thus pack out the rear of their cabins. But if the expensive seats in the front of the cabin start going unsold, then the cheap excursion fares will be endangered.
Increasingly, businesses are signaling that there is a limit to how much they will pay the big carriers to transport their employees to meetings. In the United States, the use of teleconferencing and videoconferencing rose by more than 50 percent last year, and more companies are thinking twice before sending large armies of employees on business junkets. Many medium-size businesses expect their employees to travel in economy class, or stay over a Saturday night just to avoid getting stuck with extortionate full-price business fares. And more and more businesses are participating in “fractional jet ownership” schemes, in which companies buy shares in corporate jets, entitling their employees to a certain number of exclusive flying hours onboard. In North America the number of companies taking part in such schemes jumped from 114 in 1996 to more than 2,800 last year.
For most of the industry’s heavy hitters, luring back business travelers is top priority–and the key to any immediate turn-around in their fortunes. So carriers like Lufthansa have begun enticing them, as with the business-class-only flights. Qatar Airways has been offering a similar service since November on a converted Airbus A319; Qatar has even arranged its seats in clusters of four, each centered on a mini conference table so travelers can do business while in transit. British Airways, meanwhile, has spent [Pound sterling]5.3 million since last year on a global advertising campaign touting its new fully reclining seats in business class.
Not all carriers are suffering. The small, no-frills budget airlines, like Britain’s easyJet and Buzz, have seen soaring profits, ambitious business plans and buoyant stock-market IPOs–especially since September 11. In the United States, for instance, Southwest brought in a $21 million profit in the first quarter of 2002. Compare that with a loss of $171 million by Northwest, or the $269 million lost at US Airways. Meanwhile, New York-based budget airline JetBlue raised $158 million with its initial stock sale. Eccentric CEOs like easyJet’s Stelios Hajo-Ioannou, Ryanair’s Michael O’Leary and Southwest’s Herb Kelleher have become minor celebrities, touring the lecture circuit to share their “vision.”
So what is that vision? For starters, their companies are profitable because they pay people less. And most budget airlines operate short-haul point-to-point flights, rather than the so-called hub-and-spoke model of traditional airlines. Though Lufthansa’s incoming CEO, Wolfgang Mayrhuber, recently mocked what he called the rise of “Ping-Pong” airlines, the fact is that operating without a hub can translate into enormous savings, since airlines don’t have to fund the staff and infrastructure necessary to accommodate connecting traffic.
Many budget airlines also fly only one kind of plane, which simplifies training, inspections and maintenance operations. They also aim for breathlessly short turnaround times for their planes; on some fleets, planes spend little more than 20 minutes at the gate. They remind passengers to bring their own food, and dispense with onboard magazines and duty-free shopping. All this, in turn, means less time spent cleaning up litter between flights. But perhaps the biggest innovation has been in the distribution of tickets. Ireland’s Ryanair sells 90 percent of its tickets through its own Web site, and the elimination of travel-agent fees and commissions has enabled the airline to offer rock-bottom fares to holidaymakers. “People look at a 20 percent profit margin in an airline and think you are smuggling drugs,” O’Leary quipped last month.
Who really has it right: the big airlines, which insist that full-fare and business-class travelers will subsidize the industry for everyone else, or the nimble up-and-comers, which claim that the future lies in offering passengers less for less money? Actually, both do; some observers say we will soon see the emergence of what is essentially a two-tier industry, with mainline flag car-riers like British Airways and Lufthansa catering primarily to a business-class audience, and a number of newer, more innovative budget airlines cashing in on the low-cost holiday travel market. On both, air travel will be a whole new experience.
