Sir Richard Branson’s trademark “devil may care” attitude is evident when he talks about founding Virgin Atlantic. He has said: “In the ’80s my gut feeling was that airlines were crap. I hated spending time on planes. I thought we could create the kind of airline I’d like. So we got a secondhand 747 and gave it a go.”
But his bravado and subsequent success mask the harsh realities of the airline business: it is fast-paced, high risk, and highly leveraged. Black swan events, such as 9/11, can send the sector into a tailspin. Airlines’ fortunes also fluctuate with the general economic climate and the price of oil. Bankruptcies are common.
As legendary investor Warren Buffett once said: “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines.”
The busy transatlantic route between London and New York is no stranger to airline casualties, notably among business class-only carriers operating out of Stansted and Luton.
Earlier this week, the latest to hit turbulence was business class-only La Compagnie, with its CEO Frantz Yvelin blaming Brexit uncertainty for its decision to suspend its London Luton to New York Newark route and concentrate on flying from its Paris base. Commentators see suspension as a prelude to a total withdrawal from the Luton service.
Aviation analysts were sceptical of the reason given, pointing to deeper issues with the airline’s strategy. Malcolm Ginsberg, editor in chief of Business Travel News, describes the Brexit claim as “rubbish”. He says: “Their big problem was the wrong airport, poor marketing and a failure to offer a daily service. Had they gone daily to JFK [also in New York] it might have worked.”
“A variety of factors are responsible for the low load factors on this route,” adds aviation analyst Alex Macheras. He explains: “Luton airport is not a typical choice for business travellers and its transport links are terrible.
“The timing of the flight, which landed late in New York, did not work in its favour. La Compagnie was not a member of an airline alliance and had no partners. Therefore, there was no safety net for passengers if things went wrong. And it was competing against larger carriers that offer attractive loyalty programmes.
“But what it boils down to is a lack of high yielding passengers and a lack of demand.”
Business class-only services have always struggled in the UK. British Airways operates a business-only cabin to New York from London City but the service is not a moneyspinner. Three previous business class-only carriers flying from the UK to New York all failed when the credit crunch hit.
The first to go was Maxjet, a US business class-only airline flying to Stansted which went bankrupt on Christmas Eve 2007. Maxjet may have been compromised by a lack of economies of scale, having only a maximum of five aircraft.
Its departure was followed by that of Eos, another business class-only US airline on the Stansted to New York route which went bankrupt in April 2008. Sector expertise had failed to save it: The airline was founded by Dave Spurlock, a former director of strategy at British Airways.
A month later, Silverjet a British business-only airline with its own passenger terminal at Luton, was grounded permanently. Despite a top flight in cabin service and Aim-listing, it ran out of cash when it needed it most, unable to draw on a loan.
As La Compagnie prepares to depart from Luton for what is likely to be the last time, budding Bransons would do well to take note of the words of Gordon Bethune, the former CEO and chairman of Continental Airlines who has said: “There are a lot of parallels between what we’re doing and an expensive watch. It’s very complex, has a lot of parts and it only has value when it’s predictable and reliable.”
However, aviation veteran Ginsberg holds out some hope for the sector’s future entrepreneurs. He says: “London City to JFK might work with the CSeries [a new aircraft by plane maker Bombardier] but we will have to see what the payload is all about.”