Transatlantic Market Is at Full Boil

Niche carriers are moving to fill perceived gaps with new transatlantic products -- particularly on the New York-London route -- as entrenched players add flights to further court high-yielding customers. Startup Silverjet is mimicking the model established last year by MaxJet and Eos by offering an all-premium inflight product at costs that undercut established players. While Eos, MaxJet and Silverjet look to shift customers from the front cabins of such entrenched players as British Airways -- and lap up new demand -- Canada-based Zoom is seeking price-conscious customers from the back of the plane with plans to launch low-cost all-economy service from the United States to London.

Meanwhile, as Delta Air Lines plans to add the "crown jewel" of its massive transatlantic expansion through an agreement late last month to purchase New York-London route authority from United Airlines, British Airways and Virgin Atlantic are adding to the number of daily flights that connect passengers from the Big Apple to Big Ben.

In addition to giving travel buyers more choices through new product categories on one of the most heavily traveled international routes, new players -- seeking to undercut established ones on price -- said they would put some downward pressure on fares in the market.

"The market between the U.K. and especially the northeast of the U.S. is probably the most competitive business travel market in the world, and the fares reflect that," said John Caldwell, president of travel consultancy Caldwell Associates.

Silverjet CEO Lawrence Hunt said his new endeavor would help "raise the whole point that prices are artificially high in business class. They don't need to be. They shouldn't be."

Eos and competitor MaxJet last fall both entered the market offering daily, all-premium services between New York JFK and London Stansted Airport with similar concepts -- a spacious inflight product offered at prices below comparable services from incumbent transatlantic operators

Silverjet is cheered by what it said are the recent successes of Eos and MaxJet, both of which within a year of launching hit load factors in the 70-percent-plus range.

"We're very encouraged by Eos and MaxJet's performance," Hunt said. "It took them a little longer to get out of the traps on distribution and marketing, but the proof of the pudding is in the eating: MaxJet's over-80-percent load factors; Eos is in the 60s or 70s. For us, that took over any concerns that the industry had or investors had about demand for this type of product. It took them six or seven months to get to break-even, which is a pretty good result for a new product category."

Hunt said Silverjet late this year or early next will launch twice-daily service between Newark International Airport and Luten Airport, which is about 30 miles outside London. The carrier is in the midst of purchasing Boeing 767s to serve the route and is in production to outfit each plane with 75-inch cocooned lie-flat seat-cum-beds.

"We think there's enough capacity in the market for three or four times a day service between London and New York, so we'll grow that as quickly as the demand allows us to," Hunt said, adding that Silverjet is looking to grow to 10 aircraft in three years on four different routes, two of which will be out of North America.

While starting on the Newark-Luten route, the carrier is not limiting itself to transatlantic service. "It's a long-haul, low-fare, all-business class product," Hunt said. "There are more than 30 routes out of London that would work for this service economically, so it's a huge opportunity. We think this is the next big thing in the low-cost airline niche focus."

The carrier will launch its service by capping fares at about $1,500 roundtrip, which it said undercuts premium class prices offered by entrenched players.

Eos early next month will add a second daily flight between New York's JFK and London's Stansted. The carrier said it hit a record-high monthly load factor of 72 percent in June and CEO David Spurlock told BTN the carrier had hit its breakeven point earlier this year. MaxJet said load factors for June and July exceeded 70 percent on its New York-London route, while averaging 60 percent on its Washington-London route, which launched in April. Meanwhile, MaxJet plans to add another, undisclosed U.S.-based route to Stansted to its portfolio, which comprises flights between Stansted and Washington Dulles and JFK. MaxJet last week said two more aircraft will be delivered in early 2007, expanding its fleet to five 767s. The carrier said it is in further discussions for additional aircraft to go into service next year.

While Silverjet is attempting to soak up new premium-class demand and shift economy passengers from transatlantic incumbent carriers, Zoom -- which for years served routes between Canada and Europe as a low-cost carrier -- is eyeing departure points in the United States and customers who elect to sit in the back of the plane.

A $5.7 million agreement with the Bank of Scotland gave the carrier the ability to launch Zoom UK. The carrier currently offers cut-rate transatlantic fares from six markets in Canada. News reports said the carrier is considering a route between London's Gatwick Airport and New York, as well as potential flights between the U.K. and Mexico or the Caribbean. At press time, Zoom had not returned calls to outline its expansion plan.

Established players on transatlantic routes are not sitting idly by as new entrants mobilize and expand.

According to consulting firm Donald N. Martin & Co., the top nine transatlantic carriers experienced a 5.1 percent increase in passengers for June from the same period last year, "even though average capacity was up only 3.9 percent." In its monthly Trans-Atlantic newsletter, the firm noted that U.S. carriers continue to account for virtually all added capacity and traffic on the Atlantic, having boosted available seat miles by 11.6 percent for June. Average load factors stood at a high 88.9 percent, up two percentage points from June 2005.

"Growth in June would have been even greater if more seats were available. The airlines were happy, of course, as peak-season passengers were paying the highest fares since 9/11," the report noted.

At a meeting with investors in New York this spring, Willie Walsh, CEO of British Airways, which attributes some 65 percent of pre-tax earnings to transatlantic flights, noted the upstarts represent "additional competition for British Airways, but nothing that would cause concern," noting that they have "weak load factors" and "heavy discounting."

As a firmly entrenched North Atlantic operator, British Airways exhibited a profitable quarter -- even amid high fuel costs -- on strong demand from business travelers with an operating profit of $211 million. During the quarter, the carrier announced an eighth daily flight from London Heathrow to New York JFK.

Virgin Atlantic, meanwhile, increased service to New York with a sixth daily flight from London Heathrow last month. "This new daylight service from New York will match the demand from passengers on both sides of the Atlantic for morning flight departures," the carrier said.

Delta also is getting into the New York-London act. Through the agreement the carrier made late last month to purchase the New York-London route authority from United Airlines, which is subject to U.S. Department of Transportation approval, Delta for the first time would operate daily roundtrip flights between its New York JFK hub and Gatwick. "The first daily roundtrip flight would begin later this year with a second flight beginning in spring 2007," the carrier said.

Dubbing it a "crown jewel" for its New York JFK hub, the acquisition marks the culmination of a decade of work to get the route into its portfolio. Delta said once flights are launched, it will serve 22 transatlantic markets nonstop from JFK -- eight of which were launched earlier this year.

"Our customers have long awaited the addition of daily nonstop Delta flights on the world's most popular international route," said Jim Whitehurst, Delta's COO and presumed heir apparent to its CEO post. "Airline consumers in cities throughout the United States will benefit from the increased competition that these flights will generate as they fill a critical gap in our international network, allowing more customers to choose Delta for travel between New York and London."

As carriers of all sizes expand supply, demand is expected to grow steadily. According to the International Air Transport Association, the number of North Atlantic passengers is expected to move upward consistently through 2009, with annual passenger growth between 5 percent and 5.5 percent. "North Atlantic traffic has recovered strongly in 2004 and 2005, with activity increasing beyond the previous peak levels in 2000," IATA said.

"U.S. airlines shifted some capacity away from the slower growth domestic market to more buoyant North Atlantic routes, taking advantage of the boost to their competitiveness against European airlines from the fall in the dollar," IATA said.

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