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Workshop

Is it madness to start a business-class only airline?

Startup projects don’t come much harder than launching an airline. It’s why the odds are stacked against Odyssey Airlines. Is there any chance this all business class airline can succeed?

20 Sep 2014

Setting up an airline is as ambitious as startup gets. It’s a sector where for every Branson, there’s a long list of failed would-be airline magnates, with wounded egos, wistful rumination of what could’ve been and a spreadsheet revealing a rapid disintegration of a huge pile of cash.

Adam Scott is the latest to have a go, trying to muscle in on the niche but high profile London to New York business class route, with his Odyssey Airlines set for its maiden flight some time in 2016.

He has snapped up 10 of the new Bombardier CS100 aircrafts that will carry around 35 business passengers. It’s a bold move for a former banker with no personal background in airlines.

‘Sub-optimal’ airports

Scott is betting everything on the aircraft. The new planes allow him to do something unprecedented: handle a transatlantic flight without a fuel stop after taking off from London City’s short runway and steep approach around Canary Wharf.

Scott has been tight lipped on Odyssey’s New York airport, with many expecting it to be LaGuardia – a 20 minute cab ride to Central Park in Manhattan, compared to 40 minutes from JFK. Another possibility could be that Odyssey targets wealthy New York suburbanites by flying into a small airport in either White Plains or New Jersey.

Scott says: ‘Heathrow and JFK are sub-optimal airports for business travellers because of their locations, congested slots, delays and how long it takes to work through the immigration and baggage before you leave.’

New opportunities

The all business class proposition has been attempted in the past (see right), and has always started with a logical assessment of the opportunity. It has tended to emanate from personal experience of founders that, despite the high price, the experience of business class with the major airlines is lousy and ripe for a specialist airline to do a better job. But no attempt to do so has worked out.

Scott explains: ‘Attempts in the past had different business models or didn’t have the opportunities we have today.’ He believes factors including the fuel efficient Bombardiers, the attraction of flying from City Airport, a bigger business class market, and the expectation that oil prices will remain stable, all give him a stronger chance than his predecessors.

Business class between London and New York is described by analysts as ‘the golden goose’ for the big airlines. One says: ‘Even if a new entrant got a low single digit percentage of the business segment, that would be be a very decent business,’ although cautioning: ‘but given how important the market is for the big airlines, its really hard for new entrants to get a competitive foothold.’

And therein lies the contradiction. Despite all the reasons why it’s so compelling, the consensus is any attempt will probably fail.

Ferociously competitive

There’s the money for a start. Millions are required to lease the aircraft, fit them out with business seats, acquire slots at the airports, plus pay for marketing and an array of other costs. ‘It’s as much about buying credibility with suppliers and customers, so if you’re Richard Branson, you probably need around £10m to get moving, but for you, me or Odyssey it’s more like £50m,’ says one analyst.

Taking on titans like British Airways, American Airlines and Virgin Atlantic in what is a ferociously competitive market is a monumental task for a challenger.

The big players’ frequent flier programmes and corporate accounts are considered to be a tight noose around the business market that challengers struggle to prise open.

If Odyssey makes any kind of an impact in this sector, the incumbents have plenty of weapons at their disposal to fight back with: massive discounts subsidised by other routes, offers of double or triple air miles to business customers travelling to New York and, of course, unleashing their advertising resources.

Unlike buying a burrito

The other challenge for Scott is reputational. ‘People want trust when they get on a plane, especially with a business class ticket,’ says one analyst. ‘Unlike a burrito or a pair of jeans, choosing an airline is not something one wants to experiment with.’

Some of his critics also point to the £3m Scott raised through various crowdfunding routes. His goal was to generate publicity while also raising money without overbearing investors. However, some say that while crowdfunding has a certain charm to food, film and small product projects, it may strike the wrong note for an airline.

Scott is adamant he has a robust business model and a few tricks up his sleeve that will surprise the big carriers. He has plans for more destinations on the US east coast as well as some destinations in the Middle East down the line. He adds: ‘Low cost airlines proved you can be disruptive in air travel providing you’ve got a smart business model and target the audience. We’re confident we’ve got the goods to do that for the business class market.’