The Splintering Air Travel Market

Posted by: Justin Bachman on March 10

No, that’s not some hip new nightclub. It’s the redesigned 1-2-1 interior Singapore Airlines will fly on its new, all-business class nonstop flights from Newark and LA.

The A340s on the route, which now have 64 business-class seats, will expand the total to 100, and economy class will be jettisoned. So if you’re a budget traveler on Singapore, forget the nonstop flights. Airline officials say they were unable to meet business demand with the current model. The new service will debut late next month. This change comes, of course, amid a shaky U.S. economy and general turmoil in the global credit markets.

“Singapore Airlines sort of has a tendency to zig while the rest of the industry is zagging,” says Ian Lorigan, a Singapore Air vice president who oversees sales and marketing. “This segment is quite a resilient one.” It’s also one that Singapore has a virtual lock on when it comes to 18-plus hour flights, brand loyalty and good customer PR. This is a small experiment, only 200 seats of the company’s daily 1,900-seat inventory departing from the U.S.

The company operates on the so-called “happy” side of the airline industry, one might say. It’s nothing like the one where most of us fly. But this bifurcation – and other recent developments – comes into even starker relief as crude oil breaches $109 per barrel. It’s worth taking a moment to ponder some of the ramifications for air travel. The current situation – exorbitant jet fuel vs. stagnant revenue – is not sustainable for most U.S. players. Airline executives have been making this point for so long now that it’s easy to ignore it, or dismiss it as some kind of talking point staple of their conference calls.

What’s interesting to me is how we’re finally starting to see this filter into the real world. Some developments over the past few days: First, ATA Airlines said it was ending its domestic schedule from Chicago Midway and will fly as a charter service, while also expanding to some Latin American markets from Florida. “This was a difficult decision, but the high cost of fuel has made it economically unfeasible to continue our low-fare service at Midway,” the company’s planning officer, Rob Binns, said in a March 6 statement.

Then, on March 7, Lufthansa said it’s ordering Cessna (TXT) business jets so it can begin a private jet service in Europe apart from its regular operations. (Lufthansa already flies 48-seat Airbus 319s configured as private business jets from Chicago and New York to Germany.)

What does all this mean? Fuel is squeezing out the weakest players, while the strong are exploiting their advantages. I think it also means that we’re seeing in air travel a new era of differentiation, the same as one finds in the retail and automobile businesses. Some folks pilot Bentleys, others travel by Chevrolet. It just used to be that we all were on the same aircraft. This new era is all about exclusivity at the high end, necessity at the low.