Will they really be able to fill all those plush seats? The new carriers charge anywhere from $1,000 to $3,500 for a round-trip ticket, compared with as much as $8,000 at established airlines. And lower prices don't mean shabbier service. At Silverjet, for instance, passengers can sip cocktails while a concierge handles check-in via laptop. All told, it may be enough to sway small businesses and leisure travelers looking for a comfier ride. "If you reduce a business class fare to under $2,000 you'll convince a lot of passengers to upgrade," says Silverjet founder Lawrence Hunt.
Some industry insiders, though, doubt there's enough demand to keep all the flying palaces aloft. Airlines tend to burn through piles of cash in any downturn, and the new carriers lack the big fleets and flight frequency of giants such as British Airways PLC (BAB
). Silverjet currently offers just one New York-London round-trip a day, while BA has a dozen. "If you take one plane out of service at BA, no one notices," says Richard L. Aboulafia, an analyst at aviation consultant Teal Group in Fairfax, Va. "If you do it at any of these carriers, you annoy an awful lot of people." Worse for the small-fry, they tend to serve less-convenient, outlying airports, and the majors cut low-cost deals with big-spending corporate customers.STRONG TAILWINDS
What's more, the majors are splurging on improvements to their service. Last year, Virgin Atlantic Airways Ltd. rolled out a $23.5 million revamp of its premium economy class aimed at the same cost-conscious business passengers the upstarts are trying to lure. And BA is spending close to $200 million to upgrade its business- and first-class services with goodies such as wider beds and privacy screens that slide into place at the touch of a button.
The majors, though, will never be able to ratchet costs down as low as the startups can. Similar to discount carriers, the newbies fly only one type of aircraft point-to-point, saving on maintenance while avoiding the costs of vast hub-and-spoke networks. The upstarts are benefiting from other strong tailwinds, too. Fuel prices have been falling, the economy is doing well, and business travel is picking up. And big airlines are upgrading their fleets, so it's easy to find second-hand planes at knock-down prices.
Still, aviation history is littered with failed luxury startups. Remember MGM Grand Air? Founded by financier Kirk Kerkorian in 1987, the airline struggled to fill the plush 33-seat Boeing 727s it flew between Los Angeles and New York and was eventually sold to a charter company. "Others who tried to get into this market," says Michael Boyd, an aviation consultant in Evergreen, Colo., "found that instead of Kobe steaks and champagne, what passengers really want is frequency and convenience." By Kerry Capell, with Reena Jana in New York