The Future of Short-Haul Business Class
In this paper: Covering the Rise of a New Airline Model and
How Private Jet Travel Will Become Affordable.
JetEight
Published by: JetEight
Date: November 2016
Artwork kindly released by Embraer Executive Aircraft, Inc. All rights reserved
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Executive summary
After the introduction of the low-cost model the
entire airline market has ended up in stagnation.
There is an increased focus on cost efficiency and
less on differentiation. Today full-service network
carriers are competing head-on with low-cost
carriers instead of moving upmarket.
This development is leaving the high-market
business class traveler underserved while increasing
the gap between commercial travel and private jet
ownership.
New entrants with disruptive ideas will jump on this
opportunity. Innovative airline business models will
arise on hyper-local scale aiming to make private air
travel affordable for the business class traveler of
today.
Changed revenue models, partnerships, and cost
structures will make the private jet experience and
benefits affordable for a new audience that is
incentivized by the fact that time is becoming more
valuable and inspired by the sharing economy.
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Contents
Introduction
4
Air travel has become slow
5
The alternatives are expensive
6
A call for new airline business models
7
The all-business-class as a solution
8
Speed is not the only advantage
9
Conclusion
10
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Introduction
In 2010 the International Air Transport Association stated that the airline industry is
experiencing a steady and structural shift of business travelers from premium to
economy seats on the within-Europe market. This trend caused carriers to start
transforming their business class into an economy style offer. At the same time the
business aviation market with its luxurious jets and seamless processes is not
getting disrupted leading to a group of high-market business class travelers to fall
between two stools.
On the one hand, the frequent business traveler will have the choice for an
economy-style offer with the inefficient processes and hassle of today’s large
airports. And on the other hand, there is the choice for the fast alternative of
business aviation which has not become significantly more affordable in recent
years. This raises the question whether the European premium class will disappear
and leave the high-market business traveler underserved, or will new alternatives
pop-up?
Looking at the future of short-haul business class travel this paper uses empirical
research to indicate that a new airline model will arise serving the needs of the
current business class. The trends outlined in this paper will inform the business
traveler about the future of short-haul business-class travel and the new
alternatives that are going to fulfill his or her needs better than the current
services.
4
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Air travel has become slow
Becoming more efficient and cutting
cost is a key cornerstone for many
airline executives. What many might
not realize is that this does not leave
any negative side effects untouched.
The Economist Intelligence Unit writes
in “The Future of Air Travel” that the
unintended consequences of a
continuous cost-cutting process have
included a reduced focus on issues
that passengers care about, and that
these issues lead to great concerns
when left unaddressed. Airlines are
facing declining brand loyalty as we
can all see that it has become really
hard to truly notice the difference
among carriers. Therefore it is even
more important to differentiate on
these unaddressed issues.
One of the traveler’s major pain
points is the airport experience. When
a giant IT solutions provider asked
customers what part in the air travel
journey they would most like to see
improved, 78% of the respondents
had a preference to spend less time in
the airport [Exhibit 1]. With new
technologies and better usage of data,
aviation parties will and are improving
the travel process, but with only
incremental steps. To make significant
progress a different process is
necessary. For the traveler that truly
cares about speed and super-efficient
processes, there is no choice but to
switch to business aviation.
Preferred improvements in air travel experience
53%
Less time in airport
25%
17%
More enjoyable experience in-flight
38%
36%
20%
Improved on-time performance
37%
37%
21%
Improved baggage handling
36%
Streamlined search and booking
systems that operate industrywide
32%
32%
0%
20%
23%
36%
40%
Very strong preference
Moderate preference
Very weak preference
23%
60%
80%
100%
Somewhat strong preference
Somewhat weak preference
Don't know
Exhibit 1
Source: Sabre Airline Solutions. (2014). The Future of Air Travel. p 3
5
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The alternatives are expensive
Business aviation wins at the airport,
not in the air. By circumventing the
inefficient processes of major airports
one easily saves an hour per trip
[Exhibit 2]. A study by one of the
leading consultancies – Booz Allen
Hamilton – in collaboration with the
Deutsches Zentrum für Luft-und
Raumfahrt indicated that the average
time saved on European trips is even
over two hours. It is obvious that
bypassing long security lines, having
only a handful of people boarding the
aircraft, and utilizing small airport
terminals makes the experience
smoother. What might be less
obvious, is that the time saved could
be actually worth more than the
premium paid for this service.
Average jet charter rates per hour:
Gulfstream 550
Global Express/XRS
Falcon 7X
Falcon 900
Gulfstream IV
Challenger 604
Citation X
Hawker 800
Citation Excel/XLS
Learjet 60
Citation Mustang
$8,640
$8,045
$7,865
$6,075
$5,884
$5,053
$4,533
$3,582
$3,388
$3,347
$1,674
Source: Avinode Marketplace
On average travelers using business aviation save
47% per flight over commercial aviation
Comparison of door-to-door travel time
Average commercial travel time
The time saved
could be worth
more than the
premium paid for
business aviation
4.5 hours
Average business aviation travel time
2.5 hours
47%
Exhibit 2
Source: Booz, Allen, Hamilton. (2016). Economic of business aviation in Europe
6
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A call for new airline business models
Since the introduction of low-cost
carriers, incumbents first ignored their
potential and only after seeing their
success made the decision to go head
on. Instead of moving up-market, the
incumbents started copy-catting the
low-cost model with subsidiaries as
well as making their own business
more efficient. As they are unable to
create new value they are left with no
choice but increase profit margins by
cutting costs (HBR, 2016). Due to the
hybridization of full-service carriers
there will no longer be a clear line
dividing the two airline models. As
illustrated in Exhibit 3, the low-cost
model will move up-market whereas
the full-service carrier will move
down-market.
As a consequence, the gap between
the private aircraft and commercial
travel widens. This space is
represented by the high-market
business traveler offering an
opportunity for new business models
to target an underserved market.
There are already other airline models
out there as for instance NetJets with
its Marquis Jet Card pricing air travel
not per seat, but per flying hour.
Comparable revenue models could be
applied to the commercial airline
industry serving the business traveler
making the private jet experience
more affordable. Exhibit 3 illustrates
that the private aircraft sector will
likely experience the entrance of new
airline models as for instance the
private airline.
The private airline making fast travel affordable
Evolution of airline business models
2015
2025
Private Aircraft
High
Private Aircraft
Full Service Carrier
Private Airline
Relative
perceived
value
Full Service Carrier
Low-Cost Carrier
Low-Cost Carrier
Low
Actual
price-1
Service
No frills
Comfort
Speed
Actual
price-1
Service
No frills
Comfort
Speed
Exhibit 3
Source: JetEight corporate vision
7
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The all-business-class as a solution
The question arises how this
innovative model would look like.
Next to that it is important to identify
the market characteristics that the
concept needs to sustain. In this paper
we only zoom in on the first question.
It is likely the winning model contains
success factors from existing airlines.
To lower operational costs high
aircraft utilization is required, such as
Ryanair flying many legs per day per
aircraft. Next to copying elements that
were proven successful it would need
to implement new concepts as for
instance the earlier mentioned
revenue models. Moreover, it is
important that all the elements fit and
complement each other.
15 minutes
Next to the price, a key part of the
value proposition will be speed.
Smooth processes that will significant
reduce the time spend in airports are
crucial. The only way to accelerate the
process is to use private terminals and
small airports in order to avoid the
large airport hassles such as long
security lines and slow boarding
processes. Exhibit 4 illustrates the
time savings of not having to wait to
get checked or get boarded and deboarded with 100+ people at the
same time. We believe it reasonable
to expect that these new models will
save more than one hour per flight in
travel time, and at the same time be
comparable to current business class
prices.
15 minutes
60 minutes
15 minutes
Commercial air travel
Trip Time Saved
15 minutes 10 minutes
15 minutes
65 minutes
Business air travel
Exhibit 4
Adapted from Booz, Allen, Hamilton. (2016). Economic of business aviation in Europe
Save 65 minutes
per trip. How much
is one hour of your
time worth?
8
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Speed is not the only advantage
Executives who fly business aircraft
understand the benefits of time
savings. When the value-of-time is
quantified as several hundreds of
euros per hour then business aviation
starts making sense easily. But time is
not the only advantage. When 1,000
executives were asked why they
choose to use a business aircraft more
items topped the list [Exhibit 5].
Travelers tend to feel more safe and
secure as airport terminals that are
prime targets for terrorists are
avoided. Instead smaller airports or
private terminals are used. Another
benefit is the more comfortable flights
including fast boarding processes,
more legroom, luxurious seats, etc.
Not only on the ground but also in the
air business aircraft provide value-oftime benefits. Not because private jets
are faster than aircraft used by
commercial airlines, but due to the
fact that passengers are more
effective and productive. Exhibit 6
illustrates that executives use their
time aboard business aircraft more
effectively and productively than
when they fly on commercial airline
flights. They can easily bring a
customer aboard, or even fly with
multiple colleagues to discuss workrelated matter while travelling.
Interacting with each other is almost
impossible on commercial flights
where you are locked into your
narrow seat. Neither are commercial
aircraft designed to do that. But with
the comfort and space of the business
aircraft cabin this is no longer an issue.
Reason for using business aircraft
Security
29%
Privacy
37%
More comfortable light
44%
Save time
77%
Exhibit 5
Source: Business Jet Traveler’s Choice Survey, 2011.
The survey covered 1,000 executive.
Time spent aboard business aircraft
Commercial Aircraft
Work-related meetings
with customers
Business Aircraft
0%
6%
28%
Individual work-related
tasks
Work-related meetings
with company employees
30%
3%
36%
Exhibit 6
Source: Harris Interactive Survey, 2009
9
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Conclusion
In this paper we have looked at the question whether the European premium class
will disappear and leave the high-market business traveler underserved, or whether
new alternatives will arise?
We conclude that the incumbent airlines have made a clear move to pursuit
efficiency and cost-cutting measures, and are to a much lesser extent focused on
improving the quality of service. As incumbent full-service carriers are shifting
down-market, a group of underserved high-market business travelers remains. The
number one preference of this group is to spend less time traveling from door-todoor.
New alternatives will arise providing a faster travel experience. By alternating
current airline business models, new entrant will find ways to make the private jet
experience affordable for a new audience. These innovative players will start on a
local scale by implementing new pricing models, partnerships, as well as copying
success factors of current airlines, and only if found sustainable will start scaling up.
This development will put incumbent airlines under pressure to move upmarket
and improve their offer, or potentially force them out of business. In any case, the
travel experience for the business class traveler of today is likely to change for the
better.
10
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