Clouds gather over OpenSkies

October 14, 2011, 7:01 PM UTC
Fortune



The promise of OpenSkies may be fading. The all business class carrier recently announced it would be halting service on one of its only two available routes — Washington Dulles to Paris Orly — later this month. The move is just the latest in a series of defeats that have plagued the all business class industry over the past few years. Rival airlines Eos, Maxjet and L’Avion either folded or merged, leaving OpenSkies the only remaining player in the market. Now, a difficult business climate threatens the brand.

OpenSkies has been operating since 2008. The British Airways subsidiary offers boutique business class service from the United States to Paris on Boeing 757 aircraft. With a smaller footprint than the traditional transatlantic aircraft and fewer overall seats, the selling point of OpenSkies is that it offers a personal and luxurious service. By flying a smaller aircraft into secondary airports, the airline saves money on fuel and landing costs and passes that savings onto business class passengers. As a result, travelers can often pay 30% to 40% less for a business class ticket to Paris than on a traditional carrier.

All told, though, the all business class carrier business has been a rough one form the start. In the early-1980s, Midway Airlines recast itself as Midway Metrolink, a posh all business offering. It was also a spectacular failure, leading to the ouster of many of the firms’ top executives. Two years later, the concept was abandoned completely. That was just the first in a long line of failed attempts at the concept carrying on into this decade.

Fast forward to this fall. The extended recession, consistent low demand and high oil prices have made profitable operation particularly difficult for the young OpenSkies. What else it can do to reduce costs isn’t clear. “The current unstable economy doesn’t bode well for business class. While economic conditions may be better than they were a couple of years ago, companies maintain tight controls on travel costs, and many have eliminated business class travel even between the US and Europe,” says Henry Harteveldt, co-founder of Atmosphere Research Group. “OpenSkies has always provided good value for money paid, but they’re up against all three major alliances between the New York metro area. Those airlines and alliances will compete vigorously on price.”

Indeed, OpenSkies has recently been offering unprecedented discounts on last-minute inventory from Washington departures. Last weekend, the airline offered last-minute $750 business class tickets between Washington Dulles and Paris from Friday to Monday, while this weekend the fares are similarly low. By contrast, a similar ticket on United Airlines (UAL) is almost $8,900. Reached for comment, a spokesperson from OpenSkies said, “The main reason for the fare sale was to still be able to earn some revenue on the route due to the announcement of the suspension coming out on Sep 30. It was the company’s belief that bookings would considerably diminish after the announcement. It was also put in place to give those loyal customers one last chance to fly OpenSkies at a great price.”

With excess inventory still available, the airlines is thus cashing in the last few available seats to help support the remaining route from New York (Newark, New Jersey) to Paris. It may indeed be a great way to raise a bit of last-minute capital and loyalty on a quickly-fading route. But it’s also a dire backdrop to what was once British Airways’ crown jewel.