THE NyLon ROUTE IN A KNOT
By Joe Brancatelli
March 3, 2010 -- Big airlines have their nylons in a knot about the state of the New York-London route. One of four customers has disappeared in recent years, the fares that remaining flyers pay have plummeted, and competition on the so-called NyLon run has become a fight-to-the-last-customer battle for the five major American and British combatants.
If all that sounds like run-of-the-mill stuff in today's shriveled aviation world, think again. NyLon is different. It's not only one of the most prestigious routes in the world, it has traditionally been one of the most profitable. Gail Grimmett, Delta Air Lines' senior vice president for New York, says NyLon accounts for 35 percent of the industry's entire transatlantic revenue. And British Airways' says its flights between New York's Kennedy Airport and London's Heathrow Airport generate three times more revenue than Los Angeles-Heathrow, its second-most-important U.S. route.
"It's massively important," says Chris Rossi, senior vice president for North America at Virgin Atlantic Airways. "Brutally competitive," adds Jim Carter, an American Airlines vice president. "If you don't fly into Heathrow, people tend to forget you're in Europe," concludes Jim Compton, the executive vice president and chief marketing officer of Continental Airlines.
The rise, fall, collapse, and tentative rebirth of the New York-London run in recent years is fascinating, even for business travelers who tend to be innocent bystanders to the airline machinations on the route.
NyLon boomed in the middle of the last decade when banks, brokerages, and investment houses maniacally shuffled bodies back and forth between the two preeminent English-language financial centers. By 2007, three specialty airlines (EOS, Maxjet, and Silverjet) had launched offering only business-class flights between New York and London. In December 2007, according to Britain's Civil Aviation Authority, 386,417 people shuttled between Kennedy Airport and Newark and four London airports: old standbys Heathrow and Gatwick and newer entries Stansted and Luton.
But skyrocketing oil prices in late 2007 and early 2008 quickly extinguished the all-business-class NyLon specialists, thus eliminating the flights to Stansted and Luton. An "open skies" agreement between the United States and Britain went into effect in the spring of 2008, and that led carriers to consolidate their London flights at Heathrow and abandon Gatwick. Then Bear Sterns and Lehman Brothers tanked in the summer of 2008, and NyLon came tumbling down. With fewer bankers to carry back and forth across the Atlantic, traffic plunged, especially in the profitable premium classes. Those flyers who continued to travel demanded (and received) huge price concessions. By December 2009, just 294,112 travelers flew between New York and London, an astonishing 24 percent decline in just 24 months.
British Airways, which traditionally commands about 40 percent of the NyLon market, reacted most dramatically. It slashed Kennedy-Heathrow capacity by 23 percent, trimming a few flights and deploying smaller aircraft with fewer seats on its remaining frequencies. Virgin Atlantic cut almost as much, slashing 19 percent of its capacity compared to 2008. American Airlines dropped flights to Stansted and temporarily dropped one of its flights between Kennedy and Heathrow.
But from the always-darkest-before-the-dawn department, NyLon is showing signs of life now that the banking industry seems to have stabilized.
Last fall, for instance, British Airways launched two daily all-business-class flights to London City Airport from Kennedy. London City is small and intimate compared to BA's hulking Terminal 5 at Heathrow, and it is just a few miles from Canary Wharf, where much of London's financial community has migrated. And with only 32 business-class seats per flight to fill, BA can use the London City route to keep its NyLon service nearly hourly during the business day without flying too much capacity.
Later this year Continental Airlines, which flies to Heathrow from its massive hub across the Hudson River in Newark, is adding two more flights to its schedule. That will bring its NyLon service to five flights a day, a crucial number in a market that expects all-day service.
"Part of our plan to be successful in New York requires us to be in London with lots of frequency," says Continental’s Compton. "London is crucial to our worldwide network, and you can't do a market like London without [a lot of] flights."
Grimmett of Delta also points to London's transatlantic primacy as the reason her carrier has hung in with its two daily flights from its large Kennedy hub. "There's a halo effect from New York-London service," she says. "As you work through your corporate contracts, having New York-Heathrow makes you better able to compete for all of a company's business. If we could fly more to Heathrow, we would. We're always looking to acquire [takeoff and landing] slots at Heathrow."
For his part, Rossi at Virgin Atlantic thinks the NyLon market "bottomed out last July and August. We're seeing an upturn. It's not off to the races, but it's better than it was."
In the long run, the question airlines have about NyLon remains their ability to once again charge bankers and other travelers a premium in the premium classes. Full-fare walk-up prices in business class between New York and London are often double the posted fare for flights to other European destinations. But because there are still so many seats available between New York and London, discounting is rampant, especially in the premium classes.
Jonathan Weiner, a senior vice president at British Airways' Americas division, admits NyLon "has a long way to go to get back where we were two years ago." In fact, BA's yield in its premium-class cabins was down 10 percent in the last 12 months, nothing to sneeze at when you consider this statistic: Just in U.S.-generated sales, BA produces more than 50 million pounds of revenue annually from travelers sitting in its business-class cabin between New York and Heathrow. And that number only includes flyers beginning their travel at Kennedy Airport and ending it in Heathrow, the so-called O&D (origin and destination) traffic that is a subset of BA's total market on the route.
"We could be looking at a permanent reset in [NyLon] pricing," says Carter of American. "It's just too early in the recovery to tell."
The Fine Print…
Another factor complicating the NyLon situation: It is the linchpin in the debate over whether British Airways and American Airlines receive antitrust immunity for its Oneworld Alliance. The carriers' competitors in the Star and SkyTeam alliances already have ATI, but British and American's efforts have already floundered twice in the last decade. The U.S. Department of Transportation last month tentatively approved a BA-AA tie-up contingent upon their surrendering several takeoff and landing slots in the New York-London market. European regulators have yet to rule.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
THE FINE PRINT This column is Copyright © 2010 American City Business Journals. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright © 2010 by Joe Brancatelli. All rights reserved.