Odyssey Airlines sees a gap in transatlantic business market

4 June 2014


(Reuters) - Odyssey Airlines will not be the first new airline to have attempted to break into the lucrative London-New York business travel market, one of the most profitable routes in the world, but this time it will be different, says its founder.

There is a graveyard of carriers who have failed to make the concept work. In 2008 Silverjet became the third business class-only transatlantic airline to go out of business, a month after U.S. rival Eos stopped flying and less than five months after the failure of MAXjet as the financial crisis worsened.

"They were flying the wrong aircraft to the wrong airports," Odyssey's founder and chief executive Adam Scott told Reuters in an interview.

Odyssey, which will not begin flying until 2016, is in the proceeds of trying to raise an initial 5 million pounds ($8 million) through crowdfunding websites, with a view to seeking a further $100 million of financing in the first half of 2015.

But Scott said the company is already in talks with several institutions ahead of next year's fundraising and is finding a supportive investor base.

"They understand it, they're users. They say, 'oh wow', I'd fly that," he said.

Odyssey is counting on Bombardier Inc's brand new CSeries passenger jet being the right aircraft to make its transatlantic plan work, as a more cost efficient rival to Airbus and Boeing's smallest current single-aisle airliners.

It has 10 of the planes on order for first delivery in 2016, a year after the first CSeries plane is due to go into service if the testing programme goes to plan, despite an "engine-related incident" which left the test aircraft grounded this week.

The $100 million funding target is to finance the cost of launching the business and assumes that Odyssey will be able to separately finance the actual aircraft, which have a list price of about $63 million apiece, through external long-term financing arrangements, about which it is currently in talks.

Importantly the CSeries enables Odyssey to fly out of London City airport, situated next to the Canary Wharf financial district and seven miles east of the City financial district in central London.

While British Airways already operates a twice daily business class-only flight from London City to New York, the aircraft it uses, a modified version of the Airbus A318, has to make a stop in Ireland for the outgoing flight to top up on fuel. It is the biggest currently available aircraft certified to use City's short runway.

Scott, a former banker at Goldman Sachs who was involved in developing the idea of using the A318 to fly across 'the Pond', said only that Odyssey's flights would be "competitively priced".

BA currently charges over 2,300 pounds ($3,800) for a return flight from London City, according to published fares while business-class seats on flights from London Heathrow are also priced at over 2,000 pounds ($3,300) return, making the route one of the most profitable for the airlines which dominate it - BA, joint venture partner American Airlines Group, United Airlines (UAL.N) and Virgin Atlantic [VA.UL] and its partner Delta Air Lines.

Unable to fly from Heathrow, which is already congested and expensive to operate from, the business-only airlines which tried to break into the market seven years ago chose to fly from two airports situated some 30 miles to the north of the city.

Eos and MAXjet both operated out of London Stansted, with Eos flying Boeing 757-200s and MAXjet using 767-200s, while Silverjet flew 767s from London Luton.

Odyssey's CSeries planes will each have 40 lie-flat seats, more than the 32 which BA's A318s have but fewer than the 48 that Eos and the 100 to 102 seats that Silverjet and MAXjet had on their larger, less fuel efficient planes six years ago.

Scott believes that timing is also on Odyssey's side given the economic recovery.

The demise of Eos, MAXjet and Silverjet was blamed on the financial crisis and sky-rocketing fuel prices, and stiff competition between the three also played a part.

UK-based aviation consultant James Halstead believes that London is one of the fewmarkets where a premium only service can work.

"The Atlantic (market) has consolidated quite considerably in the last five years. There's an opening for a new carrier in that sort of space," he said, adding that the use of smaller aircraft showed Odyssey had learnt from the failures of the past.

Odyssey also said it is aiming to pull in business travellers whose companies do not have corporate travel contracts which oblige them to travel on the incumbent operators.

"We're not looking for market share, we're picking off the top," said David Tait, an industrymarketing expert who recently joined the Odyssey team, having been until 2002 the head of Virgin Atlantic's U.S. operations.