Long wait to join the club class

HAMISH Taylor made his name introducing flat beds into British Airways. Back then the concept of sleeping horizontally while flying 35,000 feet above the Atlantic was not only seen as radical, it catapulted the airline into a whole new league.

Ten years on, from his base on the north side of Edinburgh, Taylor is again attempting to blow away the competition. For the past two years he has been busy raising money for a business class-only airline, Fly First, that will operate a 48-seat aircraft between London Luton and Newark, near New York. The idea is simple: because the economy passengers - paying loss-leading low fares - are absent, the traveller pays less for the privilege of lying back in business class. There is only one snag: this time Taylor has been beaten to it.

Since he first mooted the idea in 2005 the skies have filled up with competitors. With the low cost sector reaching saturation, analysts now say that the next battleground will be the battle for the big spenders.

Last month Maxjet, one of three airlines that now shuttles well-heeled passengers across the Atlantic, announced it will float on the Alternative Investment Market. This follows last year's flotation of Silverjet, an airline that flies 100 business class travellers, on the very route Taylor wants to crack: Luton to Newark. Meanwhile Willie Walsh, the chief executive of British Airways, has also said he is considering all-business class flights between the United States and continental Europe.

Taylor is in the final stages of fund raising. A document, seen by Scotland on Sunday, says the company is planning an autumn launch. Privately, Taylor admits an announcement in 2008 is more likely.

But many are now asking whether Taylor has left it too late. Can Fly First muscle in on a market that some analysts say already appears overcrowded? Tiny new airlines face massive hurdles to survive, having to compete against the frequent-flyer programmes and other perks offered by the major carriers. How will Taylor make Scotland's first business class airline pay?

"Of course we are disappointed that other people beat us to it because we were in the market first," he admits. "But at the same time there is a lot we can learn from those already operating. It is not always a bad thing to be second."

One clue lies in Silverjet's business plan. Last year its founder and chief executive Lawrence Hunt raised more than £25m in a public offering on the London Stock Exchange. He combined it with money from venture capitalists, and bought the operating licence of an existing airline. The start-up has been costly - he recently raised an additional £25m in a second offering - but speaking from his office in Manhattan he says the potential is enormous.

"Inevitably, we are going to see more growth in business class airlines. There are 4.2 million people a year that fly between London and New York. For us to make a 20% operating profit we only need to sell 50,000 seats of those 4.2 million, in other words just over 1%, so there is plenty of room. But it is a question of whether you can get that price advantage and also radically change that customer experience."

It is a view echoed by Jim Smith, editor of Jane's Transport Finance. "There's going to be massive growth in this sector," he says. "When you look at the price of a business class-only airline seat to New York compared with a business seat on a major carrier you are not paying an awful lot more for something that is infinitely better.

"It used to be that you put on a suit, you put on a tie to travel; now it's no longer a glamour form of travel and business customers are sick and tired of being treated like cattle. If you have a few extra pounds in your pocket then you will go for it. I see a big market for these business-only flights."

Business class-only airlines are not new. Lufthansa, Swiss, KLM, Alitalia and others have flown smaller aircraft for that purpose on trade routes such as Stuttgart to Detroit. What's new is the hunger for private investors into the transatlantic market. Along with Silverjet, Eos and Maxjet, in January L'Avion began a service between Paris and New York.

Now is the time to do it, with passenger numbers approaching pre-9/11 levels. The boom in part has been financed by London's expanding reputation as a world financial centre and its location between the US and emerging economies in Russia, India and the Middle East.

Analysts estimate that the three business class carriers, Eos, Silverjet and Maxjet, may have as much as 20% of the premium traffic on the £885m New York to London route, known as NYLON, which because of the premium rates could be worth 70% of the available revenue.

By being forced to delay his entrance to the market, Taylor will be able to react to the "open skies" agreement between the US and the EU. This is good for new entrants as it opens up the possibility of exploiting new routes across Europe.

Maxjet is looking to shift its base from Virginia to Stansted as it plans to use the airport as a hub, not only for transatlantic flights but also for services to Asia and South Africa. It has already added Las Vegas and Los Angeles to its US destinations.

Silverjet meanwhile is planning to add another Boeing 767 in July and one in November. Although nothing has been announced, Hunt says that it is looking to expand with new routes from the UK to India, South Africa, China and LA.

Eos's expansion plans will see it run services out of Paris next year as well as adding other American destinations, including Boston and Washington.

"The market seems to be growing but nobody knows how large it will be," says David Wragg, aviation expert and author of The World's Major Airlines. "But it is getting more difficult and some would say Taylor has left it late. The key will be whether he can find new routes that nobody else is on and get settled onto that. All the carriers in Europe focus on New York but there are other places in the States such as San Francisco, Los Angeles, Houston and Dallas that all have good business class passenger traffic."

Taylor also has to find room in a market that is already showing early signs of maturing, with two models emerging: the business class and premium economy type model offered by the likes of Maxjet and Silverjet; and then Eos which is aimed at the private jet, first class market.

Silverjet charges a round-trip fare of $1,600 (£800) to $2,300 (£1,150), plus taxes and fees, while Maxjet is slightly cheaper. Eos flights start at around £1,100.

One analyst said: "The next problem will be when the major carriers have to start dropping their fares to compete. First and business is where most of them make their money so it will drive yields down."

But Taylor is convinced he can make Fly First work. "The reason we haven't given up is because we believe there is a genuine business case and a really good customer model here. There is no doubt it is a hassle flying business class these days."