Thursday, October 20, 2016

Thanks to Brexit Vote, This Entrepreneur Is Taking His Upstart Airline Business Elsewhere

 (La Compagnie)

The low-fare business class airline La Compagnie isn't sticking around to see how renegotiated trade deals will affect his company.

You can say this for airline entrepreneur Franz Yvelin: At least he had a nice ride out of town when he decided that his company had to make its own Brexit.

Yvelin is the founder of La Compagnie, a low-fare, all business class airline that last year added a New York-London route to its existing New York-Paris pairing. But the Brexit vote left Yvelin and many other entrepreneurs who do business in the U.K. and the E.U. with a perilous choice: Do I stay or do I go? Yvelin got on his 757 and left.

He didn't think he had a choice. Brexit means that every trade agreement now has to be renegotiated, and that includes airlines. The U.K. will no longer be a member of the European Common Aviation Area (ECAA) and its E.U. rights under Open Skies agreements, which include the New York-London route, would also lapse.

"Who would have bet one cent on Brexit?" he says. Yvelin didn't want to be left holding the bag if a new aviation agreement materializes in two years that doesn't have room for carriers like La Compagnie.

The highly regulated airline business is a particularly difficult negotiation, with access to a limited number of airports and gates up for grabs. At the same time, the drop in the value of the pound against the Euro since the Brexit vote has bumped La Compagnie's operating costs. It's one reason that Ireland, a Euro member, is licking its chops at the prospects of luring businesses to the Emerald Isle.

Brexit isn't a risk only to smaller carriers such as La Compagnie. The big discount airline easyJet has seen its stock hammered some 40 percent by the uncertainty over Brexit; British Airlines' parent company International Consolidated Airline Group, has also taken a big hit while Ryanaire just issued a profit warning.

"People were asking and asking and asking and asking," says Yvelin. "Facing the difficulty of projecting, do we still want to keep investing millions over the next two years for something we're not sure about?" he asks. Answer: No.

Yvelin is a bit of an airline renegade. La Compagnie is his second business-class startup, having sold his first, L'Avion (subsequently renamed Open Skies) to British Airways. The premise of La Compagnie is both dramatic and simple: a flat bed, business-class airline seat for about 50 percent of what the major airlines charge. It's not that LaCompagnie skimps on anything, it's just that the price premium for flying business class is massive.

For the majors, business class represents 15 percent of the seats and 50 percent of the revenue. LaCompagnie has made a living on the New York-Paris route by profitably underpricing the big airlines. "There is nothing they can do about it," says Yvelin. They can, actually, but major carriers aren't crazy enough to sacrifice profits to a price war in business class. At least not now.

La Compagnie was well on its way to establishing the same pattern for passengers traveling to London from the U.S. when Brexit hit. This market has been a graveyard for a number of other business-class-only airlines in the past. And La Compagnie got off to a slow start. So the British press reacted skeptically, with one newspaper questioning whether Yvelin simply made a bad choice in operating out of Luton airport, or that the company's marketing wasn't sufficient, or that it had the wrong aircraft.

Yvelin's answer? Why would he want to leave when he's running at 78 percent load factor and gaining altitude? He hopes to return when the Brexit mess gets sorted out. "It's a suspension of a service, not a termination," he says.

London's loss is Paris's gain. La Compagnie has now added more flights to Paris from New York (Newark), with a promotional fare of $1,400 round trip. That compares with $7,042 in business class on Air France for the same service. "Tell your friends," Yvelin told me. "Although, not too many."

(Bill Saporito - Inc.)

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