How many times have you heard the word “lucrative” associated with international and/or business class flying? Yeah, me too. That was obviously the thinking behind upstarts like EOS (whose lie flat beds in their all-premium class 48-seat 757 aircraft are shown at right), SilverJet, and others. I can imagine how the discussions that led to those start-ups went: “Hey, airlines make all their money flying business passengers on overseas routes, so how about we start an airline where that is all we do! We’ll get all the lucrative customers and be a lucrative company!” Of course, there is a lot of truth to that, but can such up-starts get a positive return on investment before the inevitable competition squashes those “lucrative” margins?

So, why, exactly, is it that international business class flying is so much more lucrative than “normal” flying? I see two predominant factors at play: restrictive bilateral agreements and “soft” competition on international routes. Typical bilateral agreements between nations put a cap on the number of flights between two sovereigns and the respective governments are typically responsible for awarding routes to airlines. These were effectively government sponsored monopolies on routes. Additionally, I believe competition has been relatively soft on these routes because the major carriers are better at not triggering price wars, which is a lot easier to avoid when you don’t have LCC’s flying the same routes.

The business landscape on this lucrative flying is changing very quickly and the factors that allowed for abnormal profitability are waning. The EU-US Open Skies agreement obviously opens up the trans-Atlantic flying to new market entrants and therefore increased competition. Market entry by the all premium class international carriers such as EOS, SilverJet, L’Avion, and MaxJet (which has already gone out of business) simply prompted the carriers whose business these new entrants intended to steal to react with similar offerings. British Airways (flying an A318 to where?!?!) and American Airlines have responded with increased amenities and offerings for the premium international traveler on trans-Atlantic routes, and Singapore International Airlines has just announced that they intend to the same on the trans-Pacific front. Add to that the desire of Low Cost Carriers to enter the fray, the prime example being Ryan Air’s stated intention of offering bargain fares to cross the pond.

Expect abnormal profitability from international routes and business/premium class customers to be competed away (think “reversion to the mean”, for you statistics-minded people out there). In the end, “lucrative” is great if you are in business, but “sustainable” is probably better. Mark my words, competition for international and business travelers will get vicious, first on the EU-US routes followed next by US-Asia routes. Airlines that are relying on this business to subsidize other pieces of their enterprise need to get in front of this and expect a reversion to normal levels of profit from this component of your business (it’s scary to think what “normal levels of profit” means in the airline industry). It won’t happen over night, but expect it to happen.