New Airline Tries Subscription Business Model

The notoriously unprofitable airline industry keeps attracting new entrants. They often start out offering low fares on a few under-served routes with newer, more efficient planes and a less costly younger work force. But then the existing competitors drop their fares on those routes to drive them out of business and they fold.

Not all new entrants have a low-fare strategy, of course, but some of the other strategies have not worked either.

Enter Surf Air with a monthly subscription business model. Surf will have “members,” not customers, who will pay $1,000/month for unlimited flights between California hubs such as Silicon Valley and Los Angeles. No extra fees will be charged for the one checked bag, the one carry-on bag, seat assignments, check-in, bathrooms (OK, I’m kidding on this one; Ryanair has not started charging for lavatories yet). No extra fees at all. The airline is acquiring 8 seat planes with luxury accoutrements and will fly out of smaller airports near the hubs, thus speeding up the boarding and exiting processes for passengers. Surf Air plans to get off the ground late in 2012.

Surf Air has found an attractive niche, according to the airline’s claim to have a wait list for the first 500 subscriptions. The obvious target is the frequent business traveler who cannot afford his or her own jet or jet share, but wants to travel comfortably at a fixed cost. For more information on Surf Air, visit www.surfair.com.

Surf Air’s biggest problem is that it is targeting the business traveler coveted by the existing airlines which desperately need the revenue from these repeat customers. So what could their reaction be to this start-up?

1. No competitive response: They could believe that Surf Air is too small to worry about

2. Traditional competitive response: Lower fares for everyone on Surf Air’s initial 4 routes until the company folds

3. React with similar offer: Offer a subscription model or multi-flight package similar to Surf Air’s service on the same routes. Learn from Surf Air what works

4. Pro-actively offer a superior package: Offer a subscription model or multi-flight package on a significantly larger number of destinations to pre-empt people from signing up with Surf Air

My guess is we will see responses 2 or 3; competitive responses tailored to drive Surf Air out of business without changing the airlines’ fundamental business model of selling seats and charging multiple fees.

What do you think?